## Facts

- Zambelli Fireworks Manufacturing Co., a Pennsylvania corporation, employed Matthew Wood as a pyrotechnician.
- Wood signed a 2005 employment agreement containing a two-year noncompetition covenant barring work in the pyrotechnics business for any competitor anywhere in the continental United States, plus a two-year nonsolicitation covenant.
- Zambelli provided Wood specialized training and exposure to customer relationships and methods; Zambelli asserted protectable interests in customer goodwill and training.
- Wood left Zambelli and joined Pyrotecnico F/X, LLC, a direct competitor, to perform similar work.
- Zambelli sued Wood and Pyrotecnico in federal court seeking injunctive enforcement of the restrictive covenants and invoked diversity jurisdiction.
- Pyrotecnico was an LLC whose citizenship, traced through its membership, included Pennsylvania, creating a lack of complete diversity with Zambelli.
- After an evidentiary hearing, the district court granted a preliminary injunction enforcing the covenants against Wood and required no security bond.

## Issues

1. How is an LLC’s citizenship determined for diversity jurisdiction under 28 U.S.C. § 1332?
2. May a court use Federal Rule of Civil Procedure 21 to drop a nondiverse, dispensable party to cure a jurisdictional defect and retain jurisdiction over remaining parties?
3. Under Pennsylvania law, were the restrictive covenants in Wood’s employment agreement enforceable as reasonable restraints protecting legitimate business interests?
4. Did the district court err under Federal Rule of Civil Procedure 65(c) by issuing a preliminary injunction without requiring the movant to post security?

## Decision

- Held that an LLC’s citizenship for diversity purposes is the citizenship of each of its members; Pyrotecnico shared Pennsylvania citizenship with Zambelli, destroying complete diversity.
- Dropped Pyrotecnico under Rule 21 as a dispensable nondiverse party, restoring diversity jurisdiction over the dispute between Zambelli (Pennsylvania) and Wood (Florida).
- Affirmed the district court’s conclusion that the restrictive covenants were enforceable under Pennsylvania law to protect legitimate interests (including customer goodwill and specialized training) and that Zambelli could enforce the agreement despite changes in stock ownership.
- Vacated the preliminary injunction because the district court imposed no bond as required by Rule 65(c), and remanded with instructions to require security if injunctive relief is reissued.

## Legal Principles

- For diversity jurisdiction, a limited liability company takes the citizenship of each of its members (including traced-through membership in multi-tier entities).
- A federal court may dismiss a dispensable nondiverse party under Federal Rule of Civil Procedure 21 to cure a jurisdictional defect and proceed with the action among diverse parties.
- Under Pennsylvania law, an employment-related restrictive covenant is enforceable if it is supported by consideration, protects legitimate business interests (such as customer goodwill, specialized training, or confidential information), and is reasonable in duration and geographic scope.
- Rule 65(c) generally requires a court issuing a preliminary injunction to order the movant to give security in an amount the court considers proper; failing to require any bond is reversible error absent a valid exception.

## Conclusion

The Third Circuit treated LLC citizenship as the citizenship of all members, cured a diversity defect by dismissing a dispensable nondiverse competitor under Rule 21, upheld enforcement of an employment noncompete under Pennsylvania law, and required vacatur and remand when the district court issued a preliminary injunction without ordering a Rule 65(c) security bond.


Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412 (3d Cir. 2010)