Dweck v. Japan CBM Corp.

• Decision Date: 04 May 1989
• Docket Number: No. 87-6351,87-6351
• Parties: Morris DWECK, Plaintiff-Appellant, v. JAPAN CBM CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 790

877 F.2d 790

Morris DWECK, Plaintiff-Appellant, v. JAPAN CBM CORPORATION, Defendant-Appellee.

No. 87-6351.

United States Court of Appeals Ninth Circuit.

Submitted May 4, 1989. ^*

Decided June 12, 1989.

Donald S. Burris, Burris, Wapner & Hiestand, Los Angeles, Cal., for plaintiff-appellant.

Derrick Fisher, Kalisch & Fisher, Beverly Hills, Cal., for defendant-appellee.

Appeal from the United States District Court for the Central District of California.

Before SNEED, REINHARDT and BRUNETTI, Circuit Judges.

SNEED, Circuit Judge:

Dweck appeals from the dismissal of his action for lack of subject-matter jurisdiction. We affirm.

I. FACTS AND PROCEEDINGS BELOW

Japan CBM Corp. (CBM), a Japanese corporation, contracted to sell R.G.A. Co. (RGA), a Hong Kong corporation, 20,000 commercial videocassette players for approximately $7,000,000. The contract was never performed. Dweck brings this action for breach of contract, although he was not a party to the contract. He asserts, however, that he was to resell the videocassette players to Dalamal & Sons, Inc., a New York corporation and that he is the assignee of RGA's interest in the contract. Dweck invokes federal jurisdiction on diversity of citizenship.

Dweck, a United States citizen residing in New York, imports electronic products into the United States from Asia. Dweck asserts that he became "affiliated" with RGA in order to facilitate his business. He claims that he is "neither a shareholder nor a principal" of RGA. RGA was wholly owned by Chu, a Hong Kong resident and business associate of Dweck. They agreed, Dweck asserts, that although all foreign trading would be done in the name of the corporation, each man would receive the profits from transactions which he negotiated. Dweck contends that he alone negotiated the contract with CBM and thus, under his agreement with Chu, was entitled to all of the profits. In 1986, Chu died and his heirs decided to liquidate the corporation. As a consequence, RGA assigned its interest in the contract to Dweck. No consideration was exchanged. This assignment needed no consideration, Dweck contends, because he was entitled to all of the profits from the contract by virtue of his agreement with Chu.

CBM contests this version of the facts. It points out that Dweck testified at his deposition that he is a director of RGA. CBM also points out that, although requested to do so, Dweck failed to produce On this showing, CBM moved to dismiss the action for lack of subject-matter jurisdiction or, alternatively, forum non conveniens. The district court held that the assignment was collusive and dismissed the action. See 28 U.S.C. Sec. 1359 (1982). It also ruled that it would dismiss on the basis of forum non conveniens were it not dismissing on the "collusive assignment" basis. Dweck appeals.

any documentary evidence of the agreement between Chu and himself or the corporate structure of RGA. Dweck also failed to produce any evidence of any debts owed by RGA to himself that would support his claim that consideration was exchanged for the assignment.

II. JURISDICTION

Jurisdiction is the subject of this appeal. Dweck alleged jurisdiction under 28 U.S.C. Sec. 1332(a) (1982). This court has jurisdiction under Sec. 1291.

III. STANDARD OF REVIEW

Whether the district court had subject-matter jurisdiction is a question of law which this court reviews de novo. Peter Starr Prod. Co. v. Twin Continental Films, Inc., 783 F.2d 1440, 1442 (9th Cir.1986). The district court's findings of fact made in conjunction with its rulings on the jurisdictional issues must be accepted unless they are clearly erroneous. See Bruce v. United States, 759 F.2d 755, 758 (9th Cir.1985).

IV. ANALYSIS

The district court dismissed Dweck's complaint, ruling that the assignment of the breach of contract claims "was collusive, sham, and improper and made for the sole purpose of creating diversity jurisdiction." A party may not create diversity jurisdiction by the use of an improper or collusive assignment. See 28 U.S.C. Sec. 1359 (1982). The party asserting jurisdiction has the burden of proof. See, e.g., Aetna Cas. & Sur. Co. v. Hillman, 796 F.2d 770, 775 (5th Cir.1986); Bradbury v. Dennis, 310 F.2d 73, 74 (10th Cir.1962), cert. denied, 372 U.S. 928, 83 S.Ct. 874, 9 L.Ed.2d 733 (1963).

The facts in this case are similar to those involving assignments between parent and subsidiary corporations. This court has held that assignments between parent and subsidiary corporations "are presumptively ineffective to create diversity jurisdiction." Simpson v. Alaska State Comm'n for Human Rights, 608 F.2d 1171, 1174 (9th Cir.1979). Unless there is a legitimate business reason which justifies such an assignment, it cannot create diversity jurisdiction. See, e.g., Prudential Oil Corp. v. Phillips Petroleum Co., 546 F.2d 469, 476 (2d Cir.1976); Green & White Constr. Co. v. Cormat Constr. Co., 361 F.Supp. 125, 127 (N.D.Ill.1973).

We think it proper that this presumption should be applied to assignments between corporations and its officers or directors. Otherwise, any employee or officer of a corporation could sue based on an assignment from a corporation. Section 1359 was designed to prevent parties from channelling a "vast quantity of ordinary contract and tort litigation ... into the federal courts...." Kramer v. Carribean Mills, Inc., 394 U.S. 823, 828-29, 89 S.Ct. 1487, 1490-91, 23 L.Ed.2d 9 (1969). Permitting corporations to assign their claims to corporate officers or directors, without requiring that this presumption be overcome, could lead to just such a result.

Courts addressing somewhat similar situations have employed this approach. For example, in Blythe Indus., Inc. v. Puerto Rico Aqueduct & Sewer Auth., 573 F.Supp. 563 (D.P.R.1983), two corporations, Blythe Industries and Vanguard Constructions Corporation, as joint-venturers, owned Blythe-Vanguard Construction Corporation. This corporation was formed for the sole purpose of performing construction for the Puerto Rico Aqueduct & Sewer Authority. A dispute arose between Blythe-Vanguard and the Authority. Seven months before suit was filed, Blythe-Vanguard assigned its claims to its owners. Because no legitimate reason for the transfer was demonstrated, the court found the assignment by the corporation to its owners collusive. Id. at 564.

Similarly, in Syms v. Castleton Indus., Inc., 470 F.2d 1078, 1079 (5th Cir.1972), a family trust, with mother and son acting as trustees, invested a large sum of money with the defendants. Defendants failed to pay federal income tax on profits for the investment. Mother and all the trust members assigned their interest in the action against the defendants to her son. No consideration was given for the assignments and the son admitted that any recovery would be shared with all members of the trust. Id. at 1081-82. The court concluded that the assignment was collusive and dismissed the action. The court relied on the lack of consideration for the transfer and noted that the assignors effectively retained an interest in the proceeds. Id. at 1082. Once more the assignee failed...