A Capehart Scatchard Blog

No Jurisdictional Discovery Permitted by Federal Court to Establish Diversity for Insurance LLC Defendants

By on May 15, 2014 in Blog with 0 Comments

In Lincoln Benefit Life Co. v. AEI Life, 2014 U.S. Dist. LEXIS 46726 (April 4, 2014), the plaintiff life insurance company sued in the District Court of New Jersey to void out two life insurance policies on the life of Gabrielle Fischer due to material misrepresentations made in the insurance application and/or due to the lack of an insurable interest at the time of the policy’s inception. The complaint claimed that the defendants engaged in a stranger originated life insurance or “STOLI” scheme in which they submitted false or deceptive applications on her life to obtain two $6.65 million life insurance policies. The issue in this case was whether diversity jurisdiction existed over the two LLC defendants.

To obtain jurisdiction on a diversity basis in federal court, the plaintiff and the defendants must be citizens of different states. In this case, the plaintiff, Lincoln Benefit, was a citizen of Nebraska. Defendant, Innovative Brokers, was a NY corporation. Defendant, AEI Life, LLC, was identified as a citizen of NY, and ALS Capital Ventures, LLC was identified as a citizen of Delaware.

The defendants moved to dismiss the complaint on the basis of the lack of contacts with NJ and also argued that the complaint, on its face, did not allege the citizenship of the LLCs. The defendants argued that because they were LLCs, the plaintiff was required to plead the citizenship of each member of the LLC to meet its burden of establishing the court’s subject matter jurisdiction.

The complaint clearly did not plead the citizenship of each member of the LLC. Thus, the court considered the plaintiff’s alternate argument that it should be granted jurisdictional discovery as an alternative to dismissal.

This issue had not yet been decided by the Third Circuit, which is the court of appeals for the District of New Jersey. While jurisdictional discovery has been permitted to establish personal jurisdiction, the appeals court has not decided whether discovery should be permitted to resolve uncertainties as to diversity jurisdiction.

After considering other cases in the circuit that have refused to permit this type of discovery, the court denied the request. The judge noted that it was the plaintiff’s burden to plead the basis for subject matter jurisdiction. Hence, the judge dismissed the complaint.

This case demonstrates how difficult it is to sue a limited liability company in federal court. Unless it is a one member LLC and the plaintiff knows in which state that member resides, it will remain very challenging to establish diversity jurisdiction against an LLC. Based upon this case, the court will not permit the plaintiff to find out through discovery the identity and citizenship of the LLC members in an attempt to establish that diversity of citizenship exists. 


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About the Author

About the Author:

Ms. Ramos is an Executive Committee Member and Co-Chair of the Litigation Department at Capehart Scatchard, P.A. located in Mount Laurel, New Jersey. She is an experienced litigator with over 30 years experience handling diverse matters. Practice areas include tort defense, business litigation, estate litigation, tort claims and civil rights defense, construction litigation, insurance coverage, employment litigation, shareholder disputes, and general litigation.

For the years 2020-2023, Ms. Ramos was selected for inclusion in The Best Lawyers in America© in the practice area of Litigation - Insurance. The attorneys on this list are selected based upon the consensus opinion of leading lawyers about the professional abilities of their colleagues within the same geographical area and legal practice area. A complete description of The Best Lawyers in America© methodology can be viewed via their website at: https://www.bestlawyers.com/methodology.

In 2021, Capehart Scatchard and Ms. Ramos received the “Best Law Firm” ranking in the area of Litigation – Insurance (Metro, Tier 3) published by U.S. News & World Report and Best Lawyers®. Law firms included on the list are recognized for professional excellence with consistently impressive ratings from clients and peers. To be eligible for a ranking, a firm must have at least one attorney who has been included in the current edition of Best Lawyers in America, which recognizes the top five percent of practicing lawyers in the United States. Betsy Ramos (Litigation – Insurance) was recognized for this prestigious award in the 2021 edition. For a description of the “Best Law Firm” selection methodology please visit: https://bestlawfirms.usnews.com/methodology.aspx.

“Best Law Firms” is published by Best Lawyers in partnership with U.S. News & World Report. For a description of the selection methodology please visit: https://bestlawfirms.usnews.com/methodology.aspx.

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