Law Firm With “Stateless Partners” Not A Citizen for Purposes of Diversity, Holds Seventh Circuit

In Page v. Democratic Nat’l Comm., No. 20-2781 (7th Cir. June 21, 2021), the Seventh Circuit affirms dismissal of a defamation action against a law partnership with partners domiciled overseas, holding that it is not the citizen of any state for diversity jurisdiction purposes.

Carter Page, “a foreign policy advisor to former President Donald Trump’s 2016 campaign,” alleged that law firm Perkins Coie and the Democratic National Committee (DNC) “retained a company called Fusion GPS to conduct opposition research on then-candidate Trump.” He further alleged that the law firm “facilitated meetings between Fusion GPS and news outlets that ultimately led to the publication of stories reporting these allegations of contacts between the Trump campaign and Russian officials.”

The district court dismissed the case on personal jurisdiction grounds. “The district court concluded that the complaint did not allege facts sufficient to establish specific or general jurisdiction in Illinois. Page’s complaint, the district court explained, recounted only actions performed outside of Illinois by persons from other states, with no accompanying allegation that the defendants targeted Illinois with the allegedly defamatory news story.”

The Seventh Circuit affirms, but on subject-matter rather than personal jurisdiction grounds. It holds, for diversity purposes (28 U.S.C. § 1332), that the law firm lacks citizenship in any state.

“Partnerships . . . are citizens of every state in which an individual partner is a citizen . . . . The same rule applies to other unincorporated entities, like limited liability companies, whose citizenship is also determined by the citizenship of its ‘members’ . . . . Think about the size of many of today’s partnerships, whether law firms, accounting firms, consulting firms, and so on. It is often no easy task for a plaintiff to discern the domicile (and, by extension, citizenship) of each partner or member.”

Sometimes, for diversity purposes, “individuals or entities are not considered to be citizens of any state.” 28 U.S.C. § 1332(a) enumerates different categories of citizens, and the “Supreme Court has interpreted this statutory list to exclude United States citizens who are domiciled abroad . . . . Such individuals are not ‘citizens’ of any state for purposes of the statute because they are not domiciled in a state. They are, in a word, ‘stateless.’”

Moreover, under the rubric of “complete diversity,” all parties “fall within the jurisdiction created by the diversity statute. Put another way, if a party cannot sue or be sued under one of the provisions of the diversity statute, the suit lacks complete diversity . . . . What this means here is that stateless citizens—because they are not (by definition) a citizen of a state, as § 1332(a) requires—destroy complete diversity just as much as a defendant who shares citizenship with a plaintiff.”

The panel then drills down to the question of “whether a partnership—here the law firm Perkins Coie—made up of at least one, individual ‘stateless citizen’ partner can be sued in diversity.” Here, the “stateless citizens” include “three individual partners who are U.S. citizens domiciled in China.” Although the Supreme Court has never specifically ruled on the issue, the panel concludes that “a partnership composed of at least one stateless citizen is itself stateless—a concept we refer to as attribution of statelessness”—and thus cannot be sued in diversity.

The panel notes that every circuit to have ruled on the issue so far reached the same conclusion. The panel summarizes the holding in a Third Circuit case: that “because citizenship exists only through the citizenship of the partners, any single ‘non-diverse’ partner destroys diversity.”  

The court expresses some reticence about its holding. “We acknowledge that in today’s global business environment, where multinational entities exist in every facet of commerce, this result may strike some as impractical . . . . [W]hen Congress enacted the Judiciary Act of 1789, and in the subsequent decades when the Supreme Court decided many of its significant diversity jurisdiction cases, most of today’s business forms did not exist . . . . [But i]f this outcome seems to defy modern commercial realities, the responsibility for amending § 1332—updating it to account for today’s forms of business associations—rests with Congress.”

The panel thus affirms the dismissal, but modifies the judgment to reflect dismissal without prejudice.

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: