Federal Judge Rules: Mark Zuckerberg is Not Moving Back In With The Rents

Billionaire 20-Something CEO Remaining in Cali "Indefinitely"

Flowers and Golden Gate.bmpU.S. District Judge Richard Arcana ruled yesterday that after moving to California in 2004, starting up a multi-billion dollar company in California that currently has more than 1,600 employees in California, and never returning to reside in New York, Mark Zuckerberg is domiciled in California.  (Read the decision: Facebook Ruling.pdf.)

Why does this matter?  Good old diversity of citizenship.  Plaintiff Paul Ceglia brought a lawsuit against Zuckerberg in New York state court, claiming that he owns 84% of Facebook.  Zuckerberg's lawyers removed to federal court on diversity jurisdiction grounds.  Zuckerberg resides in California, Facebook, Inc. is a Delaware corporation, and Ceglia resides New York.  

Ceglia moved for remand, arguing that because Zuckerberg represented in a lawsuit commenced in 2004 that he was domiciled in New York, he is a New York domiciliary for the purposes of a lawsuit commenced in 2010.  If true, this would destroy diversity:  both Ceglia and Zuckerberg would be New York residents and the federal court would not have jurisdiction.  

So much can -- and has -- changed in the ensuing 6 years.  Zuckerberg went from being a 20-yr old college sophomore on a leave of absence, spending some time in Palo Alto as he worked on his little Internet start-up, to Time's Person of the Year and a key figure in the Middle East uprisings.  All while residing in California. 

I just don't see Ma and Pa Zuckerberg setting up a basement apartment for young Mark anytime soon, and neither did Judge Arcana.

I can't say that I fault Ceglia's lawyers.  I'd rather roll the dice on his case in state court than federal court.

LLCs in Diversity Jurisdiction: Keeping the Playing Field Bumpy

Your company has just been sued in a foreign state court by an LLC organized in that foreign state demanding more than $75,000 in damages. But you’re not fazed because you can remove to federal court and get rid of the baseless case on a 12(b)(6) motion, right? Wrong!

Or, at least, possibly wrong because you are probably asking the wrong question. In every Court of Appeals Circuit that has ruled on the question (including the Second), and nearly every District Court in the Circuits that are silent, the citizenship of an LLC is not the state where it is organized, but rather the state of citizenship of its members.

The rule is based on sound, if narrow, interpretation of 28 U.S.C. § 1332(c), which states that “a corporation shall be … a citizen of any State by which it has been incorporated and of the State where it has its principal place of business…” In Carden v. Arkoma Assocs., 494 U.S. 195 (1990), the Supreme Court states confirms the strict interpretation of § 1332(c) – if it ain’t a corporation, § 1332(c) does not apply. (The Court acknowledges that it is being “unresponsive to … the changing realities of business organization,” so that is something.)

I have not done a state-by-state survey, but I’m willing to bet that very few states, if any, had adopted limited liability company acts when Carden was decided. This is a classic example of trying to fit a square peg in a round hole. Still, the Supreme Court’s intellectual honesty is little comfort when your company has just been served.

So what’s a defendant to do? You have two choices:

  1. Wing it – file the notice of removal and hope neither the plaintiff nor the Court calls you out.
  2. Aggressively pursue jurisdiction discovery to find out the citizenship of the members. Remove within 30 days of the date when you receive the document or other information from which you can determine the citizenship of the members and, no matter what, have it all done within the first year.

Simple, right?