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Purchasing Power, LLC v. Bluestem Brands, Inc.

United States Court of Appeals for the Eleventh Circuit

March 20, 2017, Decided

No. 16-11896

Opinion

 [*1220]  WILSON, Circuit Judge:

This case demonstrates the difficulty of applying established diversity jurisdiction principles to 21st-century business organizations. ] When determining citizenship of the parties for diversity jurisdiction purposes, a limited liability company (LLC) is a citizen of every state that any member is a [**2]  citizen of. And it is common for an LLC to be a member of another LLC. Consequently, citizenship of LLCs often ends up looking like a factor tree that exponentially expands every time a member turns out to be another LLC, thereby restarting the process of identifying the members of that LLC. The simplest misstep has the potential to derail years of litigation and result in a massive financial sanction, as happened here. It is in everyone's best interest, both the litigants' and the courts', to verify that diversity jurisdiction exists before proceeding with the case. Everyone involved in this case trusted that diversity jurisdiction existed, but no one verified it. The law firms involved trusted their clients. The clients  [*1221]  trusted their lawyers. The law firms trusted each other, and the district court trusted them. But there was no verification.

I. Facts

This case began when Purchasing Power LLC (Purchasing Power), represented by the law firm Burr & Forman (B&F), sued Bluestem Brands Inc. (Bluestem) in Georgia state court in December 2011.2 Bluestem, a citizen of Minnesota and Delaware, sought to remove the case to federal court based on diversity jurisdiction. Counsel for Bluestem, Randall [**3]  Kahnke, emailed counsel for Purchasing Power, Joe Letzer, to determine the citizenship of Purchasing Power for diversity purposes.

The citizenship of an LLC is the citizenship of each member. Purchasing Power has one member—Purchasing Power Holdings LLC (Holdings). Holdings' members were individual residents of Georgia and three LLCs—(1) Rockbridge Growth Equity LLC (Rockbridge), (2) Falcon Investment Advisors LLC (Falcon), (3) and Stephens-Purchasing Power LLC (Stephens). To determine the citizenship of Purchasing Power, one would need to know the citizenship of the members of LLCs thrice removed (Purchasing Power ➔ Holdings ➔ Rockbridge/Falcon/Stephens). Letzer and other B&F attorneys instructed the officers of Purchasing Power that they needed to know the residences of the LLC members3 to respond to Kahnke's request. Letzer was aware that Bluestem was a citizen of Minnesota and Delaware. After receiving several guarantees from Richard Carrano—the CEO, President, and Corporate Secretary of Purchasing Power—that none of the LLC members were from Minnesota or Delaware, Letzer responded to Kahnke in an email: "[W]e are informed by our client that none of the members of the LLC are resident [**4]  citizens of either the states of Minnesota or Delaware. We trust this gives you the essential information you requested to assess removability on diversity grounds." Kahnke attached this email to Bluestem's removal petition filed on January 25, 2012, as the only evidence that complete diversity existed.

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851 F.3d 1218 *; 2017 U.S. App. LEXIS 4918 **; 26 Fla. L. Weekly Fed. C 1348; 2017 WL 1046103

PURCHASING POWER, LLC, Plaintiff - Appellant, versus BLUESTEM BRANDS, INC., Defendant - Appellee.

Prior History:  [**1] Appeal from the United States District Court for the Northern District of Georgia. D.C. Docket No. 1:12-cv-00258-WSD.

Purchasing Power, LLC v. Bluestem Brands, Inc., 2016 U.S. Dist. LEXIS 47109 (N.D. Ga., Apr. 6, 2016)

Disposition: REVERSED.

CORE TERMS

inherent power, sanctions, district court, bad faith, citizenship, diversity jurisdiction, removal, recklessness, email, residents, subject matter jurisdiction, diversity, incorrect, parties, discovery, quotation, courts, marks, meritorious claim, disobedience, investigate, frivolous, trusted

Business & Corporate Compliance, Limited Liability Companies, Business & Corporate Law, Limited Liability Companies, Civil Procedure, Diversity Jurisdiction, Citizenship, Business Entities, Attorneys, Discovery & Disclosure, Discovery, Appeals, Standards of Review, Abuse of Discretion, Sanctions, Sanctions, Contempt, Civil Contempt, Governments, Courts, Authority to Adjudicate, Misconduct & Unethical Behavior, Baseless Filings, Vexatious Litigants, Frivolous Lawsuits, Eligibility for Sanctions, Parties Subject to Sanction, Removal, Specific Cases Removed, Diversity of Citizenship, Evidence, Burdens of Proof, Allocation, Preliminary Considerations, Elements for Removal, Judicial Officers, Judges, Jurisdiction, Subject Matter Jurisdiction