For Diversity Jurisdiction, Traditional Trust's Citizenship is Determined by Trustees' Citizenship: DC Circuit | Practical Law

For Diversity Jurisdiction, Traditional Trust's Citizenship is Determined by Trustees' Citizenship: DC Circuit | Practical Law

The US Court of Appeals for the DC Circuit, in Yueh-Lan Wang v. New Mighty U.S. Trust, et al., held that when a traditional trust is sued in its name, it takes the citizenship of each of its trustees for purposes of diversity jurisdiction.

For Diversity Jurisdiction, Traditional Trust's Citizenship is Determined by Trustees' Citizenship: DC Circuit

by Practical Law Litigation
Published on 13 Dec 2016 • USA (National/Federal)
The US Court of Appeals for the DC Circuit, in Yueh-Lan Wang v. New Mighty U.S. Trust, et al., held that when a traditional trust is sued in its name, it takes the citizenship of each of its trustees for purposes of diversity jurisdiction.
On December 9, 2016, the US Court of Appeals for the DC Circuit, in Yueh-Lan Wang v. New Mighty U.S. Trust, et al., held that when a traditional trust is sued in its name, it takes the citizenship of each of its trustees for purposes of diversity jurisdiction ( (D.C. Cir. Dec. 9, 2016)).
The plaintiff, Winston Wen-Young Wong, brought suit in federal district court on behalf of his mother, Yueh-Lan Wang, a citizen of Taiwan. The plaintiff sought to recover his mother's share of the marital estate after her late husband attempted to reduce her share by transferring a substantial amount of assets into The New Mighty U.S. Trust (New Mighty).
The named defendants included:
  • New Mighty, a trust formed under the laws of the District of Columbia, with several beneficiaries, including entities that were citizens of the British Virgin Islands.
  • Clearbridge LLC, New Mighty's trustee, a citizen of Virginia and the District of Columbia.
  • The New Mighty Foundation, New Mighty's beneficiary, a citizen of Delaware and the District of Columbia.
The defendants filed a motion to dismiss for lack of diversity jurisdiction under 1332(a)(2). The district court granted the motion, reasoning that since New Mighty was a traditional trust, it was an artificial entity that takes the citizenship of each of its members. Because New Mighty had members in the British Virgin Islands and the plaintiff was Taiwanese, both parties were aliens and complete diversity did not exist. The plaintiff appealed.
The DC Circuit reversed, holding that:
  • When a trust itself sues or is sued, the court must determine whether it is a traditional trust or is more like a business entity by looking at the law of the state where the trust was formed.
  • When the applicable state law gives a trust juridical person status, then the trust is treated like a business entity, which takes the citizenship of each of its members.
  • When the applicable state law does not give a trust juridical person status, then it is a traditional trust, which takes the citizenship of each of its trustees.
The court held that under DC law, New Mighty was a donative trust that lacked juridical person status, making it a traditional trust. Since New Mighty was a traditional trust, it had the citizenship of its trustee, Clearbridge LLC, making it a citizen of Virginia and the District of Columbia. Therefore, complete diversity jurisdiction existed. The court reversed the district court and remanded the case for further proceedings.