Is A Societas Europaea Analogous To A U.S. Corporation For Purposes Of Diversity Jurisdiction? A Recent Case Concludes That It Is

• Published date: 29 September 2021
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers, Shareholders, Diversity, Equity & Inclusion
• Law Firm: Mound Cotton Wollan & Greengrass
• Author: Mr Jeffrey S Weinstein, Steven P. Nassi , Maegan McAdam and Arie Smith

A domestic corporation is a citizen of its state of incorporation and principal place of business for purposes of diversity jurisdiction.¹ By contrast, the citizenship of other "unincorporated" domestic business entities (such as limited liability companies and limited partnerships) is determined by the citizenship of each of their "members." The analysis of the citizenship requirement for diversity jurisdiction is further complicated when the party is a foreign business entity such as a Societas Europaea (European Union), a Joint Venture (Canada), a Public Limited Company (UK, Ireland, and certain members of the Commonwealth), or a Sociedad Anónima (Colombia).

Federal courts have developed various approaches to resolving the citizenship status of foreign business entities. The "juridical person" approach is favored by the Fifth and Ninth Circuits,² and the "comparison approach" is favored by the Seventh and Eighth Circuits.³ A "two-step comparison approach" was recently adopted by the Maryland district court in SNC-Lavalin Constructors Inc. v. Tokio Marine Kiln Insurance Limited, Certain Underwriters at Lloyd's, Civ. Nos. GJH-19-873 and GJH-19-1510, 2021 WL 2550505 (D. Md. June 21, 2021)⁴, following Navy Fed. Credit Union v. LTD Fin. Servs., 972 F.3d 344, 354 n. 5 (4^th Cir. 2020) (referencing a Seventh Circuit comparison approach case).

The juridical person view focuses on whether the country where the foreign entity was formed treats the entity as a "juridical person," defined as a non-human entity that is recognized as a legal authority having a distinct identity that can own property, make contracts, transact business, and conduct litigation in its own name.⁵ By law, a juridical person has its own duties and rights and is recognized as a legal person.⁶ The analysis is straightforward and asks only if the business's "home" country treats the business as a juridical person.⁷ If so, the entity is treated as a corporation for citizenship purposes; if not, it is considered an unincorporated association and has the citizenship of each of its members.⁸

Under the comparison view, the court compares the foreign entity to certain paradigm characteristics of U.S. corporations or other business entities.⁹ Relevant characteristics include whether the entity has a perpetual existence, is governed by a board of directors, is able to issue tradable shares, and is treated as independent of its equity investors.¹⁰ Following the Fourth Circuit's two-step comparison...