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CRS Annotated Constitution

Article III -- Table of ContentsPrev | Next

Manufactured Diversity.—One who because of diversity of citizenship can choose whether to sue in state or federal court will properly consider where the advantages and disadvantages balance; one who perceives the balance clearly favoring the federal forum where no diversity exists will no doubt often attempt to create diversity. In the Judiciary Act of 1789, Congress exempted from diversity jurisdiction suits on choses of action in favor of an assignee unless the suit could have been brought in federal court if no assignment had been made.980 One could create diversity by a bona fide change of domicile even with the sole motive of creating domicile.981 Similarly, one could create diversity, or defeat it, by choosing a personal representative of the requisite citizenship.982 By far, the greatest number of attempts to manufacture or create diversity has concerned corporations. A corporation cannot get into federal court by transferring its claim to a subsidiary incorporated in another State,983 and for a time the Supreme Court tended to look askance at collusory incorporations and the creation of dummy corporations for purposes of creating diversity.984 But in Black & White Taxicab & Transfer Co. v. Brown & Yellow Taxicab & Transfer Co.,985 it became highly important to the plaintiff company to bring its suit in federal court rather than in a state court. Thus, Black & White, a Kentucky corporation, dissolved itself and obtained a charter as a Tennessee corporation; the only change made was the State of incorporation, the name, officers, shareholders, and location of the business remaining the same. A majority of the Court, over a strong dissent by Justice Holmes,986 saw no collusion[p.767]and upheld diversity, meaning that the company won whereas it would have lost had it sued in the state court. Black & White Taxicab probably more than anything led to a reexamination of the decision on the choice of law to be applied in diversity litigation.


Footnotes

980 Sec. 11, 1 Stat. 78 , sustained in Turner v. Bank of North America, 4 Dall, (4 U.S.) 8 (1799), and Sheldon v. Sill, 8 How, (49 U.S.) 441 (1850). The present statute, 28 U.S.C. Sec. 1359 , provides that no jurisdiction exists in 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.” See Kramer v. Carribean Mills, 394 U.S. 823 (1969).
981 Williamson v. Osenton, 232 U.S. 619 (1914); Morris v. Gilmer, 129 U.S. 315 (1889).
982 Mecom v. Fitzsimmons Drilling Co., 284 U.S. 183 (1931).
983 Miller & Lux v. East Side Canal & Irrigation Co., 211 U.S. 293 (1908).
984 E.g., Southern Realty Co. v. Walker, 211 U.S. 603 (1909).
985 276 U.S. 518 (1928).
986 Id., 276 U.S., 532 (joined by Justices Brandeis and Stone). Justice Holmes here presented his view that Swift v. Tyson, 16 Pet. (41 U.S.) 1 (1842), had been wrongly decided, but he preferred not to overrule it, merely “not allow it to spread . . . into new fields.” Id. 535.
Article III -- Table of ContentsPrev | Next