Background
During the COVID-19 pandemic, FS Medical Supplies, LLC, agreed to supply TannerGAP, Inc., and Tanner Pharma UK Limited with personal protective equipment and related products for distribution. When FS Medical discovered that the Tanner defendants had executed a direct contract with one of FS Medical’s suppliers, it sued for breach of contract. FS Medical initially filed in California state court, but defendants removed to federal court and obtained dismissal for lack of personal jurisdiction.
FS Medical then refiled in the U.S. District Court for the Western District of North Carolina, asserting federal diversity jurisdiction under 28 U.S.C. § 1332. The company alleged that its members were citizens of California and Texas; TannerGAP was a North Carolina corporation; Tanner Pharma UK was incorporated in the United Kingdom; and the Bourne defendants were North Carolina residents. Days before the jurisdictional hearing, FS Medical discovered that one of its members, Zhen Zhen Tong, was actually a citizen of China. FS Medical attempted to cure the defect by having Tong transfer her shares to another member, but the district court ruled that diversity is measured at the time suit is filed and dismissed for lack of subject matter jurisdiction.
The Court’s Holding
The Fourth Circuit affirmed, holding that when an LLC has members with different citizenships—both domestic and foreign—all of those citizenships must be considered in the diversity jurisdiction analysis. An LLC’s citizenship is determined by the citizenship of all its members, and the court cannot disregard or selectively disaggregate an LLC’s foreign citizenship to satisfy diversity requirements. The court emphasized that this rule applies to LLCs just as it does to corporations and partnerships with dual citizenship.
Applying this principle to FS Medical’s claims, when the court considered FS Medical’s Chinese membership alongside its Texas and California membership, no U.S. citizen remained on the plaintiff’s side of the case. Because 28 U.S.C. § 1332(a)(3) requires a suit between “citizens of different States,” and here the plaintiff included a foreign citizen through its Chinese member, diversity jurisdiction was destroyed. The presence of foreign parties on the defendants’ side did not cure the defect because the defect stemmed from the plaintiff’s own dual citizenship.
The court rejected FS Medical’s alternative arguments: that dismissing Tanner Pharma UK would preserve jurisdiction (the jurisdictional defect stems from the plaintiff, not the defendants), and that the court could invoke North Carolina’s savings statute to allow refiling despite the jurisdictional dismissal (courts lack jurisdiction to invoke procedural statutes affecting parties’ substantive rights).
Key Takeaways
- An LLC’s citizenship includes all its members’ citizenships and cannot be disaggregated or ignored for diversity jurisdiction analysis
- When an LLC has both domestic and foreign members, each membership aspect must be tested; the presence of any foreign member may destroy diversity under § 1332
- Courts cannot cherry-pick which citizenship of a multi-citizen entity “counts” for jurisdictional purposes—all must be considered
- The presence of foreign defendants does not cure a diversity defect created by the plaintiff’s own foreign citizenship
Why It Matters
This decision provides critical guidance on diversity jurisdiction for LLCs and other multi-member entities in federal litigation. It closes the door on strategic jurisdictional planning by parties who might attempt to disregard inconvenient foreign memberships. For commercial litigation involving LLCs with international membership, the ruling means that federal jurisdiction cannot be assumed simply because some members are U.S. citizens—all membership citizenship must be disclosed and analyzed at the time suit is filed.
The practical impact is substantial: businesses with cross-border partnerships, foreign investors, or complex ownership structures must carefully evaluate diversity jurisdiction before litigating in federal court. FS Medical’s five-year litigation effort, only to have the case dismissed for a jurisdictional defect that could have been identified upfront, illustrates the cost of incomplete citizenship analysis. The opinion makes clear that § 1332 diversity jurisdiction is not available to LLCs with any foreign members, making state court or other federal jurisdiction bases the proper forum for such disputes.