Respondent, a Haitian corporation, contracted with a Panamanian corporation to purchase some of the latter's stock for an $85,000 down payment and $165,000 in 12 annual installments. No installment payments were made, despite demands by the Panamanian company, which thereafter assigned its interest in the contract to petitioner, a Texas attorney, for $1. By a separate agreement petitioner promised to pay the Panamanian company 95% of any net recovery "solely as a Bonus." Petitioner filed a diversity action against respondent in the District Court and obtained a jury verdict for $165,000. That court denied respondent's motion to dismiss for want of jurisdiction. The Court of Appeals reversed, finding that the assignment was "improperly or collusively made" within the meaning of 28 U.S.C. 1359. Held: The assignment was "improperly or collusively made" within the meaning of 1359, as the "manufacture of Federal jurisdiction" was the very thing Congress intended to prevent by the enactment of 1359 and its predecessors. Pp. 825-830.
Eugene Gressman argued the cause for petitioner. With him on the briefs was Jack Banner.
Dennis G. Lyons argued the cause for respondent. With him on the brief was Morris Harrell.
MR. JUSTICE HARLAN delivered the opinion of the Court.
The sole question presented by this case is whether the Federal District Court in which it was brought had [394 U.S. 823, 824] jurisdiction over the cause, or whether that court was deprived of jurisdiction by 28 U.S.C. 1359. That section provides:
No installment payments ever were made, despite requests for payment by Panama. In 1964, Panama assigned its entire interest in the 1959 contract to petitioner Kramer, an attorney in Wichita Falls, Texas. The stated consideration was $1. By a separate agreement dated the same day, Kramer promised to pay back to Panama 95% of any net recovery on the assigned cause of action, 1 "solely as a Bonus."
Kramer soon thereafter brought suit against Caribbean for $165,000 in the United States District Court for the Northern District of Texas, alleging diversity of citizenship between himself and Caribbean. 2 The District [394 U.S. 823, 825] Court denied Caribbean's motion to dismiss for want of jurisdiction. The case proceeded to trial, and a jury returned a $165,000 verdict in favor of Kramer.
On appeal, the Court of Appeals for the Fifth Circuit reversed, holding that the assignment was "improperly or collusively made" within the meaning of 28 U.S.C. 1359, and that in consequence the District Court lacked jurisdiction. We granted certiorari, 393 U.S. 819 (1968). For reasons which follow, we affirm the judgment of the Court of Appeals.
Section 1359 has existed in its present form only since the 1948 revision of the Judicial Code. Prior to that time, the use of devices to create diversity was regulated by two federal statutes. The first, known as the "assignee clause," provided that, with certain exceptions not here relevant:
The most compelling precedent is Farmington v. Pillsbury, 114 U.S. 138 (1885). There Maine holders of bonds issued by a Maine village desired to test the bonds' validity in the federal courts. In an effort to accomplish this, they cut the coupons from their bonds and transferred them to a citizen of Massachusetts, who gave in return a non-negotiable two-year note for $500 and a promise to pay back 50% of the net amount recovered above $500. The jurisdictional question was certified to this Court, which held that there was no federal jurisdiction because the plaintiff had been "improperly or collusively" made a party within the meaning of the predecessor statute to 28 U.S.C. 80 (1940 ed.). The Court pointed out that the plaintiff could easily have been released from his non-negotiable note, and found that apart from the hoped-for creation of federal jurisdiction the only real consequence of the transfer was to enable the Massachusetts plaintiff to "retain one-half of what he collects for the use of his name and his trouble in collecting." 114 U.S., at 146 . The Court concluded that "the transfer of the coupons was `a mere contrivance, a pretence, the result of a collusive arrangement to create'" federal jurisdiction. Ibid.
We find the case before us indistinguishable from Farmington and other decisions of like tenor. 8 When the assignment to Kramer is considered together with his total lack of previous connection with the matter and his simultaneous reassignment of a 95% interest back to Panama, there can be little doubt that the assignment was for purposes of collection, with Kramer to retain 5% of the net proceeds "for the use of his name [394 U.S. 823, 828] and his trouble in collecting." 9 If the suit had been unsuccessful, Kramer would have been out only $1, plus costs. Moreover, Kramer candidly admits that the "assignment was in substantial part motivated by a desire by [Panama's] counsel to make diversity jurisdiction available . . . ." 10
The conclusion that this assignment was "improperly or collusively made" within the meaning of 1359 is supported not only by precedent but also by consideration of the statute's purpose. If federal jurisdiction could be created by assignments of this kind, which are easy to arrange and involve few disadvantages for the assignor, then a vast quantity of ordinary contract and tort litigation [394 U.S. 823, 829] could be channeled into the federal courts at the will of one of the parties. Such "manufacture of Federal jurisdiction" was the very thing which Congress intended to prevent when it enacted 1359 and its predecessors.
Second, Kramer urges that this case is significantly distinguishable from earlier decisions because it involves diversity jurisdiction under 28 U.S.C. 1332 (a) (2), arising from the alienage of one of the parties, rather than the more common diversity jurisdiction based upon the parties' residence in different States. We can perceive no substance in this argument: by its terms, 1359 [394 U.S. 823, 830] applies equally to both types of diversity jurisdiction, and there is no indication that Congress intended them to be treated differently.
[ Footnote 2 ] Title 28 U.S.C. 1332 (a) (2) grants district courts original jurisdiction of civil actions in which the matter in controversy exceeds $10,000 and is between "citizens of a State, and foreign states or citizens or subjects thereof . . . ." The District Court would have had no jurisdiction of a suit brought by Panama against Caribbean, since both were alien corporations.
[ Footnote 3 ] 28 U.S.C. 41 (1) (1940 ed.). The clause first appeared as 11 of the Judiciary Act of 1789, 1 Stat. 79.
[ Footnote 4 ] This statute was first enacted in 1875. See 18 Stat. 470.
[ Footnote 5 ] The quotation is from a Comment, Chaos of Jurisdiction in the Federal District Courts, 35 Ill. L. Rev. 566, 569 (1941); it refers primarily to the obscure wording of certain exceptions contained in the clause. See id., at 569-571.
[ Footnote 6 ] See cases cited in 3A J. Moore, Federal Practice § 17.05[3.-1], nn. 7-9 (2d ed. 1968).
[ Footnote 7 ] There were exceptions for particular types of assignments, none of which is relevant here.
[ Footnote 8 ] See, e. g., Williams v. Nottawa, 104 U.S. 209 (1881); Little v. Giles, 118 U.S. 596 (1886).
[ Footnote 9 ] Hence, we have no occasion to re-examine the cases in which this Court has held that where the transfer of a claim is absolute, with the transferor retaining no interest in the subject matter, then the transfer is not "improperly or collusively made," regardless of the transferor's motive. See, e. g., Cross v. Allen, 141 U.S. 528 (1891); South Dakota v. North Carolina, 192 U.S. 286 (1904); Black & White Taxicab Co. v. Brown & Yellow Taxicab Co., 276 U.S. 518 (1928); cf. Williamson v. Osenton, 232 U.S. 619 (1914).
Nor is it necessary to consider whether, in cases in which suit is required to be brought by an administrator or guardian, a motive to create diversity jurisdiction renders the appointment of an out-of-state representative "improper" or "collusive." See, e. g., McSparran v. Weist, 402 F.2d 867 (1968); Lang v. Elm City Constr. Co., 324 F.2d 235 (1963); County of Todd v. Loegering, 297 F.2d 470 (1961); cf. Mecom v. Fitzsimmons Drilling Co., 284 U.S. 183 (1931). Cases involving representatives vary in several respects from those in which jurisdiction is based on assignments: (1) in the former situation, some representative must be appointed before suit can be brought, while in the latter the assignor normally is himself capable of suing in state court; (2) under state law, different kinds of guardians and administrators may possess discrete sorts of powers; and (3) all such representatives owe their appointment to the decree of a state court, rather than solely to an action of the parties. It is not necessary to decide whether these distinctions amount to a difference for purposes of 1359.
[ Footnote 10 ] Brief for Petitioner 16.
[ Footnote 11 ] See, e. g., Little v. Giles, 118 U.S. 596, 602 (1886); Lehigh Mining & Mfg. Co. v. Kelly, 160 U.S. 327, 336 (1895); cf. Smith v. Kernochen, 7 How. 198, 215-216 (1849).
[ Footnote 12 ] Petitioner asks that we make our ruling prospective only, asserting that he reasonably believed he had a right to invoke federal jurisdiction, and that the four-year Texas statute of limitations governing contract actions, Tex. Rev. Civ. Stat., Art. 5527 (1948), may bar him from recovering in the state courts as to some of the installments allegedly due him. However, another Texas statute, Tex. Rev. Civ. Stat., Art. 5539a (1948), provides: