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Kramer v. Caribbean Mills, Inc.

Supreme Court of the United States · 1969 · Civil Procedure

Civil ProcedureSubject Matter JurisdictionDiversity JurisdictionCollusive Assignment28 U.S.C. § 135928 U.S.C. § 1332diversity jurisdictionalienage jurisdiction

Facts

Caribbean Mills, a Haitian corporation, entered into a contract with Panama, a Panamanian corporation, under which Caribbean agreed to buy stock and make installment payments. After Caribbean failed to make any installment payments, Panama assigned its entire interest in the contract claim to Kramer, a Texas attorney, for stated consideration of $1. By a separate agreement made the same day, Kramer agreed to pay Panama 95% of any net recovery as a bonus, leaving Kramer with 5% of the net proceeds. Kramer then sued Caribbean in federal court, relying on diversity between himself and Caribbean, although Panama itself could not have invoked diversity jurisdiction because both Panama and Caribbean were alien corporations.

Issue

Whether the federal district court had diversity jurisdiction, or whether the assignment from Panama to Kramer made Kramer a party improperly or collusively to invoke federal jurisdiction within the meaning of 28 U.S.C. § 1359.

Rule

Under 28 U.S.C. § 1359, a federal district court lacks jurisdiction when a claim is assigned in a manner that improperly or collusively manufactures federal jurisdiction. An assignment for purposes of collection, especially where the assignee has no prior connection to the matter, pays nominal consideration, and simultaneously returns most of the beneficial interest to the assignor, falls within the core of the statute even if the assignment is valid under state law and even if jurisdiction is asserted under alienage diversity.

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North Harbor Trading Ltd., a corporation organized in Belize, claims that Lakeview Components GmbH, a German corporation, breached a supply contract. North Harbor assigned the claim to Elena Ortiz, a lawyer from New Mexico who had never worked on the matter before, for $10; in a side agreement signed the same day, Elena promised to remit 92% of any net recovery to North Harbor, and she then sued in federal court in Albuquerque.

Does the federal district court have subject matter jurisdiction?

Explanation. Section 1359 bars jurisdiction when a party is made by assignment to invoke federal jurisdiction through a collusive device. The key indicators from the majority opinion are nominal consideration, the assignee's lack of prior connection to the dispute, and the assignor's retention of most of the beneficial interest through a side agreement. Those facts make this look like a collection arrangement to manufacture jurisdiction. Federal law, not state-law validity, controls, and the rule applies equally to alienage jurisdiction.