For all federal diversity jurisdiction cases, a corporation is statutorily defined as a citizen of the state in which it is incorporated and where it has its principal place of business (28 U.S.C. § 1332(c)(1) (note certain exceptions for insurers)). In 2010, the US Supreme Court clarified that a corporation's principal place of business is the one location where high level officers direct, control and coordinate business activities (Hertz Corp. v. Friend, 559 U.S. 77, 80, 92-93 (2010)). This is usually the business headquarters and is "metaphorically" labeled the "nerve center" (Hertz Corp., 559 U.S. at 80-81; and see Article, "Principal Place of Business" Clarified for Diversity Cases).

In 2005, Congress enacted CAFA, which changed the federal diversity jurisdiction requirements for most class actions (see 28 U.S.C. § 1332(d)). For a comparison between CAFA's rules and the traditional diversity rules, see CAFA Jurisdiction Comparison Chart.

For cases falling within CAFA's scope, the citizenship of "unincorporated associations" statutorily is brought in line with that of corporations. Under CAFA, an unincorporated association is a citizen of the state where it has its principal place of business and under whose laws it is organized (28 U.S.C. § 1332(d)(10); see, for example, Ferrell v. Express Check Advance of SC LLC, 591 F.3d 698 (4th Cir. 2010)). The Supreme Court's definition of principal place of business also has been extended to cases covered by CAFA (see, for example, Heckemeyer v. NRT Mo., LLC, 12-cv-01532, , at *6 (E.D. Mo. May 22, 2013)).

Although CAFA does not define an unincorporated association, the term has been found to include any business entity that is not a corporation (see Ferrell, 591 F.3d at 705 and Bond v. Veolia Water Indianapolis, LLC., 571 F. Supp. 2d 905, 910 (S.D. Ind. 2008)).

In Castillo Grand, LLC v. Sheraton Operating Corp., the plaintiff was a Florida LLC with its principal place of business in Florida, and the defendant was a Delaware corporation with its principal place of business in New York ( (2d Cir. June 18, 2013)). However, the plaintiff conceded that one of its constituent members was a New York citizen, destroying federal diversity jurisdiction. Although the plaintiff did not oppose the defendant's motion to dismiss, the plaintiff indicated that it would cure the defect by dropping the dispensable non-diverse constituent. After the action was dismissed without prejudice, the plaintiff dropped the non-diverse member of its company and commenced a new action, alleging nearly identical substantive claims.

Among other things, the US Court of Appeals for the Second Circuit examined whether the plaintiff's action violated 28 U.S.C. § 1359, which bars a federal court from exercising jurisdiction of an action in which "any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court." The court found that dropping a dispensable non-diverse party did not fall within the proscribed actions, even if the plaintiff did so to create diversity jurisdiction. And because the newly-constituted plaintiff commenced a new action, it did not run afoul of Supreme Court precedent in Grupo Dataflux v. Atlas Global Group, L.P. (541 U.S. 567 (2004)). There, the US Supreme Court held that a jurisdictional flaw at the time of filing cannot be remedied by a later "change in the citizenship of a continuing party" in the same action. However, the Court seemed to leave open the possibility that the reconstituted partnership could permissibly commence a new action after dropping is non-diverse partners. Without interpreting the precise contours of the Grupo Dataflux decision, the Second Circuit held that the plaintiff at least had a good faith basis for believing its actions were permissible. For this and other reasons, the court found the plaintiff had not acted in bad faith by knowingly violating 28 U.S.C. § 1359, and attorneys fees would not be awarded.

For a full examination of Castillo Grand, LLC, see Legal Update: Second Circuit: Attorney's Fees Not Authorized Costs under 28 U.S.C. § 1919.

In Lucier v. SmithKline Beecham Corp., the US Court of Appeals for the Third Circuit recently addressed the citizenship of the defendant, a large limited liability pharmaceutical company, that removed the case to federal court asserting diversity jurisdiction ( (3d Cir. June 7, 2013)). Before the lawsuit, the defendant had converted from a Pennsylvania corporation to a Delaware LLC for tax purposes. However, the company continued to maintain its major headquarters in Pennsylvania, the same state where one of the individual plaintiffs lived. Nonetheless, the Third Circuit affirmed the finding of diversity jurisdiction because, among other things, the LLC was not considered a citizen of Pennsylvania despite the large physical presence of its headquarters there. Instead, the Delaware citizenship of its sole corporate shareholder, a holding company with limited activity, was considered to support diversity jurisdiction. The Third Circuit reaffirmed that, "because [an unincorporated] entity is not recognized as a legal person, courts should look to the citizenship of the people or corporations who comprise it to determine if diversity jurisdiction exists. The principal place of business of an unincorporated entity is therefore irrelevant to determining its citizenship" (Lucier, , at *7).

Although the Supreme Court has acknowledged that looking to all of a non-corporate entity's members or partners may "validly be characterized as technical, precedent-bound, and unresponsive to policy considerations raised by the changing realities of business organization," it has held that the legislature must resolve the issue of defining citizenship (Carden, 494 U.S. at 196-97). In fact, the Court specifically left to Congress the task of "accommodating our diversity jurisdiction to the changing realities of commercial organization" (Carden, 494 U.S. at 196-97; see also Lucier, , at *8 ("[A]lthough the rise of new business structures may make the rigid divide between corporations and other entities appear outdated, the Supreme Court has explicitly left to Congress the task of [changing citizenship definitions]"). Congress has in fact done so, but only for corporations generally (28 U.S.C. § 1332(c)(1)) and unincorporated associations involved in cases falling with CAFA's scope (28 U.S.C. § 1332(d)(10)).