Steinberg v. Toro

• Decision Date: 26 February 1951
• Docket Number: Civ. No. 5847.
• Citation: 95 F. Supp. 791
• Parties: STEINBERG v. TORO.
• Court: U.S. District Court — District of Puerto Rico

95 F. Supp. 791

STEINBERG v. TORO.

Civ. No. 5847.

United States District Court D. Puerto Rico, San Juan Division.

February 26, 1951.

Joshua Hellinger, San Juan, Puerto Rico, for plaintiff.

Orlando Antonsanti, San Juan, Puerto Rico, for defendant.

ROBERTS, District Judge.

This is an action to recover damages for breach of contract. The defendant, Gerardo Arroyo Toro, owner of a leather tannery located in Mayaguez, Puerto Rico, entered into a contract on January 21, 1949, with Atlas Products Corporation, a corporation organized and existing under the Laws of Puerto Rico. This contract provided, in substance, that the Corporation was to undertake to manage and operate the defendant's tannery; to purchase the entire output of leather processed therein; and, under enumerated terms and conditions, was to have an option to purchase up to a half interest in the tannery. The defendant, on his part, was to make available and turn over to the Corporation the entire plant and industrial facilities of the tannery; to make certain improvements in the premises and to maintain the properties and equipment; to personally perform certain designated duties and to permit the use of his name in the operation of the tannery for good will purposes; and, to furnish, by April 12, 1949, working capital in the amount of $50,000.

In April of 1950, the plaintiff here, Robert Steinberg, brought this action, alleging in his complaint that plaintiff "is a resident of the State of New York" and that defendant "is a resident of Puerto Rico"; the making and a breaching of the contract; and, that Corporation has "assigned to plaintiff its right, title and interest in and to said contract". It appears from answers made by plaintiff to interrogatories propounded by defendant that plaintiff is a stockholder, director and president of the Corporation; that the alleged assignment of the contract to plaintiff by Corporation was made in writing in the city of New York on March 8, 1949; and, that the consideration therefor was "security for advances of funds theretofore made or which might thereafter be made by me on behalf of Atlas Products Corporation, in order to enable said Corporation to perform its obligations under its contract with Gerardo Arroyo Toro, and for services rendered by me in assisting the Corporation in carrying out its said obligations."

The defendant has moved to dismiss the complaint, asserting as grounds therefor "that no such assignment of a contract was made by the Atlas Products Corporation to Robert Steinberg" and that "the claim of said Atlas Products Corporation has been collusively assigned to the plaintiff here for the purpose of conferring jurisdiction upon this court". In support of his asserted grounds for dismissal, defendant submitted in evidence at the hearing on the motion several letters, all dated after March 8, 1949, the date upon which the assignment of the contract to plaintiff by Corporation was allegedly made. Several of these letters, written on letterheads of the Corporation and signed by plaintiff on behalf of the Corporation, contained directions relating to the operation of the tannery; orders concerning the employment, wages and duties of employees of the tannery; requests that defendant furnish the working capital provided for in the contract; and, intimations that litigation might ensue if the requests were not complied with by defendant. Others of these letters written on letterheads of an attorney in representation of the Corporation, contain demands that the plaintiff comply with the provisions of the contract; recitals of damage to the Corporation in consequence of defendant's failure to so comply; and, proposals relating to the negotiation of a new contract between Corporation and the defendant. Also submitted in evidence by the defendant was a copy of a draft of an agreement which, by its terms, indicated that it was to be made between defendant and the Corporation as a substitute agreement for the contract of January 21, 1949.

Upon hearing on the defendant's motion to dismiss, plaintiff submitted no evidence in support of his jurisdictional allegations, but contended that the assignment of the contract to him by Corporation was a bona fide assignment and, therefore, if all other jurisdictional requirements are met, he may maintain his action in this court whether or not his assignor, the Corporation, could have maintained such an action.

In substance, the defendant's motion to dismiss asserts that plaintiff was, through the alleged assignment of March 8, 1949, collusively made a party to this action to invoke the jurisdiction of this court, and that, therefore, under the provisions of Section 1359 of Title 28, U.S.C.A., this court is deprived of jurisdiction to entertain this suit. The defendant's motion raises a clear question as to the existence of jurisdictional facts supporting the plaintiff's allegations of jurisdiction. The statute upon which the defendant relies, 28 U.S.C.A. § 1359, June 25, 1948, c. 646, 52 Stat. 935, reads as follows: "A district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court."

Said Section 1359 represents a recent revision of the law applicable in cases wherein assignees or other transferees seek to invoke the jurisdiction of the federal courts. Its effect has been to simplify judicial determination of the right of such assignees or transferees to invoke federal jurisdiction. Prior to its enactment in 1948, there were two statutes which could effect the right of an assignee or transferee to bring an action in the federal courts. These were contained in Section 41(1) and Section 80 of Title 28, U.S.C., March 3, 1911, C. 231, secs. 41(1), 37, 36 Stat. 1091, 1098.

Said Section 41(1) provided generally that an assignee, in order to invoke the jurisdiction of the federal courts, would be required to show both jurisdiction to support his own case and that there would have been jurisdiction if the assignor had brought the action instead of the assignee. Thus under the former Section 41(1), if his assignor or transferor could not have successfully invoked the jurisdiction of the federal courts if he had brought the action instead of the assignee or transferee, the assignee or transferee was not permitted to invoke such jurisdiction (save in certain specified cases which have no bearing on the question here) even though the assignment or transfer was bona fide.

On the other hand, said Section 80 was specifically applicable to cases involving an improper or collusive invoking of federal jurisdiction and required the District Courts to dismiss suits commenced therein when "it shall appear to the satisfaction of the said dictrict court, at any time after such suit has been brought * * * 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 chapter, the said district court shall proceed no further therein, but shall dismiss the suit * * *". Thus, under the former Section 80, if the assignee or transferee was improperly or collusively made a party by the assignment or transfer, for the purpose of conferring on him status that would enable him to invoke the jurisdiction of the federal courts, the court was required to dismiss the action forthwith.

The enactment of said Section 1359, has had the effect of narrowing the area wherein it is required to judicially determine the right to invoke federal jurisdiction to those cases involving an improper or collusive making of parties, by assignment or otherwise, for the purpose of invoking such jurisdiction. The jurisdictional limitation of former Section 41(1) has been eliminated and a bona fide assignee or transferee may now maintain an action in the federal courts whether or not his assignor or transferor could have done so. However, the mandate of former Section 80, that jurisdiction be withheld from parties improperly or collusively made for the purpose of invoking such jurisdiction, is continued in full effect by Section 1359.

Therefore, it is true, as plaintiff contends, that when an assignment or transfer is bona fide, other required jurisdictional grounds being satisfied, the assignee or transferee may maintain an action in the federal courts and it is immaterial whether or not his assignor or transferor could have done so. But, in view of the jurisdictional limitation of Section 1359, a defendant is not precluded from challenging asserted jurisdiction on the ground that a party has been collusively made for the purpose of invoking federal jurisdiction. And that is the precise question which has been raised in a proper manner by the defendant's motion to dismiss in the instant case and it presents the issue that must here be resolved.

It becomes appropriate then to inquire into the extent of the court's authority to determine the real character of the transfer under consideration for the purpose of ascertaining whether the plaintiff should be permitted to invoke its jurisdiction. Congress, in conferring jurisdiction upon the federal courts to entertain suits between citizens of the different states, intended that when a citizen of one state sought to enforce or protect a right against a citizen of another state, he should be entitled to invoke the jurisdiction thus conferred upon the federal courts as a matter of right. When a suitor comes within the requirements of diversity jurisdiction, he should be able to successfully invoke it, whatever his reasons, and a refusal to exercise jurisdiction in such cases would thwart the very purpose for which such jurisdiction was conferred. However, the federal courts are courts of limited jurisdiction, and it is elementary that Congress, in conferring diversity jurisdiction upon them, did not...