In a significant decision with implications for corporate law and diversity jurisdiction, the Supreme Court of the United States addressed the issue of how to determine the citizenship of a Real Estate Investment Trust (REIT) for the purpose of federal court jurisdiction. This ruling emerged from the case Americold Realty Trust v. Conagra Foods, Inc., a dispute that reached the highest court and clarified important aspects of legal entity citizenship. While Conagra Foods was a party in this case, the broader ramifications extend to any company involved in interstate litigation and the complexities of corporate structures.
The heart of the matter revolved around whether Americold Realty Trust, a REIT, should be considered a citizen based on its trustees or its shareholders for diversity jurisdiction, a legal principle that allows federal courts to hear cases between citizens of different states. Conagra Foods, along with other corporate entities from Delaware, Nebraska, and Illinois, originally brought suit against Americold in Kansas state court. Americold, seeking a federal forum, removed the case to federal court based on diversity of citizenship, arguing that it was diverse from the plaintiff companies, including Conagra Foods.
However, the Tenth Circuit Court of Appeals questioned whether the federal court even had the authority to hear the case in the first place. The court reasoned that because Americold was not a traditional corporation, its citizenship wasn’t straightforward. They posited that its citizenship should be determined by the citizenship of its members, which included its shareholders. Since the citizenship of these shareholders was not established in the record, the Tenth Circuit concluded that diversity of citizenship was not proven, thus stripping the federal court of jurisdiction.
The Supreme Court, in a unanimous decision, ultimately affirmed the Tenth Circuit’s judgment, but clarified the reasoning. Justice Sotomayor, delivering the opinion, emphasized the long-standing legal principle that for unincorporated entities, citizenship for diversity purposes is determined by the citizenship of all its members. Drawing upon historical precedent dating back to Bank of United States v. Deveaux, the Court reiterated that the relevant citizens are the “real persons who come into court” in the entity’s name. While corporations have a distinct rule for jurisdictional citizenship, established in Louisville, C. & C. R. Co. v. Letson, this exception does not extend to all legal entities simply labeled as “trusts.”
Americold argued that because it was a “trust,” its citizenship should be solely based on the citizenship of its trustees. The Supreme Court rejected this argument, distinguishing between traditional trusts, which are fiduciary relationships, and modern entities like REITs, which are often treated as separate legal entities under state law. Under Maryland law, where Americold was organized, a REIT is indeed considered a “separate legal entity” capable of suing and being sued. Therefore, despite being called a “trust,” the Court held that for diversity jurisdiction, Americold, and by extension similar unincorporated entities, must be treated as possessing the citizenship of all its members, including shareholders.
This decision reinforces the principle that the label “trust” is not determinative for jurisdictional purposes. Instead, courts must look at the actual structure and characteristics of the entity under relevant state law. For companies like Conagra Foods, which operate across multiple states and may engage in litigation with various types of entities, this ruling provides clarity on the complexities of diversity jurisdiction when dealing with unincorporated entities like REITs. It underscores the importance of thoroughly establishing the citizenship of all members of such entities when litigating in federal court based on diversity jurisdiction. The Americold v. Conagra Foods case serves as a crucial reminder of the nuances of corporate citizenship in the legal landscape.
