394 U.S. 823 (1969), 156, Kramer v. Caribbean Mills, Inc.

Docket Nº:No. 156
Citation:394 U.S. 823, 89 S.Ct. 1487, 23 L.Ed.2d 9
Party Name:Kramer v. Caribbean Mills, Inc.
Case Date:May 05, 1969
Court:United States Supreme Court

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394 U.S. 823 (1969)

89 S.Ct. 1487, 23 L.Ed.2d 9



Caribbean Mills, Inc.

No. 156

United States Supreme Court

May 5, 1969

Argued January 23, 1969




Respondent, a Haitian corporation, contracted with a Panamanian corporation to purchase some of the latter's stock for an $85,000 downpayment 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.

(a) The legality of the assignment under Texas law does not render it valid for purposes of federal jurisdiction, as the existence of federal jurisdiction is a matter of federal, not state, law. P. 829.

(b) Section 1359 applies to diversity jurisdiction arising from the alienage of a party as well as that based on residence in different States. Pp. 829-830.

392 F.2d 387, affirmed.

HARLAN, J., lead opinion

[89 S.Ct. 1488] 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

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jurisdiction over the cause, or whether that court was deprived of jurisdiction by 28 U.S.C. § 1359. That section provides:

A district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court.

The facts were these. Respondent Caribbean Mills, Inc. (Caribbean) is a Haitian corporation. In May, 1959 ,it entered into a contract with an individual named Kelly and the Panama and Venezuela Finance Company (Panama), a Panamanian corporation. The agreement provided that Caribbean would purchase from Panama 125 shares of corporate stock, in return for payment of $85,000 down and an additional $165,000 in 12 annual installments.

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

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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.


The issue before us is whether Kramer was "improperly or collusively made" a party "to invoke the jurisdiction" of the District Court, within the meaning of 28 U.S.C. § 1359. We look first to the legislative background.

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:

No district court shall have cognizance of any suit . . . to recover upon any promissory note or other chose in action in favor of any assignee, . . . unless such suit might have been prosecuted in such court . . . if no assignment had been made.3


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