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Black & White Taxicab & Transfer Co. v. Brown & Yellow Taxicab & Transfer Co.

Supreme Court of the United States · 1928 · Civil Procedure

Civil ProcedureConstitutional LawDiversity JurisdictionGeneral Common LawRailroad Property RightsPublic Policydiversity jurisdictioncollusive joinder

Facts

Respondent, a Tennessee corporation, operated a transfer business in Bowling Green, Kentucky, and entered into a contract with the Louisville and Nashville Railroad Company, a Kentucky corporation, for the exclusive privilege of entering trains, using the depot and surrounding premises to solicit baggage and passenger transportation, and parking taxicabs on an assigned plot while awaiting trains. Petitioner, a competing Kentucky corporation, entered the railroad property, solicited business there, and parked in places assigned to respondent and on an adjoining street so as to obstruct respondent's operations. Respondent had been organized in Tennessee by the shareholders of a Kentucky corporation of the same name, and the old corporation transferred its business and property to respondent and dissolved. The parties arranged this reorganization in order to create diversity of citizenship and have the controversy determined in federal court.

Issue

Did the federal district court have diversity jurisdiction despite respondent's incorporation in Tennessee for the purpose of creating diversity, and, if so, was the railroad's exclusive contract with respondent invalid under the railroad's charter, § 214 of the Kentucky Constitution, or Kentucky public policy as declared by Kentucky courts? Also, on that validity question, were the federal courts bound to follow contrary Kentucky decisions?

Rule

Where the diversity of citizenship is real, the controversy substantial, and the succession and transfer are actual rather than feigned or merely colorable, a party is not improperly or collusively made within Judicial Code § 37 simply because it was organized to create federal jurisdiction. On questions of general law, federal courts are not bound by state-court decisions but may exercise independent judgment. A railroad may lawfully grant an exclusive privilege to solicit patronage and park vehicles on its station grounds if the arrangement does not concern the railroad's business as a common carrier, does not interfere with its carrier duties, and no statute, constitutional provision, or fixed local rule forbids it.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Rivergate Shuttle, an Ohio corporation, was formed by the same owners of Buckeye Shuttle, an Indiana corporation, after Buckeye transferred all of its vans, contracts, and goodwill to Rivergate and dissolved. The owners openly admit they chose Ohio incorporation so Rivergate could sue a competing Indiana shuttle company in federal court over interference with Rivergate's station-access agreement at a rail terminal in Indianapolis.

If the transfer and dissolution were genuine and Rivergate now operates the business as the real party in interest, should the federal court dismiss for improper or collusive creation of jurisdiction?

Explanation. The majority held that § 37 is not violated merely because parties reorganized to obtain a federal forum. Jurisdiction remains proper where diversity actually exists, the controversy is real and substantial, the transfer is actual rather than feigned or merely colorable, and the plaintiff is the real party in interest. Common ownership and a jurisdictional motive alone do not require dismissal.