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Eleventh Circuit Court of Appeals reverses summary judgment for defendants, finding lack of complete diversity due to citizenship of individual LLC members

On March 2, 2017, in Thermoset Corporation v. Building Materials Corp of America, No. 15-13942, the Eleventh Circuit Court of Appeals vacated the lower court’s summary judgment order in favor of the defendants in a product liability action brought against a building materials manufacturer and its distributor, and remanded with instructions to return the case to the state court from which it was removed, finding that that there was not complete diversity among the defendants. One of the defendants, Roofing Supply Group Orlando (“RSGO”), the distributor of the other defendant’s manufactured materials, is an LLC, but the plaintiff had failed to allege to allege the citizenship of the individual LLC members in the complaint, as is required under the law in order to prove complete diversity. See Rolling Greens MHP, L.P. v. Comcast SCH Holdings, L.L.C., 374 F.3d 1020, 1022 (11th Cir. 2004) (per curiam). The Court of Appeals inquired about this apparent defect, and it became clear from the response that RSGO was not in fact diverse from Thermoset at the time of removal because one or more of the LLC members was a citizen of Florida. In order to preserve their summary judgment, the defendants argued that the Court should consider RSGO a “nominal” party to the overall case whose citizenship could be ignored, or that the Court should dismiss RSGO under FRCP 21 to preserve diversity jurisdiction over the rest of the case.

The 11th Circuit noted that federal courts are courts of limited subject-matter jurisdiction and that a court can hear a case only if it has at least one of three types of subject matter jurisdiction: (1) jurisdiction under specific statutory grant; (2) federal question jurisdiction pursuant to 28 U.S.C. § 1331; or (3) diversity jurisdiction pursuant to 28 U.S.C. § 1332(a).” Quoting PTA– FLA, Inc. v. ZTE USA, Inc., 844 F.3d 1299, 1306 (11th Cir. 2016), the Court stated that “diversity jurisdiction is determined at the time of filing the complaint or, if the case has been removed, at the time of removal.” With respect to the issue of whether RSGO could be disregarded as a “nominal” party, the Court cited previous decisions in support of the principle that nominal parties are those that are neither necessary or indispensable to the action and that the “ultimate test” is “whether in the absence of the defendant, the court can enter a final judgment with equity and good conscience which would not be in any way unfair or inequitable to plaintiff.” Noting that Florida law apportions liability proportional to percentage of fault, the Court of Appeals rejected the “nominal” defendant argument because exclusion of RSGO from the case could leave the plaintiff in a position where the manufacturer could blame RSGO, potentially leaving the plaintiff with a zero judgment. With respect to the issue of whether RSGO could in any event be removed from the case simply to preserve diversity, the Court cited precedent for the proposition that this could be done to “rescue an otherwise valid judgment,” but that the power to do so should be used “sparingly” and only if no party would be prejudiced by the dismissal, which in turn requires a finding that the party to be dismissed is not indispensable under FRCP 19 and that the presence of the party did not provide the other side with a tactical advantage in the litigation. The Court of Appeals concluded that RSGO was a required party under FRCP 19(a)(1) and that it could not conclude “in equity and good conscience” under FRCP 19(b) that the lawsuit should continue without RSGO. The Court consequently concluded that RSGO was an indispensable party.