Carter v. SEABOARD COAST LINE RAILROAD COMPANY

• Decision Date: 04 November 1970
• Docket Number: Civ. A. No. 70-819.
• Parties: Alex Peoples CARTER, III, by his Guardian ad Litem, A. P. Carter, Jr., and Elliott Clyde Shelton, Jr., Plaintiffs, v. SEABOARD COAST LINE RAILROAD COMPANY, Defendant.
• Court: U.S. District Court — District of South Carolina

318 F. Supp. 368

Alex Peoples CARTER, III, by his Guardian ad Litem, A. P. Carter, Jr., and Elliott Clyde Shelton, Jr., Plaintiffs, v. SEABOARD COAST LINE RAILROAD COMPANY, Defendant.

Civ. A. No. 70-819.

United States District Court, D. South Carolina, Charleston Division.

November 4, 1970.

Gerald C. Smoak, Walterboro, S. C., for plaintiffs.

A. Baron Holmes, III, Charleston, S. C., for defendant.

OPINION and ORDER

DONALD RUSSELL, District Judge.

This is an action in tort, originally filed in the Court of Common Pleas of Colleton County, South Carolina, and by seasonable petition removed to this Court. It seeks recovery of damages for injuries allegedly sustained by the minor, Alex Peoples Carter, III, in a railroad collision. The plaintiffs are the guardian ad litem, the minor's father, a resident of Colleton County, and Elliott Clyde Shelton, Jr., an alleged assignee of a 1/100 interest in the minor's cause of action and a citizen and resident of Richmond, Virginia. The defendant railroad is chartered under the laws of, and has its principal offices in, Virginia.

The petition for removal to this Court shows that the amount in controversy herein exceeds the jurisdictional amount. It also asserts that the assignment to the co-plaintiff Shelton was invalid and a sham and should be disregarded in determining diversity. It concludes with the claim that the action is one wholly between the guardian ad litem, and his minor son, on the one hand, and the defendant, on the other, and that, as between them, there is the required diversity for federal jurisdiction.

The plaintiffs have now moved to remand, contending that the addition of Shelton as a party-plaintiff destroyed diversity and prevented removal. In the consideration of such motion, the parties, by agreement, have taken the depositions of both the guardian ad litem and Shelton and such depositions have been submitted to the Court.

The real issue on the motion to remand is the effect to be given the assignment executed in favor of Shelton. If it is to be disregarded for jurisdictional purposes, then the motion to remand should be denied. Should it be given full force and effect for jurisdictional purposes, then plaintiffs' motion should be granted. In resolving such issue, the Court must consider the circumstances of the assignment.

The reason for the assignment was plainly stated in the application of the guardian ad litem, filed with the Circuit Court of Colleton County, for authority to execute a nominal assignment of a 1/100 interest in the minor's claim. In this application, the guardian ad litem alleged that the purpose of the proposed assignment was "to retain jurisdiction in Colleton County" of the minor's action for damages because it was believed "that a more favorable verdict might be rendered by a jury composed of citizens of the home county of your Petitioner (i. e., the guardian ad litem) and the said minor." Apparently at the time, the attorneys for the minor had no particular assignee in mind but requested merely general authority "to assign an interest in the aforesaid cause of action to a resident of the State of Virginia." The Circuit Court granted ex parte the requested authority.¹

Through Shelton's brother-in-law in Beaufort, the attorneys for the minor approached Shelton as a resident of Virginia and requested his acceptance of assignment of a minimal interest in the minor's claim for the purpose of defeating federal jurisdiction. Receiving a favorable response, the attorneys mailed Shelton a form of assignment. In their letter of transmittal, the attorneys stated that it was their information that Shelton "had accepted these assignments several times previously and are (is) familiar with them." Along with the assignment was attached the attorneys' "check for $100.00 for your assistance in this matter." There was no information given in the letter of transmittal about either the details of the accident or the extent of the minor's injuries. The assignment showed that nothing was paid or given by the assignee for the assignment; the only consideration on the part of Shelton as stated in the assignment itself was the agreement of the assignee to assume "his proportionate share of all costs and expenses in an action to be brought by him and me in the Court of Common Pleas for the above named County * * *."²

Shelton, in his deposition, testified that he did not know the minor or his father, knew nothing of the accident (until he met the attorneys on the night before his deposition was taken) or the nature of the minor's injuries, had prior to the assignment no possible interest in the cause of action, knew nothing of the fee arrangement with the attorneys for the plaintiffs on the matter and stated that it did not "make any difference" to him what the "fee arrangement" with such counsel was, had no responsibility in connection with the lawsuit, admitted that he had no control over the lawsuit or its possible compromise, conceded that his approval would not be required for a settlement of the action, and stated that he assumed that the purpose of the assignment was to defeat federal jurisdiction over the action. Mr. Shelton, also, testified he had acted as assignee in another similar situation in South Carolina but he did not know the result of the suit that followed.

The guardian ad litem, in his deposition, testified that, in agreeing to the assignment, he had merely followed the advice of his counsel. He did not know Shelton, had never met him, and had never communicated with him in any way. He did not furnish the $100 paid to Shelton. Shelton had no prior interest in the cause of action. The guardian ad litem, also, stated during his examination that Shelton was not bound to pay any hospital, doctor, or attorney's bills or "anything else in this case" and added that he did not know "what Mr. Shelton would receive out of the proceeds of the recovery". He did understand, however, he said, that "the sole purpose of the assignment was to defeat "a removal of this case to the federal court, United States District Court for the District of South Carolina, Charleston Division."

So much for the record on which the motion is to be resolved.

At the very outset, plaintiffs urge that the assignment, being valid under South Carolina law, is immune from scrutiny in this Court by reason of the Erie doctrine.³ Moreover, they assert that if there be a claim of collusion, fraud, sham or want of good faith in the assignment—even though such fraud or collusion was for the very purpose of defeating the otherwise plain jurisdiction of the federal court—the proper forum for the adjudication of such issues is the State Court. In support of this contention they rely on Heape v. Sullivan (D.C.S.C.1964) 233 F.Supp. 127; Ridgeland Box Mfg. Co. v. Sinclair Refining Co. (D.C.S.C.1949) 82 F.Supp. 274; Hair v. Savannah Steel Drum Corporation (D.C.S.C.1955) 161 F.Supp. 654; King v. McMillan (D.C.S.C.1966) 252 F. Supp. 390; Arant v. Stover (D.C.S.C. 1969) 307 F.Supp. 144.⁴ It must be emphasized, however, that Heape and the other cases from this District, (with the exception of the Arant case but see Note 4) were decided prior to the decision in Kramer v. Caribbean Mills, Inc. (1969) 394 U.S. 823, 89 S.Ct. 1487, 23 L.Ed.2d 9, and were based on the law as it was then understood generally. In Kramer, however, Justice Harlan made it abundantly clear that, whatever the law may have been previously, the mere fact an assignment was indisputably valid under State law did not require that it be deemed "valid for purposes of federal jurisdiction", for, as he emphasized "The existence of federal jurisdiction is a matter of federal, not state, law." (p. 829 of 394 U.S., p. 1490 of 89 S.Ct.)⁵ As the commentator in 15 Villanova L.Rev. 499, puts it, "This reasoning (of Justice Harlan) is noteworthy for otherwise state law could be used to exploit the jurisdiction of the federal courts. The ease with which this assignment device could manipulate federal jurisdiction through state law indicates that the expansion and limitation of diversity jurisdiction should be a matter handled by the federal courts and not state law." Thus, whatever may have been deemed the rule prior to Kramer, the proposition is now settled that in connection with motions of this character "neither state law nor rule 17 (a) demands adherence to the principle that the underlying motive or purpose of an assignment will not be examined." 83 Harvard L.Rev. 467.

It is accordingly, the right of this Court, when the issue of federal jurisdiction is raised, to inquire into the purpose and character of an assignment, which either creates or defeats federal jurisdiction. Nor should the Federal Courts abandon such inquiry in favor of the State Courts for every Court has both the power and the obligation to protect its own proper jurisdiction and it ought not look to another court for such protection. Moore on Federal Practice, Vol. 3A, p. 154. Certainly the Federal Courts have not so deferred to the State Courts where there is a claim of a joinder of a sham resident-defendant for purposes of defeating jurisdiction; in fact, in such cases, the Supreme Court has declared it to be the duty of the District Court to resolve such issue, both factually and legally, the Court in Wilson v. Republic Iron & Steel Co. (1921) 257 U.S. 92, 97, 42 S.Ct. 35, 37, 66 L.Ed. 144, putting it, "the issues so arising must be heard and determined by the District Court". If the sham joinder of a resident-defendant for purposes of defeating federal jurisdiction is a matter for resolution by the District Court in determining its own jurisdiction, it would seem equally clear that the sham joinder of a resident-plaintiff for a like purpose should similarly present an issue to be "heard and determined by the District Court".

And, in determining whether there is a sham joinder of either a plaintiff or a defendant for purposes either of...