Background
FS Medical Supplies, LLC, a limited liability company with members from Texas, California, and China, sued Tanner Pharma UK Limited (a United Kingdom corporation), TannerGAP, Inc. (a North Carolina corporation), and Raymond and Molly Bourne (North Carolina residents) in the Western District of North Carolina. The dispute arose from a contract involving the supply of personal protective equipment during the COVID-19 pandemic. FS Medical alleged that the defendants breached their agreement by entering into a direct contract with one of FS Medical’s suppliers.
FS Medical invoked federal diversity jurisdiction under 28 U.S.C. § 1332(a)(3), claiming citizens of different states and a foreign citizen were involved. The company disclosed that its members were citizens of Texas and California. However, the day before a hearing on pending motions, FS Medical revealed that one member, Zhen Zhen Tong, was actually a Chinese citizen. FS Medical attempted to cure this defect by having Ms. Tong transfer her shares to another member, but the court noted that diversity is measured at the time the complaint is filed, not thereafter. The defendants moved to dismiss for lack of subject matter jurisdiction.
The Court’s Holding
The Fourth Circuit affirmed the district court’s dismissal for lack of subject matter jurisdiction. The court held that when testing diversity jurisdiction for an LLC with multiple members, courts must consider the citizenship of ALL members—both domestic and foreign—and cannot disregard the foreign citizenship. This differs from the rule for dual-citizen individuals, whose foreign citizenship may be ignored for diversity purposes.
The court applied the framework established in General Technology Applications, Inc. v. Exro Ltda (4th Cir. 2004) and Grupo Dataflux v. Atlas Global Group, L.P. (U.S. 2004). When the court “tested” FS Medical’s Chinese citizenship, no U.S. citizen remained on the plaintiff side. Because § 1332(a)(3) requires “citizens of different States” on both sides of the caption, and FS Medical—when considering all its members’ citizenship—had no U.S. citizen status, the jurisdictional requirement was not satisfied. The presence of a foreign defendant did not cure this defect because the statute first requires diversity between state citizens, with foreign parties as “additional parties.”
Key Takeaways
- An LLC’s citizenship includes the citizenship of all its members; courts cannot selectively apply or ignore a member’s foreign citizenship.
- Diversity jurisdiction under § 1332(a)(3) requires “citizens of different States” on both sides; when an LLC has a foreign member and all defendants include either foreign citizens or U.S. citizens, diversity fails at the first requirement.
- Jurisdictional defects cannot be cured by amending the LLC’s membership structure after suit is filed; diversity is measured at the time the complaint is filed.
- The Tango Music exception (7th Cir.) for dual-citizen LLCs is inconsistent with Grupo Dataflux and is not adopted by the Fourth Circuit.
Why It Matters
This decision clarifies critical procedural requirements for multi-member LLCs seeking federal diversity jurisdiction. Business entities with foreign investors or members must carefully verify the citizenship status of all members before filing suit in federal court. The ruling forecoses a common workaround: parties cannot cure jurisdictional defects by restructuring after suit is filed. For attorneys representing LLCs in cross-border disputes, this holding requires due diligence on citizenship composition upfront.
The decision also reinforces that federal courts cannot exercise creative jurisdiction-saving measures when the statutory requirements are not met. The court rejected FS Medical’s request for relief under North Carolina’s savings statute, holding that without subject matter jurisdiction, the court lacks power to grant relief that affects a party’s substantive right to sue—only to address collateral matters like sanctions or procedural rules. This limits flexibility for plaintiffs to correct jurisdictional failures.