Diversity Jurisdiction For REITs

The U.S. Supreme Court heard oral arguments this morning on the question of how to determine the citizenship of a Maryland business trust (which is the Delaware of business trusts uses in real estate investment trusts called REITs which are taxed on sort of a simplified S-corporation basis under tax rules particular to REITs and not derived directly from any other entity's tax rules).

The REIT has asked to be citizens of the states where the trustees are citizens even though the trustees don't have the right to sue in a Maryland business trust for which only the entity has the right to sue.

The Defendant in the trial court has asked to be a citizen of the states where the beneficiaries of the REIT reside (effectively barring any REIT from every removing diversity cases to federal court) like an LLC or partnership or limited partnership

Amici have argued that a Maryland business trust should be treated as a corporation for diversity jurisdiction purposes (i.e. as a citizen of the state of formation and the state where it has its principle place of business).  Judge Kagan floated the idea over overturning decades of precedent and adopting this position although not other Justices joined her in taking the approach.

The Court could also deny relief as cert was improvidently granted on the grounds that there was not complete diversity under either the Plaintiffs or the Defendants theory until the diversity defeating trustees resigned after the Plaintiffs filed suit (which was raised in a 10th Circuit appeal but not addressed on the merits in the 10th Circuit opinion).  Cert was not granted on that issue, however.

The argument was not very partisan and did not clearly show the hand of how the court was leaning on this issue, although, in general, the case for treating this kind of trust like a limited partnership seemed to be the most likely stance for the Court to take.

UPDATE: Ronald Mann, writing for SCOTUS Blog, predicts a unanimous decision treating REITs as LLCs and Limited Partnerships for diversity jurisdiction purposes based upon oral arguments in the case.