E-Alert Case Updates

Northern District of West Virginia: Master Limited Partnerships Have Citizenship of Each of Their Public Unitholders

MarkWest Liberty Midstream & Resources, L.L.C. v. Bilfinger Westcon, Inc.
(November 4, 2016) United States District Court for the Northern District of West Virginia
by Matthew J. McCloskey, Associate
Semmes, Bowen & Semmes (www.semmes.com)

Available at: https://ecf.wvnd.uscourts.gov/cgi-bin/show_public_doc?2016cv0118-16

In a recent decision, the United States District Court for the Northern District of West Virginia concluded that publicly traded master limited partnerships have the citizenship of each of their public unitholders for purposes of determining diversity jurisdiction under 28 U.S.C. § 1332.

Plaintiff, MarkWest Liberty Midstream & Resources, L.L.C.(“MarkWest Liberty”), filed a Complaint against Defendant, a North Dakota corporation, in the Circuit Court of Wetzel County, West Virginia. Plaintiff set forth causes of action for breach of contract, negligence, and fraud related to construction work Defendant performed for Plaintiff. Defendant removed the case to Federal court on the basis of diversity of citizenship.

Plaintiff subsequently moved to remand, asserting that it was a citizen of North Dakota because some of its limited partners resided in North Dakota. Specifically, Plaintiff stated that: (1) MarkWest Liberty is 100% owned by its sole member, MarkWest Energy Operating Company, LLC; (2) MarkWest Energy Operating Company, LLC is 100% owned by its sole member, MarkWest Energy Partners, LP; (3) MarkWest Energy Partners, LP is owned 99% by MPLX, LP and 1% by MWE GP, LLC; and (4) MPLX, LP is a publicly traded master limited partnership on the New York Stock Exchange, and some of its partnership interests (which the Court referred to as “public units”) are owned by citizens of North Dakota. Because limited liability companies (“LLCs”) have the same citizenship as their members, Plaintiff asserted that MPLX’s public unitholders residing in North Dakota made Plaintiff a citizen of North Dakota. Defendant opposed Plaintiff’s motion, arguing that “[p]ublicly traded interests in MPLX are securities and not partners” for the purposes of determining diversity jurisdiction. Furthermore, Defendant argued that MPLX’s partnership agreement expressly excluded from the partnership anyone who purchased their interest through an exchange.

Judge John Preston Bailey granted Plaintiff’s motion to remand. The Court began by noting that, under the precedent established in Carden v. Arkoma Assocs., 494 U.S. 185 (1990), the citizenship of any business entity other than a corporation is determined by the citizenship of “each of [the organization’s] members.” Although this rule is perhaps overly formalistic, the Court was bound by the Supreme Court’s determination that any change in this rule must come from Congress, not the Federal courts.

Turning to the facts in this case, the Court further noted that courts in other jurisdictions had specifically addressed the citizenship of master limited partnerships and concluded that such an organization has the citizenship of each of its public unitholders. Although the Fourth Circuit had not yet addressed this particular issue, the Court agreed with the authority from other jurisdictions and concluded that MPLX’s unitholders were all limited partners. Because some of MPLX’s unitholders were citizens of North Dakota, the Court determined that MPLX was itself a citizen of North Dakota. The Court expressly embraced the possibility that this holding could compel the conclusion that MPLX was a citizen of all 50 states, but again noted that it was up to Congress to change the rule explained in Carden if Congress so desired.

Finally, the Court rejected Defendant’s reliance on MPLX’s partnership agreement. The Court concluded that Defendant simply misread the partnership agreement, and determined that the partnership agreement did not, in fact, exclude its public unitholders from limited partnership status. Accordingly, because some of MPLX’s public unitholders were citizens of North Dakota, the Court found that there was no diversity between the parties, and it remanded the case to State court.