Attorneys Trust v. Videotape Computer Products, Inc.

• Citation: 93 F.3d 593
• Decision Date: 20 August 1996
• Docket Number: No. 95-55410,95-55410
• Parties: 96 Cal. Daily Op. Serv. 6178, 96 Daily Journal D.A.R. 10,118 ATTORNEYS TRUST, Plaintiff-Appellant, and CMC Magnetics Corporation aka CMC, a Republic of China Corporation, Cross-Defendant-Appellant, v. VIDEOTAPE COMPUTER PRODUCTS, INC., for itself & dba Video Computer Products, Inc., Defendant-Appellee, and Videotape Products, Inc., Cross-claimant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 593

93 F.3d 593

96 Cal. Daily Op. Serv. 6178, 96 Daily Journal

D.A.R. 10,118

ATTORNEYS TRUST, Plaintiff-Appellant,

and

CMC Magnetics Corporation aka CMC, a Republic of China

Corporation, Cross-Defendant-Appellant, v. VIDEOTAPE COMPUTER PRODUCTS, INC., for itself & dba Video

Computer Products, Inc., Defendant-Appellee,

and

Videotape Products, Inc., Cross-claimant-Appellee.

No. 95-55410.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted July 11, 1996.

Decided Aug. 20, 1996.

Richard C. Harding and W. Michael Mayock, Pasadena, California, for plaintiff-appellant Attorneys Trust and cross-defendant-appellant CMC Magnetics Corporation.

William K. Henley, Hahn & Hahn, Pasadena, California, for defendant-appellee Videotape Computer Products and cross-claimant-appellee Videotape Products, Inc.

Appeal from the United States District Court for the Central District of California, David V. Kenyon, District Judge, Presiding. D.C. No. CV-92-03442-KN(Ex).

Before FERNANDEZ and TASHIMA, Circuit Judges, and MERHIGE, ^* District Judge.

FERNANDEZ, Circuit Judge:

CMC Magnetics Corporation, a Republic of China corporation, claimed that Videotape Products, Inc., a California corporation (VTP), was indebted to it. CMC assigned its claim to Attorneys Trust (AT), which is a business name of a California citizen. AT itself then brought suit against VTP. VTP, in turn, cross-complained against CMC for breach of warranty in the sale of certain videotape housings. The district court found in favor of VTP and entered judgment against CMC and AT, which they now appeal. They claim that the district court had no subject matter jurisdiction and that it also made a number of errors in deciding the merits of the case. ¹ We affirm.

BACKGROUND

The business relationships between CMC and VTP are somewhat complex because most of their dealings proceeded through the use of intermediaries. Nevertheless, the district court determined that the intermediaries should be disregarded and that CMC and VTP were, in fact, dealing with one another. Therefore, it allowed various offsets and, ultimately, rendered a substantial money judgment in favor of VTP and against CMC.

Most of the details of the transactions are not important to resolution of the jurisdictional question, but one transaction is. It is undisputed that CMC sold 1,300,000 videotape housings to VTP and that, rather than paying for them in cash, VTP purported to offset the amounts due against other debts owed by CMC to VTP.

CMC decided to sue VTP for the price of the housings ($614,110.20 after admitted offsets), but rather than do so directly it contacted AT, a collection agency. The assignment to AT was for collection purposes only and was made, as AT and CMC now say, so that CMC, a foreign corporation, would not have to navigate the American legal system by itself. AT was to proceed in the attempt to collect the alleged debt and was to receive 12 percent for its trouble. AT filed this diversity action, and when VTP cross-complained the attorney representing AT also appeared on behalf of CMC. The action then proceeded to trial and to a result inimical to the interests of CMC.

AT and CMC then decided, among other things, that the district court did not have jurisdiction because both AT and VTP were citizens of California. See 28 U.S.C. § 1332(a). This appeal followed.

STANDARD OF REVIEW

"The existence of subject matter jurisdiction is a question of law, and our review is de novo." Nike, Inc. v. Comercial Iberica de Exclusivas Deportivas, S.A., 20 F.3d 987, 990 (9th Cir.1994). "We will dismiss an action on appeal if jurisdiction is lacking." May Dep't Store v. Graphic Process Co., 637 F.2d 1211, 1216 (9th Cir.1980).

JURISDICTION

It is rather unusual for a plaintiff to proceed all the way through trial and then claim that there was no jurisdiction in the A plaintiff may attempt to create or destroy diversity jurisdiction by making a transfer which is an assignment in name only. In either case, the plaintiff tampers with the jurisdiction of the court by artificially affecting it.

                first place.  It is more unusual, even rare, for that assertion to revolve around the question of whether an assignment for collection was sufficient to change the jurisdictional picture, but that is the issue in this case.  Of course, "[a] party may raise jurisdictional challenges at any time during the proceedings."   Id. That includes a disappointed plaintiff.  See Albrecht v. Lund, 845 F.2d 193, 194 (9th Cir.), as amended, 856 F.2d 111 (9th Cir.1988).  We, therefore, will consider the jurisdictional issue, even though it was raised on appeal for the first time.  See id
                

The more common case is one in which a plaintiff has attempted to create diversity jurisdiction by making an improper or collusive assignment. It is that kind of attempt which has attracted the attention of Congress. Congress has declared that "[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." 28 U.S.C. § 1359. The Supreme Court has applied and discussed that statute in what has become the leading case in the jurisdiction-tampering area. See Kramer v. Caribbean Mills, Inc., 394 U.S. 823, 89 S.Ct. 1487, 23 L.Ed.2d 9 (1969).

In Kramer, a Panamanian corporation, the Panama and Venezuela Finance Company (Panama), had a contractual dispute with a Haitian corporation. Because both were citizens of foreign states, there could be no diversity of citizenship between them. Cf. 28 U.S.C. § 1332(a)(2). Panama assigned its interest in the contract to Kramer, an attorney who was a citizen of 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, 'solely as a Bonus.' " Id. at 824, 89 S.Ct. at 1488 (footnote omitted). Kramer then brought an action in the United States District Court for the Northern District of Texas and alleged diversity of citizenship between the defendant and himself. The Supreme Court held that there was no diversity.

The Court relied upon § 1359, and in reaching its decision it declared:

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 and his trouble in collecting." If the suit had been unsuccessful, Kramer would have been out only $1, plus costs.

Id. at 827-28, 89 S.Ct. at 1490. The Court went on to say that "Kramer candidly admits that the 'assignment was in substantial part motivated by a desire by [Panama's] counsel to make diversity jurisdiction available.' " Id. at 828, 89 S.Ct. at 1490. But the Court also stated that it was not deciding whether motive would be important if there were an absolute assignment "with the transferor retaining no interest in the subject matter." Id. at 828 n. 9, 89 S.Ct. at 1490 n. 9.

The Court has not spoken on the precise issue since then, but a good deal of law has developed in the other federal courts. Even though the case at hand is a destruction of diversity case, we will survey the cases which refer to creation of diversity because the informing principles are much the same. We will then take up the more meager authority on destruction of diversity and will finally apply the emergent principles to the facts of the case at hand.

A. Creation of Diversity

Since Kramer, courts have set out a number of factors which are to be considered in deciding whether an assignment is improper or collusive. Among them are: were there good business reasons for the assignment; did the assignee have a prior interest in the item or was the assignment timed to coincide with commencement of litigation; was any consideration given by the assignee; was the assignment partial or complete; and was There is some doubt that the subjective "motive" element is entitled to great weight. See Haskin, 666 F.Supp. at 354 ("[T]here is a split among the Circuits regarding the application of Section 1359 especially concerning the weight that should be accorded to the motive factor." In Kramer "importance of [motive] was significantly undermined when the Court, in a footnote, declined to decide the particular relevance of motive in manufactured diversity cases.") Certainly there is no reason to give motive controlling weight in every case, although it will surely illuminate an otherwise hidden improper motive and may be virtually controlling in some cases. The objective fact of who really is the party in interest is the most important thing to be determined. But even more interesting than the factors themselves are the results of the cases applying them.

                there an admission that the motive was to create jurisdiction.  See Pasquotank Action Council, Inc. v. City of Virginia Beach, 909 F.Supp. 376, 383 (E.D.Va.1995) (noting "the two factors set forth in  Kramer, that is, whether (1) there was nominal or no consideration involved in the transaction;  and (2) the interest in the action retained by assignor");   Haskin v. Corporacion Insular de Seguros, 666 F.Supp. 349, 353-54 (D.P.R.1987) (Kramer requires that the assignee have "some independent, legitimate interest in the dispute that predated the assignment and was not a complete stranger to the transaction";  motive also "relevant but not controlling factor") (quotation and citation omitted);   Fowler v. Coals, 418 F.Supp. 909, 911-13 (E.D.Tenn.1976) (applying  Kramer 's "two-pronged test" and factors to hold that assignment to stockholder of corporation's claim in consideration of $25,000 bonus of proceeds if litigation successful was colorable and motivated by desire to acquire jurisdiction)
                

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