June 24, 2019

Tenth Circuit: Diversity Jurisdiction Requires Complete Diversity of Parties

The Tenth Circuit Court of Appeals issued its opinion in Grynberg v. Kinder Morgan Energy Partners, L.P. on Monday, November 2, 2015.

Celeste Grynberg, individually and on behalf of several trusts of which she is trustee, and Jack Grynberg petitioned the U.S. District Court for the District of Colorado to vacate an arbitration award entered against them in favor of Kinder Morgan Energy Partners L.P. and Kinder Morgan CO2 Company L.P. (Kinder Morgan entities). The Grynbergs alleged diversity jurisdiction since the amount in controversy was over $75,000, they were residents of Colorado, Kinder Morgan Energy Partners (KMEP) was a Delaware limited partnership with its principal place of business in Texas, and Kinder Morgan CO2 Company (KMCO2) was a Texas limited partnership with its principal place of business in Texas. The district court issued an order to show cause that said the Grynbergs’ petition did not adequately allege diversity jurisdiction because it did not properly identify the citizenship of the Kinder Morgan entities as of the filing date. In response, the Grynbergs explained that KMEP was a publicly traded Delaware master limited partnership (MLP) and KMCO2 was a Texas limited partnership wholly owned by KMEP. The Kinder Morgan entities responded and explained that KMEP had unitholders who were citizens of Colorado. The district court dismissed the action without prejudice based on lack of diversity jurisdiction.

On appeal, the Tenth Circuit analyzed the jurisdictional statutes and the citizenship of MLPs. The Tenth Circuit noted it could only find diversity jurisdiction if no plaintiff is a citizen of the same state as any defendant. The Tenth Circuit turned to the citizenship of MLPs and determined that an MLPs citizenship consists of its unitholders’ citizenship. First, the Tenth Circuit analyzed the long-standing rule regarding citizenship of corporations and unincorporated entities, finding that under Carden v. Arkoma Associates, 494 U.S. 185 (1990), an unincorporated entity’s citizenship is determined by the citizenship of its members. The Tenth Circuit next found that the narrow exception set forth in Puerto Rico v. Russell & Co., 288 U.S. 476 (1933), did not apply because the entity at issue in Russell was wholly unique to Puerto Rico and resembled a corporation more than an unincorporated entity. The Tenth Circuit noted that the Supreme Court had declined to apply the Russell exception to any entities other than the type enunciated in Russell. Finally, the Tenth Circuit addressed the Grynbergs’ argument that applying Carden would preclude jurisdiction over MLPs, noting that these policy arguments were best addressed to Congress.

The Tenth Circuit affirmed the district court’s dismissal without prejudice.

HB 13-1138: Establishing Requirements for Corporations to Become Benefit Corporations

On January 18, 2013, Rep. Pete Lee and Sen. John Kefalas introduced HB 13-1138 – Concerning Benefit Corporations. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

On and after Jan. 1, 2014, the bill permits a corporation to become a benefit corporation if it includes a statement to that effect in its articles of incorporation and also specifies in its articles of incorporation an additional purpose of providing a general or specific public benefit. A corporation needs to obtain two-thirds of the shareholders’ consent to amend its articles of incorporation to become a public benefit corporation; shareholders have dissenting rights.

The corporation and its directors and officers are not liable for failure to pursue or create a general or specific public benefit. The bill specifies directors’ and officers’ standards of conduct. A benefit corporation must prepare a benefit report if so required by its articles of incorporation, and must send the report to its shareholders. The report may assess the corporation’s performance in achieving its general or specific public benefit against a third-party standard. This legislation is sponsored by the CBA. On March 8, the Appropriations Committee approved the bill and sent it to the House for consideration on 2nd Reading.

Since this summary, the House Second Reading was laid over daily.