It’s not quite the fictional case of Jarndyce v. Jarndyce, but it’s not far off. In December 1991, a fire started in an underground storage facility owned and operated by Americold Services Corp. on the outskirts of Kansas City, Kansas. The fire burned for nearly two months, leading to the contamination and eventual destruction of over a hundred million pounds of food and kicking off an epic legal war. The latest battle in that fight came to the Supreme Court this morning, as the Justices heard oral arguments on a somewhat esoteric question: how should courts determine the citizenship – that is, the state from which it hails – of a trust?
The answer matters because one of the defendants in a lawsuit brought by plaintiff ConAgra, which had rented food storage space in the Kansas City facility, is the Americold Realty Trust, a real estate investment trust (REIT) that is one of the successors to Americold Services Corporation. ConAgra filed the lawsuit in a Kansas state court, but Americold transferred (the technical term is “removed”) the case to federal court. It relied on a provision of federal law that allows federal courts to review civil cases when the amount in controversy is at least $75,000 and the parties are “diverse” – that is, all of the defendants are from a different state than all of the plaintiffs.
Lawyers for both sides this morning urged the Court to adopt what they described as clear, bright-line (but very different) rules to determine whether the parties are “diverse” and the lawsuit can proceed in federal court. Arguing on behalf of Americold, which wants the case in federal court, lawyer Michael Pospisil argued that when a trust is a named party to a lawsuit, courts should look to the citizenship of the trustees, rather than the beneficiaries, to make that determination. Such a rule, he contended, would be consistent with the Court’s decisions, issued over more than two centuries, governing trusts. But the Justices were skeptical that the REIT in this case should be treated like a more traditional, common-law trust. Justice Antonin Scalia emphasized that, unlike common law trusts, the Americold trustees could not bring a lawsuit. And Justice Samuel Alito indicated that an REIT might be less “like a traditional trust than it is like another, unincorporated, artificial entity,” such as a limited liability company.
On the other side of the ideological spectrum, Justice Ruth Bader Ginsburg was also dubious. She suggested that the Court’s decisions had drawn a “clear line,” for purposes of determining citizenship, between corporations – for which courts determine citizenship based on the attributes of the business itself – and “all other kinds of” business associations, for which courts “look to the members, the shareholders.” And, she continued, there was the “added notion that, if Congress wants to make it different, Congress can do that.” Justice Elena Kagan joined the fray, stressing to Pospisil that “one of the virtues” of the Court’s earlier line of cases “was that it just set up [a] very categorical, bright-line rule. Everything that’s an artificial legal entity that’s not a corporation ought to be treated the same way.” And that way, she added, “we don’t have to look at the thousands of different variations among legal entities and decide which fits in which box.”
Pospisil gamely tried to point out that looking at the citizenship of all of the REIT’s shareholders would be “so unworkable that in certain circumstances you’re not even going to be able to tell who is a beneficiary” of the trust. And although the Americold REIT has “between 100 and 200” shareholders, he noted, others may have millions; by contrast, this REIT has only five trustees. But even then, the Justices seemed relatively unmoved, with Scalia returning to the idea that “Congress adopted a special rule for corporations, and maybe it ought to adopt a special rule for” REITs.
Pospisil sat down after using just nineteen of his thirty minutes at the lectern. Arguing on behalf of ConAgra, which wants the case to stay in state court, attorney John Duggan urged the Court to follow its earlier cases and rule “that artificial entity associations sued or suing in their own names must measure their diversity citizenship by all of their members” — which would mean in this case that the parties were not diverse. Duggan had a relatively easy time in front of the Justices. There was some pushback – Kagan, for example, suggested that perhaps the Court’s earlier decisions drawing a line between corporations and all other entities were “a bit of a wrong turn” – but overall the Justices allowed Duggan to speak uninterrupted for long stretches of time. It’s always dangerous to predict the outcome of a case based on the oral arguments, but here – despite Posposil’s best efforts – all signs seem to point for a victory for ConAgra.