GREEN & WHITE CONST. CO., INC. v. Cormat Const. Co.

• Decision Date: 23 July 1973
• Docket Number: No. 68 C 2491.,68 C 2491.
• Court: U.S. District Court — Northern District of Illinois
• Parties: GREEN & WHITE CONSTRUCTION COMPANY, INC., a Delaware corporation, Plaintiff, and D. H. Overmyer Company, Inc. (Ohio), an Ohio corporation, Plaintiff, v. CORMAT CONSTRUCTION COMPANY, an Illinois corporation, Defendant.

361 F. Supp. 125

GREEN & WHITE CONSTRUCTION COMPANY, INC., a Delaware corporation, Plaintiff, and D. H. Overmyer Company, Inc. (Ohio), an Ohio corporation, Plaintiff, v. CORMAT CONSTRUCTION COMPANY, an Illinois corporation, Defendant.

No. 68 C 2491.

United States District Court, N. D. Illinois, E. D.

July 23, 1973.

Robert H. Joyce, Raymond J. Kelly, Jr., Seyfarth, Shaw, Fairweather & Geraldson, Chicago, Ill., for Green & White Construction Co., Inc.

Leonard M. Ring, Chicago, Ill., for D. H. Overmyer Company, Inc.

Mitchell S. Goldgehn, Gerald M. Petacque, William H. Symmes, Kirkland & Ellis, Chicago, Ill., for defendant.

MEMORANDUM OF DECISION

TONE, District Judge.

This case was originally brought by the contractor, Green & White Construction Company, Inc., against one of its subcontractors, defendant Cormat Construction Company, for damages caused by allegedly careless and negligent performance of its contractual obligations. D. H. Overmyer Company, Inc. (Ohio) successfully sought to intervene, as the owner of the construction project, on a tort claim for damages involving the same allegedly negligent contract performance by Cormat which allegedly resulted in the destruction of certain of Overmyer's property.

In June of 1972, the original action between Green & White and defendant Cormat was dismissed pursuant to a settlement stipulation. Intervenor-plaintiff Overmyer's complaint remains. Defendant, an Illinois corporation, has now moved to dismiss that complaint for lack of subject matter jurisdiction, alleging a lack of real diversity of citizenship between the parties. The intervention must be supported by independent jurisdictional grounds when, as here, the only basis for the intervention in an in personam action is a common question of law or fact under Rule 24(b)(2), F.R. Civ.P., 3B Moore's Federal Practice, ¶ 24.181 (2d ed. 1969); Babcock & Wilcox Co. v. Parsons Corp., 430 F.2d 531, 540 (8th Cir. 1970); Wright, Federal Courts 331, (2d ed. 1970); 7A Wright & Miller, Federal Practice & Procedure, § 1917 (1st ed. 1973).

Although intervenor-plaintiff's complaint pleads that it is the owner of the buildings and property at the site of the construction project where defendant was engaged, it appears from the supporting papers on this motion that intervenor-plaintiff has a wholly-owned subsidiary, D. H. Overmyer Co., Inc. (Illinois), which was at the pertinent time the owner of the property in question and which contracted for the construction project. Defendant contends that the Illinois subsidiary is the real party in interest and that there is therefore no diversity of citizenship. Intervenor-plaintiff asserts in its memorandum in opposition to the motion that the Illinois subsidiary has assigned all of its rights against defendant to the Ohio parent. I will assume this unsworn assertion to be correct for purposes of the motion, and consider the effect of this purported assignment under the principles governing diversity jurisdiction which must be examined to adjudicate this motion to dismiss.

Where an assignment is made specifically for the purpose of invoking the jurisdiction of a federal court, it is treated as "improperly or collusively made" for jurisdictional purposes and that court may not take jurisdiction. 28 U.S.C. § 1359.¹ But where the transfer of a claim is absolute, with the transferor retaining no interest in the subject matter, the assignment is not "improperly or collusively made" regardless of the transferor's motive. Kramer v. Caribbean Mills, 394 U.S. 823 n. 9, 89 S.Ct. 1487, 23 L.Ed.2d 9 (1969). While it is not absolutely clear just how an assignment from subsidiary to parent fits into this framework of principle, see Pritchard & Co. v. Dow Chemical, 331 F.Supp. 1215, 1220 (W.D.Mo.1971), it is difficult to see how such transfers can ever be "absolute," since the transferor can always arrange to have the assigned claim transferred back and can therefore be said to "retain an interest." Although technically two separate corporate forms, the same set of stockholders control the actions of the parent and its wholly-owned subsidiary, and the stockholders, through their officers, can effect the assignment and re-assignment of claims and interests from one to the other at will. The Supreme Court has held that a parent cannot attempt to create federal jurisdiction by assigning its claim to a subsidiary for just that reason, Miller & Lux v. East Side Canal & Irrigation Co., 211 U.S. 293, 29 S.Ct. 111, 53 L.Ed. 189 (1908). The Court stated that if the stockholders of the parent have the right and power to compel the subsidiary (also controlled by those same stockholders), holding the legal title to a claim through assignment, to re-convey such title to the parent without a valuable consideration, that is the equivalent, for federal...