CRS Annotated Constitution
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. One could create diversity by
a bona fide change of domicile even with the sole motive
of creating domicile. Similarly, one could create
diversity, or defeat it, by choosing a personal
representative of the requisite citizenship.
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,
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.
But in Black & White Taxicab & Transfer
Co. v. Brown & Yellow Taxicab & Transfer
Co., 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, 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.
