Manufactured Diversity.

A litigant who, because of diver- sity of citizenship, can choose whether to sue in state or federal court, will properly consider where the advantages and disadvantages balance, and if diversity is lacking, a litigant who perceives the balance to favor the federal forum will sometimes 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.1137 One could create diversity by a bona fide change of domicile even with the sole motive of creating domicile.1138 Similarly, one could create diversity, or defeat it, by choosing a personal representative of the requisite citizenship.1139 Most attempts to manufacture or create diversity have involved corporations. A corporation cannot get into federal court by transferring its claim to a subsidiary incorporated in another state,1140 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.1141 But, in Black & White Taxicab & Transfer Co. v. Brown & Yellow Taxicab & Transfer Co.,1142 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,1143 saw no collusion 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

1137
Ch. XIX, § 11, 1 Stat. 78, sustained in Turner v. Bank of North America, 4 U.S. (4 Dall.) 8 (1799), and Sheldon v. Sill, 49 U.S. (8 How.) 441 (1850). The present statute, 28 U.S.C. § 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. Caribbean Mills, 394 U.S. 823 (1969). [Back to text]
1138
Williamson v. Osenton, 232 U.S. 619 (1914); Morris v. Gilmer, 129 U.S. 315 (1889). [Back to text]
1139
Mecom v. Fitzsimmons Drilling Co., 284 U.S. 183 (1931). [Back to text]
1140
Miller & Lux v. East Side Canal & Irrigation Co., 211 U.S. 293 (1908). [Back to text]
1141
E.g., Southern Realty Co. v. Walker, 211 U.S. 603 (1909). [Back to text]
1142
276 U.S. 518 (1928). [Back to text]
1143
276 U.S. at 532 (joined by Justices Brandeis and Stone). Justice Holmes here presented his view that Swift v. Tyson, 41 U.S. (16 Pet.) 1 (1842), had been wrongly decided, but he preferred not to overrule it, merely “not allow it to spread . . . into new fields.” 276 U.S. at 535. [Back to text]