Kramer (Plaintiff) sued Caribbean Mills, Inc. (Defendant), a Haitian corporation, in federal court under diversity jurisdiction. Defendant moved to dismiss for improper jurisdiction because Plaintiff had been assigned the cause of action for nominal consideration from a Panamanian corporation.
When a cause of action is assigned improperly or collusively in order to obtain federal diversity jurisdiction, there is no jurisdiction.
Plaintiff was assigned the contract cause of action against Defendant, a Haitian corporation, from a Panamanian corporation for one dollar and a promise to pay 95 percent of the recovery. Plaintiff then sued Defendant in federal court under diversity jurisdiction. Defendant moved to dismiss under the Judicial Code for improper and collusively created jurisdiction. The district court denied the motion and found for Plaintiff. Defendant appealed and the appellate court reversed. The Supreme Court granted certiorari.
Can a party collude to assign a cause of action in order to create federal diversity jurisdiction?
(Harlan, J.) No. When a cause of action is assigned improperly or collusively in order to obtain federal diversity jurisdiction, there is no jurisdiction. The Judicial Code was revised in part to prevent the creation of federal diversity jurisdiction through assignment. Plaintiff admitted that the cause of action was assigned in order to create federal diversity jurisdiction. Plaintiff’s arguments that the assignment was legal under state law or that the other party was a foreign national corporation does not affect the determination of federal jurisdiction. Affirmed.
Federal Rule of Civil Procedure 8(a) requires a plaintiff invoking federal diversity jurisdiction plead the basis for jurisdiction in the complaint. This diversity of citizenship cannot be created by collusion, such as through the appointment of a guardian or administrator solely for the purpose of creating diversity. The reverse, however, is not true. No statute prevents the collusive joinder of a party in order to defeat federal diversity jurisdiction.