RTP LLC v. Orix Real Estate Capital, Inc.
827 F.3d 689
7th Cir.2016Background
- ORIX made a ~$41 million non-recourse loan to RTP to buy a commercial building; RTP and Inheritance (a guarantor tied to Detroit pension funds) signed conditional guarantees triggered by specified defaults.
- The building lost its sole tenant; ORIX declared defaults, accelerated the loan, and sought payment from RTP and Inheritance.
- RTP sued for a declaration limiting liability to the building’s assets; district court entered judgment for ORIX for about $30 million.
- ORIX removed the Illinois suit to federal court under diversity jurisdiction; diversity depended on the citizenships of the Detroit pension funds (members of the LLCs).
- The central jurisdictional dispute: whether the trusts’ citizenships are those of their trustees (all allegedly Michigan citizens) or of the trusts’ members/beneficiaries (some of whom resided in Texas or Delaware in 2013).
- After Americold Realty Trust v. ConAgra, the Seventh Circuit held that trusts take the citizenship of their members (i.e., their owners/beneficial owners), not of trustees; remanded for determination of beneficiaries’ domiciles or else remand to state court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper citizenship for diversity of pension trusts | Trusts have the citizenship of their trustees (all Michigan) | Trusts have citizenship of their members/beneficiaries (some in TX/DE) | Under Americold, trusts take citizenship of their members/beneficial owners, not trustees |
| Who counts as a “member” of a pension trust for §1332 | Only active employees (the funds’ labeled “members”) | Active employees, retirees, beneficiaries — all who hold interests in the trust | “Members” includes persons with equity-like interests (employees, retirees, beneficiaries); not limited to current workers |
| Whether Navarro controls trust-citizenship rule | Navarro establishes trustee-based rule | Navarro does not create a special trust rule; citizenship follows litigant’s identity | Americold overruled the trustee-based interpretation of Navarro; Navarro not a special rule for trusts |
| Whether case must be dismissed/remanded for lack of diversity | Keep federal judgment; remand unnecessary given litigation spent | If any trust member is citizen of defendant’s state, diversity lacking; must remand/dismiss | Subject-matter jurisdiction defect requires dismissal/remand if any trust member domiciled in TX or DE; district judgment vacated and case remanded for domicile inquiry or remand if ORIX declines to prove domiciles |
Key Cases Cited
- Americold Realty Trust v. ConAgra Foods, Inc., 136 S. Ct. 1012 (2016) (holds non-natural entities take citizenship of their members; trustee’s citizenship not dispositive for trusts)
- Carden v. Arkoma Associates, 494 U.S. 185 (1990) (associations and unincorporated entities take citizenship of their members)
- Navarro Savings Ass’n v. Lee, 446 U.S. 458 (1980) (discussed in context of trustee litigation; not a special rule for trusts)
- Hertz Corp. v. Friend, 559 U.S. 77 (2010) (principles for determining corporate principal place of business)
- May Department Stores Co. v. Federal Insurance Co., 305 F.3d 597 (7th Cir. 2002) (prior Seventh Circuit decisions treating trustee citizenship as controlling)
- Hicklin Eng’g, L.C. v. Bartell, 439 F.3d 346 (7th Cir. 2006) (similar pre-Americold precedent on trustee citizenship)
- Capron v. Van Noorden, 6 U.S. (2 Cranch) 126 (1804) (longstanding rule that subject-matter jurisdiction defects require dismissal)