Citizenship of an MLP Consists of Its Unitholders' Citizenship for Diversity Purposes: Tenth Circuit | Practical Law

Citizenship of an MLP Consists of Its Unitholders' Citizenship for Diversity Purposes: Tenth Circuit | Practical Law

In Grynberg v. Kinder Morgan Energy Partners, L.P., the US Court of Appeals for the Tenth Circuit held, as a matter of first impression, that the citizenship of a master limited partnership (MLP) consists of its unitholders' citizenship for purposes of diversity jurisdiction.

Citizenship of an MLP Consists of Its Unitholders' Citizenship for Diversity Purposes: Tenth Circuit

by Practical Law Litigation
Published on 03 Nov 2015 • USA (National/Federal)
In Grynberg v. Kinder Morgan Energy Partners, L.P., the US Court of Appeals for the Tenth Circuit held, as a matter of first impression, that the citizenship of a master limited partnership (MLP) consists of its unitholders' citizenship for purposes of diversity jurisdiction.
On November 2, 2015, the US Court of Appeals for the Tenth Circuit held in Grynberg v. Kinder Morgan Energy Partners, L.P. that the citizenship of an MLP consists of its unitholders' citizenship for purposes of diversity jurisdiction ( (10th Cir. Nov. 2, 2015)).
The Grynbergs petitioned the US District Court for the District of Colorado to vacate an arbitration award entered against them in favor of Kinder Morgan Energy Partners, L.P. (KMEP), a Delaware MLP, and its affiliate. The Grynbergs' petition alleged the district court had diversity jurisdiction because the Grynbergs were citizens of Colorado, KMEP was a Delaware limited partnership with its principal place of business in Texas, and the amount in controversy exceeded $75,000.
The district court dismissed the action without prejudice, holding that under Carden v. Arkoma Associates, the citizenship of an MLP is the citizenship of all of its unitholders (494 U.S. 185, 195 (1990)). Because the Grynbergs were citizens of Colorado and at least one of KMEP's unitholders was a citizen of Colorado, the court determined that it lacked jurisdiction.
The Tenth Circuit affirmed the district court's ruling for three reasons:
  • An unincorporated entity like KMEP is not a citizen of its state of incorporation and the state in which its principal place of business is located. Instead, under the longstanding rule of Chapman v. Barney, KMEP's citizenship is determined by its members' citizenship (129 U.S. 677 (1889)). The court noted that although an MLP is publicly traded like a corporation, it:
    • has general partners who manage the MLP's affairs;
    • has limited partners who provide capital; and
    • is classified as a partnership for federal tax purposes.
  • The one exception to the Chapman rule, relating to an entity that exists solely under Puerto Rican law, is inapplicable and should not be extended to an MLP.
  • Policy decisions regarding how the citizenship of an MLP should be determined are properly addressed by Congress, not by the courts.