Miller Lux, Incorporated v. East Side Canal Irrigation Company

• Decision Date: 07 December 1908
• Docket Number: No. 518,518
• Citation: 29 S.Ct. 111,211 U.S. 293,53 L.Ed. 189
• Parties: MILLER & LUX, INCORPORATED, Appt., v. EAST SIDE CANAL & IRRIGATION COMPANY
• Court: U.S. Supreme Court

211 U.S. 293

29 S.Ct. 111

53 L.Ed. 189

MILLER & LUX, INCORPORATED, Appt.,

v EAST SIDE CANAL & IRRIGATION COMPANY.

No. 518.

Submitted October 13, 1908.

Decided December 7, 1908.

Mr. Edward F. Treadwell for appellant.

[Argument of Counsel from pages 293-295 intentionally omitted] Messrs. Frederic D. McKenney and James F. Peck for appellee.

[Argument of Counsel from pages 295-296 intentionally omitted] Mr. Justice Harlan delivered the opinion of the court:

This suit was brought in the circuit court of the United States for the southern district of California by 'Miller & Lux, Incorporated,' a corporation of Nevada, against the East Side Canal & Irrigation Company, a corporation of California.

The case is here upon a certificate under the act of Congress of March 3d, 1891, chap. 517, 26 Stat. at L. 826, U. S. Comp. Stat. 1901, p. 488, relating to the jurisdiction of the circuit court as affected by the 5th section of the act of March 3d, 1875, chap. 137, 18 Stat. at L. 470, 472, U. S. Comp. Stat. 1901, pp. 508, 511. That section provides 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 at any time to the satisfaction of said circuit court 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; but the order of said circuit court dismissing or remanding said cause to the state court shall be reviewable by the Supreme Court on writ of error or appeal, as the case may be.'

In stating the object and scope of that act this court in Williams v. Nottawa, 104 U. S. 209, 211, 26 L. ed. 719, 720, referred to the act of 1875 and said: 'In extending a long way the jurisdiction of the courts of the United States, Congress was specially careful to guard against the consequences of collusive transfers to make parties, and imposed the duty on the court, on its own motion, without waiting for the parties, to stop all further proceedings and dismiss the suit the moment anything of the kind appeared. This was for the protection of the court as well as parties against frauds upon its jurisdiction; for, as was very properly said by Mr. Justice Miller, speaking for the court, in Barney v. Baltimore, 6 Wall. 280, 288, 18 L. ed. 825, 827, such transfers for such purposes are frauds upon the court, and nothing more.'

In the answer of the defendant it is alleged that Miller & Lux, Incorporated, was organized as a corporation in Nevada, but to act only as an agent of 'Miller & Lux,' a corporation of California; but the California corporation was the owner of all the capital stock of Miller & Lux, Incorporated, which, as a corporation, had no existence except as a mere agency of Miller & Lux, the California corporation; that all the property held by the plaintiff was as such agent, in order that suits could be brought and prosecuted in the United States courts; and that the plaintiff does not transact any business or do any act or thing other than such as may be necessary to carry out the purposes of the California corporation, 'except to hold title to property for the purpose of prosecuting suits in the United States courts.'

To these allegations the plaintiff made special replication evidence was taken as to their truth, and the cause was submitted upon the issue thus made. The court found the allegation in the answer to be true; that the complainant held the title to the lands described in the bill for the purpose only of prosecuting and commencing this action in the circuit court of the United States, and that the lands were conveyed to plaintiff for that purpose; and it appearing to the satisfaction of the court that the Nevada corporation had been collusively made a party plaintiff for the purpose of creating a case cognizable by the circuit court of the United States, and that the suit did not really and substantially involve a dispute or controversy within the jurisdiction of that court, the bill was dismissed.

It was established by the evidence and the court found as follows:

Henry Miller and Charles Lux were partners prior to and up to the death of Lux, one of the parties, which occurred March 15th, 1887.

In April, 1897, the heirs of the deceased partner and Miller, the surviving partner, wishing to have the partnership business liquidated and its assets distributed among those entitled thereto, made an agreement to form a corporation under the laws of California and transfer to it all the property of the partnership, each person to receive in lieu thereof capital stock proportioned to his interest in the partnership. Pursuant to that agreement the corporation of 'Miller & Lux' was organized in California on the 5th day of May, 1897; to it was conveyed the property of the partnership, and the stock of the corporation was distributed as provided in the agreement.

On the 17th day of December, 1900, the California corporation of Miller & Lux commenced an action in the superior court of Merced county, California, against the present defendant, the East Side Canal & Irrigation Company, a California corporation. The object of that suit was to have the latter corporation perpetually enjoined from obstructing the natural flow of the waters of San Joaquin river and its branches, along and bordering on which the California corporation of Miller & Lux claimed certain lands, as well as from interfering with the waters of that river above those lands and to their injury.

On the 12th day of June, 1905,—the above suit in the state court still being on the docket,—the California corporation and the stockholders owning more than two thirds of its capital stock entered into an agreement that they would at once form a corporation under the laws of Nevada with an authorized capital of $12,000,000,—all of such capital stock to be issued and be deemed fully paid up,—each director of the California corporation of Miller & Lux to be an incorporator of the Nevada corporation and to subscribe two shares of such capital stock, to be issued as fully paid-up stock of the new corporation.

That agreement stated that the laws of California were unsatisfactory and in many particulars uncertain and unsettled, 'particularly as to dividends,—a matter of the most vital importance to us, and as to which litigation is now pending and undetermined.' These difficulties, it was said, did not exist to the same extent under the laws of Nevada. Among the reasons assigned in the agreement for the formation of the Nevada corporation was the belief on the part of the stockholders of the California corporation, that their rights in litigated cases would be 'most fully protected and conserved in the Federal courts, to which corporations formed in other states are entitled to resort.'

The above agreement provided that, upon the formation of the Nevada corporation, all the property, real and personal, of the California corporation, should be transferred and conveyed to the Nevada Corporation, and that the capital stock of the latter corporation should be issued as fully paid-up stock to the California corporation; and that, after such transfer and conveyance were completed, and as soon as the law would permit, the California corporation should be dissolved by voluntary proceedings under the state Code of Civil Procedure of that state.

On the same day, June 12th, 1905, the parties to thatagreement signed and acknowledged articles of incorporation for the proposed Nevada corporation of 'Miller & Lux, Incorporated.' All the capital stock of that corporation was issued to the California corporation. The directors of the California corporation became and are also the directors of the Nevada corporation. Each company had the same president, vice president, secretary, and treasurer, and offices at the same place. 'Said corporation,' it was found, 'are the same in name, purposes, capitalization, directors, officers, office, and place of business.'

On the 15th day of June, 1905, the California corporation of Miller & Lux directed the dismissal of the suit brought in the state court. And on the same say the present suit was brought in the circuit court of the United States in the name of the Nevada corporation against the East Side Canal & Irrigation Company. The relief sought was substantially...