Kramer v. Caribbean Mills, Inc.
394 U.S. 823 (1969)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
An assignment of a legal claim made for the primary purpose of manufacturing federal diversity jurisdiction is considered "improperly or collusively made" under 28 U.S.C. § 1359 if the assignor retains a substantial interest in the outcome of the litigation.
Facts:
- Caribbean Mills, Inc. (Caribbean), a Haitian corporation, entered into a contract to purchase corporate stock from Panama and Venezuela Finance Company (Panama), a Panamanian corporation.
- The contract required Caribbean to pay Panama $165,000 in 12 annual installments.
- Caribbean failed to make any of the required installment payments.
- Panama assigned its entire interest in the contract to Kramer, a Texas attorney, for a stated consideration of $1.
- Simultaneously, Kramer executed a separate agreement promising to pay 95% of any net recovery from the lawsuit back to Panama.
Procedural Posture:
- Kramer sued Caribbean Mills, Inc. in the U.S. District Court for the Northern District of Texas, alleging diversity jurisdiction.
- The District Court denied Caribbean's motion to dismiss for lack of jurisdiction.
- Following a trial, a jury returned a verdict in favor of Kramer for $165,000.
- Caribbean, as appellant, appealed the judgment to the U.S. Court of Appeals for the Fifth Circuit.
- The Court of Appeals reversed, holding that the District Court lacked jurisdiction because the assignment was collusive under 28 U.S.C. § 1359.
- Kramer, as petitioner, successfully petitioned the U.S. Supreme Court for a writ of certiorari.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does an assignment of a cause of action for a nominal consideration, where the assignor retains a 95% interest in any recovery, violate 28 U.S.C. § 1359 when its admitted purpose is to create diversity of citizenship and invoke federal court jurisdiction?
Opinions:
Majority - Mr. Justice Harlan
Yes, such an assignment violates 28 U.S.C. § 1359. When an assignment is merely a sham or a 'mere contrivance' to manufacture federal jurisdiction, and the assignor is the real party in interest, the court will find the assignment to be improperly or collusively made. The Court found this case indistinguishable from precedent like Farmington v. Pillsbury, where a similar arrangement to create jurisdiction was struck down. The Court reasoned that Kramer's lack of any prior connection to the contract, the nominal $1 consideration, and his agreement to remit 95% of the recovery to Panama demonstrated that the assignment was not a true transfer of interest but a device for collection. Allowing such assignments would enable parties to funnel a vast amount of litigation into federal courts, which is precisely the 'manufacture of Federal jurisdiction' that Congress intended to prevent with § 1359. The Court also rejected Kramer's argument that the assignment's legality under Texas state law was controlling, affirming that federal jurisdiction is a matter of federal law.
Analysis:
This case establishes that federal courts will look beyond the formal validity of an assignment under state law to examine the substance and motive behind the transaction for jurisdictional purposes. It solidifies the principle that diversity jurisdiction cannot be artificially manufactured through collusive assignments where the assignor remains the primary beneficiary. The decision serves as a significant barrier against forum-shopping, preventing parties who lack diversity from 'renting' the citizenship of a diverse party to gain access to federal court. This precedent ensures that 28 U.S.C. § 1359 remains an effective tool for policing the boundaries of federal diversity jurisdiction.
Unlock the full brief for Kramer v. Caribbean Mills, Inc.