Clarifying Diversity Jurisdiction: Trust Citizenship Rules Apply at Every Ownership Layer – ADA Carbon Solutions (Red River) v. Atlas Carbon (10th Cir. 2025)

1. Introduction

ADA Carbon Solutions (Red River), LLC (“ADA”) sued Atlas Carbon, LLC (“Atlas”) in the District of Wyoming for alleged breach of a supply contract for activated carbon. After ADA secured a $76,000 bench-trial victory, it appealed only the damages calculation. During the appeal, however, the Tenth Circuit repeatedly questioned its own subject-matter jurisdiction under 28 U.S.C. § 1332. Both litigants are limited liability companies (LLCs) whose membership structures include a labyrinth of sub-LLCs, limited partnerships, estates, and trusts. Ultimately, the court vacated the judgment and remanded for factual findings on citizenship, issuing an important clarification: the Americold/ Carden “all-members” rule for unincorporated entities applies to trusts regardless of where the trust sits in the ownership chain.

2. Summary of the Judgment

• The Court of Appeals found itself unable to verify complete diversity “through however many layers necessary” because crucial details about sub-members – particularly four GST trusts and their trustee, Bessemer Trust – were missing.
• It rejected Atlas’s argument that the citizenship of a trust’s beneficiaries can be ignored when the trust is merely a member of a member.
• The panel reiterated that a trust’s classification (traditional vs. business) determines whether only trustees’ citizenships matter or whether all “members” (often including beneficiaries or shareholders) must be counted.
• Lacking adequate facts, the panel vacated the district-court judgment and remanded solely for jurisdictional fact-finding. If diversity is confirmed, the judgment may be re-entered; if not, the action must be dismissed.

3. Analysis

3.1 Precedents Cited and Their Influence

• Strawbridge v. Curtiss (1806) – bedrock requirement of complete diversity.
• Carden v. Arkoma Associates, 494 U.S. 185 (1990) – citizenship of limited partnerships equals citizenship of all partners; court cites it to emphasise the “no short-cuts” rule.
• Americold Realty Trust v. Conagra Foods, 577 U.S. 378 (2016) – distinction between traditional vs. business trusts; business trusts adopt citizenship of all members. The Tenth Circuit extends its reach to trusts buried inside entity layers.
• Choice Hospice, Inc. v. Axxess Tech. Solutions, 125 F.4th 1000 (10th Cir. 2025) – most recent circuit precedent that an unincorporated entity’s citizenship must be traced “however many layers necessary.”
• Other support: Siloam Springs Hotel (10th Cir. 2015), Hertz Corp. v. Friend (2010), lower-court remand decisions, and sister-circuit rulings (GBForefront, 3d Cir.; BRT Mgmt., 1st Cir.; etc.).

3.2 Court’s Legal Reasoning

1. Burden on the Proponent of Federal Jurisdiction. ADA, as plaintiff, must prove diversity at time of filing and trace citizenship through every entity layer (including trusts and estates).
2. Traditional vs. Business Trust Dichotomy.
   • Traditional trusts: fiduciary relationships; citizenship = trustees only.
   • Business trusts (or other non-traditional trusts): distinct legal persons; citizenship = all members as defined by state law (often beneficiaries/shareholders).
3. Position in Ownership Structure Irrelevant. Whether the trust is a named party or a remote limited partner of a limited partnership within an LLC, its citizenship must be calculated the same way (rules do not change depending on where the trust is embedded).
4. Facts Missing. Essential details (classification of each GST trust, identity and citizenship of beneficiaries, corporate form and principal place of business of Bessemer Trust) were not of record. These gaps preclude the appellate court’s constitutional duty to confirm jurisdiction.
5. Remand as the Only Option. Consistent with Hertz, Siloam Springs, and FRAP 12.1, the panel remanded for limited fact-finding, signalling it would accept the district court’s determination if grounded in evidence.

3.3 Potential Impact

• Pleading & Disclosure: Litigants must disclose the complete member-by-member chain – down to natural persons and corporations – before litigating merits. Boilerplate statements (“none of our members is diverse-destroying”) will not suffice.
• Heightened Scrutiny of Trusts: Parties must research state trust law to classify each trust and identify all trustees, beneficiaries, or shareholders. Failure can delay or end litigation.
• Transactional Planning: Business entities with multi-layered structures may face strategic pressure to re-examine entity composition if they wish to ensure federal fora for disputes.
• Judicial Efficiency: District courts in the Tenth Circuit are now on notice to demand jurisdictional proof sua sponte early in the case, preventing multi-year proceedings that collapse on appeal.
• Persuasive Authority Nationwide: Though aligned with sister circuits, the opinion provides a thorough exposition that other courts will likely quote when confronting similar nested-trust problems.

4. Complex Concepts Simplified

• Diversity Jurisdiction (§ 1332): Federal courts can hear state-law cases if (1) all plaintiffs are citizens of different states from all defendants (complete diversity) and (2) at least $75,000 is in controversy.
• Citizenship vs. Residence: “Citizenship” means “domicile” – where a person resides and intends to remain indefinitely. Merely having a house or office does not itself create citizenship.
• Unincorporated Entity: Any business form that is not a corporation – e.g., LLCs, LLPs, LPs, joint ventures, business trusts – takes the citizenship of all of its members.
• Traditional Trust: A fiduciary arrangement; not a separate legal person; citizenship = trustees’ citizenships only.
• Business/Non-Traditional Trust: Statutory entity (e.g., real-estate investment trust) with its own legal identity; citizenship = all members (determined by state law; may include beneficiaries or shareholders).
• “Tracing through however many layers”: If an LLC has a member that is an LP, and that LP has partners that are trusts, one must keep peeling back until reaching individuals or corporations.

5. Conclusion

The Tenth Circuit’s decision in ADA Carbon Solutions v. Atlas Carbon presents a cautionary tale and a clarifying precedent. It reconfirms long-standing Supreme Court doctrine while extending its reach to complex, multi-tier business structures: a trust’s citizenship – whether the trust is center-stage or buried several layers deep – is determined under Americold and Carden, and courts must insist on full transparency before proceeding to the merits. Practitioners litigating in federal court must now treat jurisdictional discovery as mission-critical, ensuring that every LLC member, every limited partner, and every trust beneficiary is accounted for and properly documented at the outset of the case.