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3rd Circuit rules for GSK in Thalidomide Case

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By Brett Snider, Esq. on June 12, 2013 4:01 PM

In a jurisdictional battle decided Friday, the pharmaceutical giant GlaxoSmithKline was determined to be a citizen of Delaware for purposes of litigation.

The plaintiffs, both who suffered birth defects from the effects of thalidomide on their mothers’ pregnancies, argued unsuccessfully to the Third Circuit that GSK was a citizen of Pennsylvania, where most of its business is located.

In what will no doubt add to future law school primers and bar study guides on subject matter jurisdiction, the Court declared there was diversity of citizenship between the parties.

Thalidomide Anyone?

The merits of the Johnson v. SmithKline Beecham Corp. involve claims for general physical and emotional suffering based on congenital birth defects due to thalidomide, which in some cases gave affected children flipper-type limbs, reports The New York Times.

Plaintiffs had filed their claims in Pennsylvania state court, but GSK moved to remove the case to federal court, asserting diversity jurisdiction. The jurisdiction quibble lies in the fact that GSK was formed in 2009 when SmithKline Beecham, a Pennsylvania corporation, converted to a Delaware LLC.

Pennsylvanian No More

Despite the change in form and domicile, the principle place of business is still in Philadelphia, Penn. as well as its headquarters. In Hertz Corp. v. Friend, the U.S. Supreme Court tried to nail down corporate citizenship by declaring that for diversity purposes, a corporation is a citizen of any state in which its "nerve center" or corporate HQ lies.

So GSK is a Pennsylvania citizen then?

*BUZZ!*

Sorry, since GSK is a Delaware LLC, it's different from a corporation (see Carden), we can't just go applying the same simple rules.

LLC Citizenship Based on Members

In Zambelli Fireworks Manufacturing Co., Inc. v. Wood LLC, the Third Circuit opined that unlike corporations, LLC's have citizenship based on the citizenship of its members, like a partnership. But ... the sole member of the GSK LLC is GSK Holdings, a Delaware corporation, so we're back to Hertz and wondering where GSK Holdings' "nerve center" is.

Not to keep you in suspense, the Court decided that ultimately GSK LLC, and for purposes of removal its former incarnations, are Delaware citizens, which keeps diversity intact.

It is very confusing precedent, especially the use of Carden, a 1990 Supreme Court case, to explain away the simplifying logic of Hertz, a 2010 Supreme Court case, with respect to distinguishing LLC's from corporations.

Even when the sole member of the LLC is a corporation.

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