Diversity jurisdiction and real estate investment trusts

Americold Realty Trust v. Conagra Foods, Inc., No. 14-1382 (U.S. Mar. 7, 2016).

If their amount in controversy is above $75,000, citizens of different states may invoke the jurisdiction of the federal courts to decide their dispute. But how do you determine the citizenship of a real estate investment trust (an “REIT”), which since the early 1990s has become an increasingly important form of business organization in the United States? That’s the question the Supreme Court answers here.

The Supreme Court has consistently said that unincorporated associations possess the citizenship of all of their “members.” And it has held that the members of a for-profit association (a partnership, for example) are those who have an ownership in the association. REITs formed under the law of Maryland—which has become the Delaware of REITs—have shareholders with ownership interests in the trust. Those shareholders would thus seem to be the “members” that determine the REIT’s citizenship.

On the other hand, when a trustee sues on behalf of a trust, the federal courts say that jurisdiction is determined by the trustee’s citizenship. So you might think that a similar rule applies to an REIT, which, after all, bears the name “trust.” As a unanimous Supreme Court points out, however, a common-law trust wasn’t traditionally treated as a separate legal entity—which means that courts had to look to the trustee’s citizenship. An REIT, by contrast, is a separate legal entity that can sue or be sued on its own behalf.

Hence, the normal rule for unincorporated associations applies to an REIT: Its citizenship is that of all of its members, which is to say, all of its shareholders. If Congress believes with some justice that an REIT resembles a corporation more than anything else, it may provide by legislation that federal courts must treat REITs as if they were corporations.