Federal Diversity Jurisdiction Trumped by “Stateless Partners” in Law Firms | BCG News

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07/30/14

Federal Diversity Jurisdiction Trumped by "Stateless Partners" in Law Firms


Recently the U.S. District Court for the District of Columbia dismissed a lawsuit brought by the court-appointed receiver for the estate of the Stanford Ponzi scheme (Ralph S. Janvey v. Proskauer Rose). Among other reasons including limitation and bad faith and forum shopping alluded by the D.C. Circuit and the defendants, the main reason that stood out for dismissing the case was the "stateless" status of certain partners of the law firms who had been sued.

This fact, according to the court, destroyed diversity jurisdiction of the federal courts and handicapped the D.C. court from transferring the lawsuit to the Northern District of Texas. It also handicapped the court from going into the matter because the federal court, in itself, lacked subject-matter jurisdiction over the case because the "stateless" status of the partners of the international law firms precluded diversity jurisdiction.

In this case, each defendant law firm, including Chadbourne & Parke LLP and Proskauer Rose LLP has at least one partner who is an American citizen domiciled abroad and thus considered "stateless."

The court cited the U.S. Supreme Court's decision in Carden v. Arkoma Assocs., (1990) where the court had held that the citizenship of a partnership for the purposes of establishing diversity jurisdiction depends on the citizenship of 'all the members' of the partnership.

In the same decision, the Supreme Court had quoted Chapman v. Barney (1889): "Partnerships which have American partners living abroad pose a special problem ... An American citizen domiciled abroad, while being a citizen of the United States is, of course, not domiciled in a particular state, and therefore such person is 'stateless' for purposes of diversity jurisdiction."

The D.C. Circuit also cited Swiger v. Allegheny Energy, Inc., (3rd Cir. 2008), in which the 3rd Circuit had held federal courts lacked diversity jurisdiction over defendant Morgan Lewis, a law firm with partner who was an American citizen domiciled abroad because of the partner's "statelessness."

Though the plaintiffs pleaded that they were unaware of the "stateless" status of the partners of the defendant law firms, the court accepted the argument of the defendants that "[E]ven a minimal level of diligence would have revealed that Proskauer and Chadbourne ... have fourteen different international offices ... This information is prominently and clearly identified on both firms' websites ... which also disclose that U.S. law is practiced in foreign offices, in some cases by partners who have obviously American backgrounds but have lived in the same foreign country for as many as 20 years or more."

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