Kramer v. Caribbean Mills, Inc.
394 U.S. 823 (1969)

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U.S. Supreme Court

Kramer v. Caribbean Mills, Inc., 394 U.S. 823 (1969)

Kramer v. Caribbean Mills, Inc.

No. 156

Argued January 23, 1969

Decided May 5, 1969

394 U.S. 823

Syllabus

Respondent, a Haitian corporation, contracted with a Panamanian corporation to purchase some of the latter's stock for an $85,000 downpayment and $165,000 in 12 annual installments. No installment payments were made, despite demands by the Panamanian company, which thereafter assigned its interest in the contract to petitioner, a Texas attorney, for $1. By a separate agreement, petitioner promised to pay the Panamanian company 95% of any net recovery "solely as a Bonus." Petitioner filed a diversity action against respondent in the District Court and obtained a jury verdict for $165,000. That court denied respondent's motion to dismiss for want of jurisdiction. The Court of Appeals reversed, finding that the assignment was "improperly or collusively made" within the meaning of 28 U.S.C. § 1359.

Held: The assignment was "improperly or collusively made" within the meaning of § 1359, as the "manufacture of Federal jurisdiction" was the very thing Congress intended to prevent by the enactment of § 1359 and its predecessors. Pp. 394 U. S. 825-830.

(a) The legality of the assignment under Texas law does not render it valid for purposes of federal jurisdiction, as the existence of federal jurisdiction is a matter of federal, not state, law. P. 394 U. S. 829.

(b) Section 1359 applies to diversity jurisdiction arising from the alienage of a party as well as that based on residence in different States. Pp. 829-830.

392 F.2d 387, affirmed.

Primary Holding
When a party brings a claim in a manner that is improperly or collusively designed to create diversity jurisdiction, a federal court should dismiss it for that reason.
Facts
A Panamanian corporation assigned its contract cause of action against Caribbean Mills, Inc., a Haitian corporation, to Kramer for one dollar. Kramer agreed to pay back 95 percent of any money that he recovered in the action. He then sued Caribbean Mills in federal court under diversity jurisdiction. Caribbean Mills argued that jurisdiction was improper under the Judicial Code because the diversity of the parties had been improperly manufactured. The lower court denied its motion to dismiss, but the intermediate appellate court ruled that it should be granted.

Opinions

Majority

  • John Marshall Harlan II (Author)
  • Earl Warren
  • Hugo Lafayette Black
  • William Orville Douglas
  • William Joseph Brennan, Jr.
  • Potter Stewart
  • Byron Raymond White
  • Abe Fortas
  • Thurgood Marshall

The Judicial Code is designed to prevent parties from deliberately manufacturing diversity jurisdiction and bringing a case into a federal court based on a dubious cause of action. This principle applies even though the assignment was valid under state law, and the defendant is a foreign national.

Case Commentary

For reasons of judicial efficiency, federal courts must take care to ensure that their jurisdiction is not unduly expanded on the basis of meretricious technicalities. It may be challenging for a court to uncover ulterior motives, however, when parties collude in creating jurisdiction.

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