Source: https://supreme.justia.com/cases/federal/us/114/138/
Timestamp: 2019-04-21 08:36:18+00:00

Document:
When a plaintiff who has no real interest in the subject matter of a suit pending in a circuit court of the United States permits his name to be collusively used for the purpose of giving jurisdiction, the suit should be dismissed under the provision of § 5 Act of March 3, 1875, 18 Stat. 472.
Held that this was within the prohibition of § 5, Act of March 3, 1875, 18 Stat. 472, as to parties improperly or collusively made for the purpose of creating a case cognizable by a circuit court of the United States.
"Whether the plaintiff can maintain an action in this Court upon the coupons declared upon, the bonds or instruments to which they were attached not being assigned to him, but having been issued to and always held by citizens of Maine."
The bonds from which the coupons were cut were issued by Farmington Village under a private statute passed by the Legislature of Maine authorizing the village corporation to raise money to aid in the extension of the road of the Androscoggin Railroad Company to some point within or near the limits of the village. The bonds were issued by the assessors and treasurer of the village to a committee of citizens who were authorized to sell and dispose of them for the purpose mentioned in the statute. Before the committee received any of the bonds from the assessors and treasurer, and before July 1, 1870, which was the date of the bonds, Jonas Burnham and eleven others, all citizens, owners of property subject to taxation, and taxpayers in the village corporation, filed a bill in equity in the Supreme Judicial Court of the State of Maine, in Franklin County, against the railroad company, the assessors and treasurer and the committee of the village, to enjoin them from issuing the bonds, on the ground of a want of authority of law for that purpose. This suit was entered at the July term, 1870, of the court, and held under advisement until the 3d of August, 1872, when the bill was dismissed without prejudice. After this, on the 12th of August, 1872, other taxpayers filed another bill of the same general character against the same defendants and the village corporation to obtain substantially the same relief. To this bill the village corporation filed an answer and the railroad company a general demurrer. The case was heard by the court as the July term, 1873, and kept under advisement until August 27, 1878, when a decree was rendered sustaining the bill and granting the injunction prayed for. The opinion of the court is reported in 70 Me. 515, and is to the effect that the statute authorizing the village corporation to aid the extension of the railroad was unconstitutional and void. This opinion was concurred in by only four of the eight judges composing the court at the time of the hearing. One judge who sat in the cause died while the opinion was in his hands for examination, and his death made the four judges a majority of the court at the time of the decision.
"$500 BOSTON, May 5, 1880"
"For value received, I promise to pay to P. Dyer five hundred dollars in two years, with interest."
"Whereas I have this day bought of P. Dyer, of Farmington, coupons of the Farmington Village corporation to the amount of $7,922, and given him my note for the same, as a further consideration for said coupons, I agree that if I succeed in collecting the full amount of said coupons, I will pay him fifty percent of the net amount collected above said five hundred dollars, and pay him as soon as I collect the money from said corporation."
This suit was begun July 1, 1880.
The same act provided, § 12. for the removal of suits from a state court to the circuit court by a defendant, and he was required to file his petition for such a removal at the time of entering his appearance in the state court.
"If, in any suit commenced in a circuit court or removed from a state court, . . . it shall appear to the satisfaction of the circuit court at any time after such suit has been brought or removed thereto that such suit does not really and substantially involve a suit or controversy properly within the jurisdiction of said circuit court or that the parties to said suit have been improperly or collusively made or joined, either as plaintiffs or defendants, for the purpose of creating a case cognizable or removable under this act, the said circuit court shall proceed no further therein, but shall dismiss the suit or remand it to the state court from which it was removed as justice may require, and shall make such order as to costs as shall be just, but the order of the circuit court dismissing or remanding said cause to the state court shall be reviewable by the supreme court on writ of error or appeal, as the case may be."
Under the act of 1789, the jurisdiction of the courts of the United States in suits by assignees of choses in action was confined within narrow limits, and there was comparatively little danger of collusion to create a case of that character cognizable by those courts because, if the owner of the claim could sue in his own name, there would ordinarily be no motive for transferring it to another to bring the action. In that act, promissory notes and inland bills of exchange, the form of negotiable securities most used in the transaction of ordinary business by citizens of the United States, were included in the prohibition of suits by assignees.
The subject of colorable transfers to create a case for the jurisdiction of the courts of the United States was presented for the most part in suits for the recovery of real property when a conveyance had been made by a citizen of the state in which the suit must be brought to a citizens of another state. At a very early day, it was held in this class of cases that the citizenship of the parties could not be put in issue on the merits, but that it must be brought forward at an earlier stage in the proceedings by a plea in abatement in the nature of a plea to the jurisdiction, and that a plea to the merits was a waiver of such a plea to the jurisdiction. De Wolf v. Rabaud, 1 Pet. 498; Evans v. Gee, 11 Pet. 83; Sims v. Hundley, 6 How. 5; Smith v. Kernochen, 7 How. 216; Jones v. League, 18 How. 81; De Sobry v. Nicholson, 3 Wall. 423. And upon the question of transfer, it was uniformly held that if the transaction was real, and actually conveyed to the assignee or grantee all the title and interest of the assignor or grantor in the thing assigned or granted, it was a matter of no importance that the assignee or the grantee could sue in the courts of the United States when his assignor or grantor could not. A suit by such an assignee or grantee would present, in reality, a controversy between the plaintiff on the record and the defendants. McDonald v. Smalley, 1 Pet. 620; Smith v. Kernochen, supra; 73 U. S. Baltimore, 6 Wall. 288. But it was equally well settled that if the transfer was fictitious, the assignor or grantor continuing to be the real party in interest, and the plaintiff on record but a nominal or colorable party, his name being used only for the purpose of jurisdiction, the suit would be essentially a controversy between the assignor or grantor and the defendant, notwithstanding the formal assignment or conveyance, and that the jurisdiction of the court would be determined by their citizenship, rather than that of the nominal plaintiff. Maxwell's Lessee v. Levy, 2 Dall. 381, 4 Dall. 330 [omitted], decided by Mr. Justice Iredell and Peters, J., in the Pennsylvania Circuit in 1797; Smith v. Kernochen, supra; Barney v. Baltimore, supra.
"imposed the duty on the court, on its own motion, without waiting for the parties, to stop all further proceedings and dismiss the suit the moment a fraud on its jurisdiction was discovered."
in positive language provide that if the assignment is collusive and for the purpose of enabling the assignee to sue in the courts of the United States for the benefit of the assignor when the assignor himself could not bring the action, the court shall not proceed in the case. In this respect, it goes further than the rulings of the courts under the act of 1789. Under its provisions, the holders of promissory notes or of foreign or domestic bills of exchange who are citizens of a state in which the decisions of the courts have been adverse to their interests cannot, by collusive transfers to citizens of other states, create a case apparently cognizable in the courts of the United States and have it prosecuted by their assignees in those tribunals for their benefit in the hope of securing an adjudication in that jurisdiction more favorable to their interests. The courts of the United States were not created under the Constitution for any such purpose. Except in certain specified cases, they have no jurisdiction of controversies between citizens of the same state.
amount collected above the $500. This suit, begun July 1, 1880, in the name of the plaintiff, is the result of that arrangement. It is a suit for the benefit of the owners of the bonds. They are to receive from the plaintiff one-half of the net proceeds of the case they have created by their transfer of the coupons gathered together for that purpose. The suit is their own in reality, though they have agreed that the plaintiff may retain one-half of what he collects for the use of his name and his trouble in collecting. It is true, the transaction is called a purchase in the papers that were executed, and that the plaintiff gave his note for $500, but the time for payment was put off for two years, when it was no doubt supposed the result of the suit would be known. No money was paid, and as the note was not negotiable, it is clear the parties intended to keep the control of the whole matter in their own hands, so that if the plaintiff failed to recover the money, he could be released from his promise to pay. In the language of MR. JUSTICE FIELD, speaking for the Court in Detroit v. Dean, 106 U. S. 541, applied to the facts of this case, the transfer of the coupons was "a mere contrivance, a pretense, the result of a collusive arrangement to create" in favor of this plaintiff "a fictitious ground of federal jurisdiction," so as to get a reexamination in that jurisdiction of the question decided adversely to the owners of the coupons by the highest judicial tribunal of the state. Hawes v. Oakland, 104 U. S. 459; Hayden v. Manning, 106 U. S. 586; Bernards Township v. Stebbins, 109 U. S. 341.
We therefore say in answer to the first question certified that the plaintiff cannot maintain the action in the circuit court upon the coupons declared upon.
The judgment of the circuit court is consequently reversed, and the cause remanded with instructions to dismiss the suit for want of jurisdiction and without prejudice.

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 § 5
 § 12
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