Bradbury v. Dennis

Decision Date15 October 1962
Docket NumberNo. 6978.,6978.
PartiesT. O. BRADBURY and N. B. Burt, Appellants, v. Frank DENNIS, Appellee.
CourtU.S. Court of Appeals — Tenth Circuit

Fred M. Winner, Denver, Colo. (Emory L. O'Connell and Robert J. Enochs, Denver Colo., were with him on brief), for appellants.

Clyde J. Watts, Oklahoma City, Okl. (Yegge, Hall & Schulenberg, Denver, Colo., was with him on brief), for appellee.

Before MURRAH, Chief Judge, and PICKETT and HILL, Circuit Judges.

MURRAH, Chief Judge.

This interlocutory appeal under Section 1292(b) Title 28 U.S.C., squarely presents the question of the trial court's diversity jurisdiction. It is contended that the assignment of the asserted cause of action by a wholly owned resident corporation to its nonresident stockholder-plaintiff was "improperly or collusively" made to invoke federal court jurisdiction within the meaning of Section 1359, 28 U.S.C., which denies diversity jurisdiction in such cases.1 The trial court sustained its diversity jurisdiction, but certified the question here as one as to which "there is substantial grounds for difference of opinion."

The complaint affirmatively asserts diversity of citizenship and requisite amount in controversy, and alleges in substance that by the challenged assignment of the asserted cause of action, the plaintiff-appellee merely acquired that which he already owned since he alone had provided the funds for payment of the usurious interest, which is the subject matter of this lawsuit.

If, as suggested, the appellee was the actual owner of the cause of action before the purported assignment, he was of course the real party in interest, and we have no occasion to consider the propriety of the assignment. Pursuant to a hearing to determine jurisdiction, the trial court found, and the record indicates, that the plaintiff and others entered into a partnership for the development of certain real estate in Colorado, the appellee advancing all of the partnership capital. The partnership entered into a contract with the appellants which provided for the payments now claimed to include usurious interest. The partnership organized a Colorado corporation and assigned all of the partnership assets to it, and the corporation assumed all of the partnership liabilities, including an indebtedness to the appellee for capital advancements to the partnership. Some of the payments made under the alleged usurious contract were made by the partnership and some by the corporation. After the appellee became the sole stockholder of the corporation, he caused it to execute the assignment in question, purporting to assign to him all claims and demands which the corporation had or might have against the appellants. At the time of the assignment, the corporation was insolvent, but the plaintiff had paid or orally promised to pay a substantial part of the corporation's indebtedness. It is thus plain that the appellee was not the sole owner of the asserted cause of action before the challenged assignment, and was not therefore the real party in interest.

This brings us to the question whether the assignment was "improperly or collusively" made within the meaning of Section 1359. We start with the presumption against diversity jurisdiction, and the burden is and always has been upon the one asserting it to affirmatively sustain it; and the court is under the duty to dismiss the action if at any stage of the proceeding it becomes apparent that jurisdiction is lacking. City of Lawton, Oklahoma v. Chapman, 10 Cir., 257 F.2d 601.

Originally, one section of the Judicial Code (§ 24(1), 36 Stat. 1091) specifically denied federal jurisdiction to an assignee of a cause of action if it was not available to his assignor. Sowell v. Federal Reserve Bank of Dallas, Tex., 268 U.S. 449, 45 S.Ct. 528, 69 L.Ed. 1041. Another section of the same Code (§ 37, 36 Stat. 1098) denied federal jurisdiction if, at any time after suit had been brought or removed to the federal court, it appeared that the parties to the suit had been "improperly or collusively made or joined * * * for the purpose of creating a case cognizable or removable * * *" to the federal court. The revisors of the 1948 Judicial Code conjoined the two sections to form Section 1359, under which diversity jurisdiction by assignment became conferrable provided it was not improperly or collusively made for that purpose. See Revisors' Note to 28 U.S.C. § 1359; and Steinberg v. Toro, D.C., 95 F.Supp. 791. Indeed, the appellants freely concede as much.

The critical words "improperly or collusively," having been imported from old Section 37 into the Revised Section 1359, we will assume that Congress intended for them to have the same meaning and connotation which had been given them at the time of incorporation into the Revised Code. Our difficult problem is one of ascertaining their true jurisdictional meaning at the time of the revision. As words used to delineate jurisdiction, they ought to be cast in black and white, but we find them in the decisional gray zone. Though words of general import, and no strangers to the law, they are nevertheless words of art when used to define or delineate federal court jurisdiction. They are used in the disjunctive and are evidently intended to define different and varying jurisdictional boundaries. Prerevision case law did not draw a distinction between the two, but was content to say that an assignment or transfer was not improper or collusive unless it could be said to be "fictitious or pretended," Miller & Lux, Inc. v. East Side Canal & Irrigation Co., 211 U.S. 293, 29 S.Ct. 111, 53 L.Ed. 189; or "feigned or merely colorable," Black & White Taxicab & Transfer Co. v. Brown & Yellow Taxicab & Transfer Co., 276 U.S. 518, 48 S.Ct. 404, 72 L.Ed. 681; or for the purpose of creating a temporary or spurious citizenship, Amalgamated Clothing Workers v. Curlee Clothing Co., 8 Cir., 19 F.2d 439; Tower Realty Co. v. City of East Detroit, Mich., 6 Cir., 185 F.2d 590. It was enough that the assignee or transferee was the real party in interest. Black & White Taxicab & Transfer Co. v. Brown & Yellow Taxicab & Transfer Co., supra. If we accept the dictionary definition, as did the Third Circuit, (i.e. Corabi v. Auto Racing, Inc., 3 Cir., 264 F.2d 784, 75 A.L. R.2d 711) the word "improperly" broadly covers any act or conduct deemed unsuited to the circumstances of the case, while the word "collusively" is a stronger word with a more restricted meaning indicating a secret agreement for a bad purpose.

Particularly, we need to know by what standards we shall determine when an assignment or transfer is "fictitious," "colorable" or "spurious," hence improper or collusive. The trial court sustained its jurisdiction on the legal premise that the insolvency at the time of the assignment, or the failure of the corporate minutes to reflect authorization for the assignment, or that the assignment might be voidable upon collateral attack by the creditors, did not render the assignment either improper or collusive or prevent the plaintiff from maintaining the action thereunder. In short, the trial court confined its inquiry to the validity of the transfer as between the parties, that is, between the...

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