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SCOTUS Bases Trust Citizenship on Members

(CN) - The Supreme Court ruled unanimously Monday that, for diversity jurisdiction purposes, an investment trust's citizenship depends on that of its members, including shareholders.

At issue was a matter of diversity jurisdiction in a case filed by ConAgra, Swift-Eckrich Inc., Kraft Foodservice Inc., Safeway Inc. and Phillips Connections Inc. to recover damages from a 1991 fire in an Americold underground storage facility.

The lawsuit resulted in a $58.7 million settlement, which included an assignment to the plaintiffs of Americold's right to seek recovery from excess insurance providers, including Northwestern Pacific Indemnity Co.

The companies initiated garnishment proceedings against Northwestern that lasted 18 years. In June 2012, a federal court vacated judgments against Northwestern, causing the plaintiffs to sue Americold's successors in interest - Americold Logistics and Americold Realty Trust, a real estate investment trust organized under Maryland law.

But the food distributors named the trust rather than the trustees as defendants and Americold Logistics removed the case to Kansas federal court without objection on the basis of diversity jurisdiction.

The federal court granted Americold's motion for summary judgment in 2013. The plaintiffs appealed and the Tenth Circuit found that diversity jurisdiction wasn't established. The appeals court sent the lawsuit back to Kansas Federal Court with instructions to remand it to state court.

In appealing to the U.S. Supreme Court, Americold Logistics argued that the Tenth Circuit went against its own precedent by ruling that a trust's citizenship can also be based on the citizenship of its beneficiaries.

Americold argued that trusts play a major role in American commerce and that the public and lower courts would benefit from the Supreme Court settling the issue, which regularly occurs in litigation.

On Monday, the nation's high court ruled unanimously that Americold Realty Trust's citizenship, for the purposes of diversity jurisdiction, is based on the citizenship of its member, which includes its shareholders.

"In Maryland, a real estate investment trust is an 'unincorporated business trust or association' in which property is held and managed 'for the benefit and profit of any person who may become a shareholder,'" Justice Sonia Sotomayor wrote for the unanimous Supreme Court, citing Maryland law. "These shareholders appear to be in the same position as the shareholders of a joint-stock company or the partners of a limited partnership - both of whom we viewed as members of their relevant entities. We therefore conclude that for purposes of diversity jurisdiction, Americold's members include its shareholders."

Sotomayor noted that many states have applied the "trust" label to unincorporated entities that differ from the traditional definition of a trust as a fiduciary relationship between people.

"So long as such an entity is unincorporated, we apply our 'oft-repeated rule' that it possesses the citizenship of all its members," she wrote. "But neither this rule nor [Navarro Savings v. Lee] limits an entity's membership to its trustees just because the entity happens to call itself a trust."

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