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Bench & Bar of Minnesota is the official publication of the Minnesota State Bar Association.

Alleging Diversity Jurisdiction: Pleading on Information & Belief

The uncertain citizenship of LLCs means counsel frequently must allege subject matter jurisdiction based on information and belief, an approach that meets with mixed success in the District of Minnesota.  In the interests of equity and efficiency, opposing parties should be required to respond to such allegations by confirming or denying their citizenship.

For more than 50 years, federal courts have questioned whether subject matter jurisdiction can be alleged on information and belief.1 This question has become even more important recently with the expanded use of limited liability entities (all of which are referred to here generically as LLCs), which are often deemed citizens of multiple states, yet whose ownership (and resulting citizenship) is rarely a matter of public record.

Pleading on information and belief intersects with questions of subject matter jurisdiction in ways that elicit differing responses from the courts, as evidenced by three recent decisions from the District of Minnesota, each of which addresses the information and belief issue in a different way.

An Overview

Federal Rule of Civil Procedure 11(b) expressly permits pleadings to be based an attorney’s “information and belief,” so long as that belief is “formed after an inquiry reasonable under the circumstances.”  Despite the plain language of Rule 11(b), the federal courts remain divided on the question of whether the threshold elements of the court’s subject matter jurisdiction can ever be alleged on information and belief.

Many federal courts have held that jurisdictional allegations cannot be made on information and belief.2  Other courts have accepted jurisdictional claims made on information and belief without question.3  A third approach allows subject matter jurisdiction to be alleged on information and belief, provided that the record includes “other indicia” that the court has jurisdiction, or where the opposing parties do not dispute the jurisdictional allegations.4  Like the federal courts, commentators are divided in their approach to this issue.5

Alleging Diversity Jurisdiction

Three decisions from the District of Minnesota over the 15 months address allegations made on information and belief and relating to diversity jurisdiction in markedly different ways.

In Eckert/Wordell Architects, Inc. v. FJM Properties of Willmar, LLC,6 Judge Kyle, acting sua sponte, criticized the plaintiffs for filing an amended complaint that alleged the citizenship of an LLC’s members on information and belief, even where the plaintiffs stated that their jurisdictional allegations were based in part on “the representations of counsel for [defendant].”  Relying on many of the cases cited in footnote 2, infra, Judge Kyle held that the allegations made on information and belief did not meet plaintiffs’ “burden of pleading, with specificity, the facts establishing the existence of diversity jurisdiction.”7  Judge Kyle allowed plaintiffs “one final opportunity” to correct their diversity allegations, while reminding them that “an allegation based upon information and belief” would lead to the dismissal of their action.8

There can be little doubt:  Eckert/Wordell Architects, Inc. establishes an absolute prohibition on jurisdictional allegations made on information and belief.

In Key Enterprises, LLC v. Morgan,9 an action was removed to the District of Minnesota on the basis of diversity jurisdiction, with the removing defendant alleging the citizenship of the plaintiff LLC “upon information and belief.”  The LLC subsequently represented to the court that the parties were diverse.  Several months later, and after motions to dissolve a TRO and to remand for lack of the required amount in controversy had been briefed and argued, Judge Schiltz ordered the parties to submit evidence identifying each of the LLC’s members.  It was only at that point that the LLC learned that all parties were not diverse.

In his order remanding the action to the Minnesota courts, Judge Schiltz criticized all of the parties for the diversity debacle.  Judge Schiltz also singled out the attorneys responsible for the removal for having alleged diversity on information and belief where those attorneys did “not know the identity of—much less the citizenship of—a single member of that LLC,”10 and held that “[u]ntil an attorney acquires some information about the identity and citizenship of an LLC’s members, that attorney should not represent to a court—even ‘upon information and belief”—that the (unidentified) members of the LLC are or are not citizens of a particular state.”11  While declining to impose sanctions, Judge Schiltz did note that “there is no ‘information and belief’ exception to Rule 11.”12

In contrast to Eckert/Wordell Architects, Inc., Key Enterprises, LLC seems to recognize the possibility that parties can allege diversity jurisdiction on information and belief.  But the mandate that litigants have “some information” regarding opposing parties’ citizenship appears to require something akin to actual knowledge rather than mere information and belief, and establishes a factual burden that few litigants are likely to be able to meet.

In contrast to Judges Kyle and Schiltz, Judge Ericksen appears far less hostile to jurisdictional allegations made on information and belief.  In Life Share Collateral Holdings, LLC v. Albers,13 the plaintiff LLC commenced its action in federal court and one defendant brought a motion to dismiss arguing, inter alia, that the court lacked subject matter jurisdiction because the plaintiff had made its jurisdictional allegations on information and belief.14  Judge Ericksen acknowledged that some decisions have established a “bright-line rule” barring information and belief pleading of jurisdictional allegations, but then denied the motion to dismiss, finding that she was “satisfied” that diversity jurisdiction existed, particularly where the movant’s counsel had “candidly admitted” that the parties were diverse.”15

Judge Ericksen’s treatment of jurisdictional allegations made on information and belief differs from Judge Schiltz’s approach in two respects.  First, unlike Judge Schiltz, Judge Ericksen never mentioned Rule 11 in her analysis of the information and belief question.  Moreover, again unlike Judge Schiltz, Judge Ericksen seemed far more willing to consider representations by counsel as part of her jurisdictional analysis.

To summarize, Judge Kyle prohibits jurisdictional allegations made on information and belief under all circumstances.  In contrast, Judge Schiltz will permit such allegations, so long as the attorneys have made a “reasonable” inquiry which may require actual knowledge.  Finally, Judge Ericksen will allow jurisdictional allegations made on information and belief, so long as evidence emerges in the record to support the jurisdictional claim.

A Proposed Solution

If the federal courts are eager to clear their dockets, the complete ban on information and belief pleading of jurisdictional allegations advocated by Judge Kyle will go a long way toward accomplishing that goal.  But while the federal courts are courts of limited jurisdiction, it is not their obligation to erect insurmountable barriers to establishing diversity jurisdiction in cases involving LLCs.

All of the District of Minnesota decisions discussed above acknowledge the problem litigants face when commencing a diversity action or removing a pending state court action where LLCs are involved.  And absent a total ban on pleading jurisdiction on information and belief, Judge Ericksen’s approach to the problem, which is similar to the position recently adopted by the 7th Circuit in Medical Assurance Co. v. Hellman,16 seems to offer a more reasonable outcome.

If litigants commence or remove a diversity action and allege the citizenship of the parties on information and belief, it should be incumbent on the opposing parties to promptly confirm or deny the existence of diversity jurisdiction.  In most cases, a telephone call or letter from opposing counsel that establishes the citizenship of his or her clients should be sufficient for the litigants to resolve any jurisdictional dispute without ever involving the court.

If the letter or telephone call does not resolve the matter, a requirement that any parties disputing diversity jurisdiction formally disclose their citizenship prior to bringing any motion to dismiss should, in most of the remaining cases, resolve the issue.  Finally, if a party is bound and determined to involve the court in a dispute involving diversity jurisdiction, the court can require the parties to disclose their citizenship as part of any motion process.17  If these procedures are followed, the district courts are not likely to face any additional burden resolving disputes relating to subject matter jurisdiction.

In summary, allowing parties to allege subject matter jurisdiction on information and belief is a virtual necessity when LLCs are involved, and procedures already exist that can accommodate this type of pleading without imposing any additional burden on our already busy federal courts.

Josh Jacobson is a commercial litigator with The Law Office of Josh Jacobson, P.A. in Minneapolis, Minnesota, and an adjunct professor teaching Appellate Advocacy at the William Mitchell College of Law.  

Notes

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