WICHITA (LN) — Chief U.S. District Judge John W. Broomes remanded a contract dispute between an aviation services company and its opponents after concluding that the New Mexico Educational Retirement Board, buried several layers deep in the plaintiff's ownership structure, is an arm of the state and therefore not a citizen for diversity purposes — wiping out the federal court's subject-matter jurisdiction entirely.
The case began on March 27, 2025, when Mid-Continent Aviation Services, Inc. sued Blue & Green Trust and Frank Gangi in Kansas state court. Those two defendants removed on diversity grounds on April 29, 2025. T3 Aviation, Inc. was added as a defendant in September 2025. The litigation took a sharp turn in December 2025 when defendants discovered that Mid-Continent Aviation Services, Inc. had ceased to exist as a legal entity — having converted to Mid-Continent Aviation Services, LLC on February 29, 2024, roughly a year before the suit was filed.
Broomes allowed the substitution of MCAS, LLC as the real party in interest under Federal Rule of Civil Procedure 17(a), which requires an action to be prosecuted in the name of the party that actually holds the substantive rights. Under Kansas law, a converted entity "is the same entity without interruption as the converting entity," meaning MCAS, LLC's citizenship at the time of the original filing controlled the jurisdictional analysis.
That citizenship proved fatal. Tracing through the LLC's ownership layers, MCAS, LLC identified AE Industrial Partners Fund III, LP as one of its members, and Fund III in turn counts the New Mexico Educational Retirement Board among its limited partners. Because an LLC takes the citizenship of each of its members — traced through however many layers necessary to reach a corporation or natural person — NMERB's status as a state entity collapsed the diversity analysis.
Broomes applied the Tenth Circuit's arm-of-the-state factors, examining state-law characterization, operational autonomy, financial independence, and whether the entity addresses matters of statewide concern. He found that NMERB's nine-member board includes two individuals appointed by the governor and otherwise a majority of high-ranking state officials, that the New Mexico legislature dictates how often it meets and what constitutes a quorum, and that disbursements from the educational retirement fund require approval from the New Mexico Department of Finance and Administration. Defendants offered no argument or evidence to the contrary.
The ruling lands in the middle of a recognized problem that has bedeviled federal courts for years. Broomes catalogued decisions from the First, Second, Third, Fourth, Fifth, Sixth, Seventh, and Eighth Circuits all reaching the same jurisdictional dead end when unincorporated entities carry stateless or non-citizen members through their ownership chains.
Broomes was direct about the structural mismatch. The result, he observed, means that unincorporated entities may essentially immunize themselves against ever landing in federal court on diversity grounds by including a state or other non-citizen entity among their members — a consequence flowing from the collision between 19th-century Supreme Court precedent on state non-citizenship and modern unincorporated-entity citizenship rules. He quoted the Seventh Circuit's conclusion from Page v. Democratic National Committee that the fix belongs to Congress: "If this outcome seems to defy modern commercial realities, the responsibility for amending § 1332—updating it to account for today's forms of business associations—rests with Congress."
The case returns to the Eighteenth Judicial District Court of Sedgwick County, Kansas, where it started more than a year ago.