Bar Exam — MBE (Multistate Bar Exam)Civil ProcedureMedium
A plaintiff, a citizen of State A, sued a sole proprietorship, whose owner is a citizen of State B, in federal court in State A. The plaintiff sought $100,000 in damages for negligence. The sole proprietorship's principal place of business is in State A. The defendant moved to dismiss for lack of subject matter jurisdiction. How should the court rule?
- AGrant the motion because the sole proprietorship's principal place of business is in State A, destroying diversity.
- BGrant the motion because a sole proprietorship does not have its own citizenship for diversity purposes.
- CDeny the motion because the owner is a citizen of a different state.
- DDeny the motion because the amount in controversy is met.
Show answer & explanationAnswer & explanation
Correct answer: C. Deny the motion because the owner is a citizen of a different state.
For diversity jurisdiction, the citizenship of a sole proprietorship is determined solely by the citizenship of its owner, not its place of business. Since the owner is a citizen of State B and the plaintiff is a citizen of State A, diversity is complete.
Why the other options are wrong
- A. This is incorrect. While the principal place of business is relevant for corporations, it is irrelevant for the citizenship of a sole proprietorship.
- B. This is incorrect. A sole proprietorship *does* have citizenship for diversity purposes, which is the citizenship of its individual owner.
- D. While the amount in controversy is met ($100,000 > $75,000), this option only addresses one part of the diversity analysis and doesn't fully explain why the motion should be denied. The core issue raised by the question is citizenship.
Citizenship of Unincorporated Associations (Diversity)
For purposes of diversity jurisdiction, the citizenship of an unincorporated association (e.g., a partnership, LLC, or sole proprietorship) is determined by the citizenship of *all* its members or, in the case of a sole proprietorship, its individual owner.
- Sole proprietorship: same citizenship as the owner.
- Partnership: citizenship of every partner (general and limited).
- LLC: citizenship of every member.
- This rule can make diversity jurisdiction difficult to establish for large unincorporated entities.
Memory trick: Diversity's 'Citizen' status depends on who's 'Home'.