In Americold Realty Tr. v. ConAgra Foods, Inc., 136 S. Ct. 1012 (2016), the Supreme Court held that, for purposes of federal diversity jurisdiction, the citizenship of a Maryland real estate investment trust (formed pursuant to the Maryland REIT Law) is determined by the citizenship of all of its shareholders. The Supreme Court rejected arguments that the standard for determining the citizenship of a corporation or a “traditional” trust should be applicable to a Maryland real estate investment trust.
The underlying controversy began in Kansas state court as a contract dispute between multiple plaintiffs and Americold Realty Trust, a Maryland real estate investment trust (“Americold”). Americold removed the case to the U.S. District Court for the District of Kansas, asserting that the parties were completely diverse. The District Court later granted summary judgment in favor of Americold. On appeal, the U.S. Court of Appeals for the 10th Circuit raised the jurisdictional question of whether a federal court had diversity jurisdiction over the matter and ordered the parties to submit supplemental briefing on the issue. Ultimately, the 10th Circuit held that Americold, like other unincorporated entities, shared the citizenship of each of its shareholders, which destroyed federal diversity jurisdiction.
The Supreme Court granted the resulting petition for a writ of certiorari to resolve a divide between the circuits concerning the citizenship of unincorporated entities. The Supreme Court began by reiterating that an entity or association that has not been incorporated will possess the citizenship of its “members.” The Supreme Court defined a “member” as equivalent to an owner or “the several persons composing the association.” With regard to a Maryland real estate investment trust, the Supreme Court examined Title 8 of the Corporations and Associations Article of the Maryland Code. Pursuant to Title 8, a Maryland real estate investment trust is an “unincorporated business trust or association” managed “for the benefit and profit of any person who may become a shareholder.” As an unincorporated entity, the Supreme Court concluded that the citizenship of Americold was determined by its members and further held that the members of Americold were its shareholders. In reaching that holding, the Supreme Court equated the Americold shareholders with the shareholders of joint-stock companies and the partners of a partnership, both of whom are deemed members of their respective entities for diversity purposes. Lastly, the Supreme Court explained that labeling an unincorporated entity a “trust” does not mean that it is, or should be treated like, a “traditional” trust for purposes of determining its citizenship.
In sum, those considering forming a Maryland real estate investment trust under the Maryland REIT Law, rather than a Maryland corporation under the Maryland General Corporation Law, should be aware that widely-held ownership would effectively destroy federal diversity jurisdiction and, therefore, would severely limit the ability access to federal courts.
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