LAKE COUNTY COMMISSIONERS V. DUDLEY

• Decision Date: 20 February 1899
• Citation: 173 U. S. 243
• Court: U.S. Supreme Court

Lake County Commissioners v. Dudley

No. 177

Argued December 14-15, 1898

Decided February 20, 1899

173 U.S. 243

CERTIORARI TO THE CIRCUIT COURT OF

APPEALS FOR THE EIGHTH CIRCUIT

Syllabus

The instruments sued on in this case being payable to bearer, and having been made by a corporation, are expressly excepted by the Judiciary Act of August 13, 1888, c. 866, from the general rule prescribed is it that an assignee or subsequent holder of a promissory note or chose in action could not sue in a circuit or district court of the United States unless his assignor or transferor could have sued in such court.

From the evidence of Dudley himself, the plaintiff below, it is clear that he does not own any of the coupons sued on, and that his name is being used with his own consent, to give jurisdiction to the circuit court to render judgment for persons who could not have invoked the jurisdiction of a federal court, and the trial court, on its own motion, should have dismissed the case without considering the merits.

The case is stated in the opinion.

Page 173 U. S. 244

MR. JUSTICE HARLAN delivered the opinion of the Court.

This action was brought in the Circuit Court of the United States for the District of Colorado by the defendant in error Dudley, a citizen of New Hampshire, against the plaintiff in error the Board of County Commissioners of the County of Lake, Colorado, a governmental corporation organized under the laws of that state. Its object was to recover the amount of certain coupons of bonds issued by that corporation under date of July 31, 1880, and of which coupons the plaintiff claimed to be the owner and holder.

Each bond recites that it is

"one of a series of fifty thousand dollars, which the board of county commissioners of said county have issued for the purpose of erecting necessary public buildings, by virtue of and in compliance with a vote of a majority of the qualified voters of said county at an election duly held on the 7th day of October, A.D. 1879, and under and by virtue of and in compliance with an act of the General Assembly of the State of Colorado, entitled 'An act concerning counties, county officers and county government, and repealing laws on these subjects,' approved March 24, A.D. 1877, and it is hereby certified that all the provisions of said act have been fully complied with by the proper officers in the issuing of this bond."

The board of county commissioners, by their answer, put the plaintiff on proof of his cause of action and made separate defenses upon the following grounds: 1. that the bonds to which the coupons were attached were issued in violation of section six, article eleven of the Constitution of Colorado and the laws enacted in pursuance thereof; 2. that the aggregate amount of debts which the County of Lake was permitted by law to incur at the date of said bonds, as well as when they were in fact issued, had been reached and exceeded; 3. that the plaintiff's cause of action, if any he ever had, upon certain named coupons in suit, was barred by

Page 173 U. S. 245

the statute of limitations; 4. that when the question of incurring liability for the erection of necessary public buildings was submitted to popular vote, the county had already contracted debts or obligations in excess of the amount allowed by law.

One of the questions arising on the record is whether Dudley had any such interest in the coupons in suit as entitled him to maintain this suit. The evidence on this point will be found in the margin. *

Page 173 U. S. 246

At the close of the plaintiff's evidence in chief, the defendant asked for a peremptory instruction in its behalf, but this request was denied at that time. When the entire evidence

Page 173 U. S. 247

on both sides was concluded, the defendant renewed its request for a peremptory instruction, and the plaintiff asked a like instruction in his favor. The plaintiff's request was denied,

Page 173 U. S. 248

an exception to the ruling of the court being reserved. Other instructions asked by the plaintiff were refused, and in obedience to a peremptory instruction by the court, the jury returned

Page 173 U. S. 249

a verdict for the defendant, and judgment was accordingly entered upon that verdict. Upon writ of error to the circuit court of appeals, the judgment was reversed, Judge Thayer dissenting. 49 U.S.App. 336.

1. In the oral argument of this case, some inquiry was made

Page 173 U. S. 250

whether Dudley's right to maintain this action was affected by that clause in the first section of the Judiciary Act of August 13, 1888, c. 866, 25 Stat. 433, 434, providing that no circuit or district court of the United States shall

"have cognizance of any suit, except upon foreign bills of exchange, to recover the contents of any promissory note or other chose in action in favor of any assignee, or of any subsequent holder if such instrument be payable to bearer and be not made by any corporation, unless such suit might have been prosecuted in such court to recover the said contents if no assignment or transfer had been made."

The provision on the same subject in the Act of March 3, 1875, but which was, of course, displaced by the clause on the same subject in the act of 1888, was as follows:

"Nor shall any circuit or district court have cognizance of any suit founded on contract in favor of an assignee, unless a suit might have been prosecuted in such court to recover thereon if no assignment had been made, except in cases of promissory notes negotiable by the law merchant and bills of exchange."

18 Stat. 470, c. 137, § 1.

Without stopping to consider the full scope and effect of the above provision in the act of 1888, it is only necessary to say that the instruments sued on being payable to bearer and having been made by a corporation are expressly excepted by the statute from the general rule prescribed that an assignee or subsequent holder of a promissory note or chose in action could not sue in a Circuit or district court of the United States unless his assignor or transferor could have sued in such court. It is immaterial to inquire what were the reasons that induced Congress to make such an exception. Suffice it to say that the statute is clear and explicit, and its mandate must be respected.

2. There is, however, a ground upon which the right of Dudley to maintain this action must be denied.

By the fifth section of the above Act of March 3, 1875, it is provided

"that if in any suit commenced in a circuit court or removed from a state court to a circuit court of the United States, it shall appear to the satisfaction of said circuit court at any time after such suit has been brought or removed

Page 173 U. S. 251

thereto, that such suit does not really and substantially involve a dispute or controversy properly within the jurisdiction of said circuit court, or that the parties to said suit have been improperly or collusively made or joined, either as plaintiffs or defendants, for the purpose of creating a case cognizable or removable under this act, the said circuit court shall proceed no further therein, but shall dismiss the suit or remand it to the court from which it was removed as justice may require, and shall make such order as to costs as shall be just."

18 Stat. 470, 472, c. 137. This provision was not superseded by the act of 1887, amended and corrected in 1888. 25 Stat. 433. Lehigh Mining & Manfg. Co. v. Kelly, 160 U. S. 327, 339. Prior to the passage of the act of 1875, it had been often adjudged that if title to real or personal property was put in the name of a person for the purpose only of enabling him, upon the basis of the diverse citizenship of himself and the defendant, to invoke the jurisdiction of a circuit court of the United States for the benefit of the real owner of the property who could not have sued in that court, the transaction would be regarded in its true light -- namely, as one designed to give the circuit court cognizance of. a case in violation of the acts of Congress defining its jurisdiction, and the case would be dismissed for want of jurisdiction. Maxwell's Lessee v. Levy, 2 Dall. 381; Burst's Lessee v. McNeil, 1 Wash. C.C. 70, 80; M'Donald v. Smalley, 1 Pet. 620, 26 U. S. 624; Smith v. Kernochen, 7 How. 198, 48 U. S. 216; Jones v. League, 18 How. 76, 59 U. S. 81; Barney v. Baltimore City, 6 Wall. 280, 73 U. S. 288. These cases were all examined in Lehigh Mining & Manfg. Co. v. Kelly, 160 U. S. 327, 339. In the latter case, it appeared that a Virginia corporation claimed title to lands in that Commonwealth which were in the possession of certain individuals, citizens of Virginia. The stockholders of the Virginia corporation organized themselves into a corporation under the laws of Pennsylvania in order that the Pennsylvania corporation, after receiving a conveyance from the Virginia corporation, could bring suit in the Circuit Court of the United States sitting in Virginia against the citizens in that Commonwealth

Page 173 U. S. 252

who held possession of the lands. The contemplated conveyance was made, but no consideration actually passed or was intended to be passed for the transfer. This Court held that, within the meaning of the act of 1875, the case was a collusive one and should have been dismissed as a fraud on the jurisdiction of the United States court. It said:

"The arrangement by which, without any valuable consideration, the stockholders of the Virginia corporation organized a Pennsylvania corporation and conveyed these lands to the new corporation for the express purpose -- and no other purpose is stated or suggested -- of creating a case for the federal court must be regarded as a mere device to give jurisdiction to a circuit court of the United States, and as being in law a fraud upon that court, as well as a wrong to the defendants. Such a device cannot receive our sanction. The court below properly declined to take cognizance of the case."

And this conclusion, the court observed, was "a necessary...