In SXSW, LLC v. Federal Insurance Co., No. 22-50933 (5th Cir. Oct. 5, 2023), the Fifth Circuit exercises its authority to remand an appeal to the district court to sort out factually whether there was diversity at the time the complaint was filed.
Plaintiff “SXSW planned to hold its annual ‘South by Southwest’ festival in Austin in March 2020. But the City of Austin cancelled the 2020 festival on account of the COVID-19 pandemic. When SXSW refused to refund ticket purchases, a group of would-be festival goers sued in a class action. The class settled, with a total litigation cost to SXSW of over $1 million.” SXSW then sued its insurer for failing to defend it in the class action. The district court granted summary judgment to the insurer.
On appeal, though, the Fifth Circuit gets stalled in subject-matter jurisdiction. While the insurer had not disputed jurisdiction (and, as the judgment-winner, was not motivated to challenge it on appeal), the panel zeroes in on the deficiency that both parties treated the LLC as a corporation for purposes of citizenship under 28 U.S.C. §§ 1332(a)(1) and (c)(1).
But an LLC is not the same as a corporation. “For limited liability companies, § 1332 citizenship is determined by the citizenship of ‘all of its members’ . . . . To establish diversity jurisdiction in a suit by or against an LLC, a party ‘must specifically allege the citizenship of every member of every LLC’ . . . . In its complaint dated October 6, 2021, SXSW noted that it was a limited liability company . . . . Instead of alleging the citizenship of all of its members, SXSW only alleged its principal place of business, confusing LLC citizenship with corporate citizenship.”
According to the record on the summary judgment motion, the LLC had two members: SXSW Holdings, Inc. and Starr Hill Presents. The former was, at the time of the filing of the complaint, a Texas citizen (both where it was incorporated and where it had its principal place of business. “But [defendant] Federal’s chart nowhere alleged the citizenship of Star Hill Presents . . . . And the parties have not pointed us to another place in the record. The only allegation regarding the citizenship of Star Hill Presents . . . comes 14 months later in SXSW’s opening brief in our court, dated February 22, 2023.”
The allegations were deficient for three reasons. First, because the question of LLC formation and organization is governed by state law, these facts did not give enough of a basis to determine which state law applied. “Several states permit LLC membership without ownership,” yet “SXSW has not shown the relevant LLCs were formed in States that equate membership and ownership.” Second, “SXSW stated that Capshaw [owner of Starr Hill Presents] was a Virginia resident. But residency is not citizenship for purposes of § 1332.” Third, “[f]or diversity jurisdiction, we look to citizenship at the time the complaint was filed,” yet the summary judgment record may not “reflect SXSW’s membership structure as of October 6, 2021.”
While SXSW’s counsel invoked 28 U.S.C. § 1653, which allows defective allegations of jurisdiction to be amended even on appeal, the panel observes that this provision “is only helpful where there is evidence of jurisdiction in the record,” which was lacking here.
In sum, because “[t]he parties have not presented sufficient evidence of subject matter jurisdiction,” the panel remands “to the district court for the limited purpose of determining whether jurisdiction exists.”
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