Opinion ID: 724947
Heading Depth: 2
Heading Rank: 1

Heading: Creation of Diversity

Text: 15 Since Kramer, courts have set out a number of factors which are to be considered in deciding whether an assignment is improper or collusive. Among them are: were there good business reasons for the assignment; did the assignee have a prior interest in the item or was the assignment timed to coincide with commencement of litigation; was any consideration given by the assignee; was the assignment partial or complete; and was there an admission that the motive was to create jurisdiction. See Pasquotank Action Council, Inc. v. City of Virginia Beach, 909 F.Supp. 376, 383 (E.D.Va.1995) (noting the two factors set forth in Kramer, that is, whether (1) there was nominal or no consideration involved in the transaction; and (2) the interest in the action retained by assignor); Haskin v. Corporacion Insular de Seguros, 666 F.Supp. 349, 353-54 (D.P.R.1987) (Kramer requires that the assignee have some independent, legitimate interest in the dispute that predated the assignment and was not a complete stranger to the transaction; motive also relevant but not controlling factor) (quotation and citation omitted); Fowler v. Coals, 418 F.Supp. 909, 911-13 (E.D.Tenn.1976) (applying Kramer 's two-pronged test and factors to hold that assignment to stockholder of corporation's claim in consideration of $25,000 bonus of proceeds if litigation successful was colorable and motivated by desire to acquire jurisdiction). 16 There is some doubt that the subjective motive element is entitled to great weight. See Haskin, 666 F.Supp. at 354 ([T]here is a split among the Circuits regarding the application of Section 1359 especially concerning the weight that should be accorded to the motive factor. In Kramer importance of [motive] was significantly undermined when the Court, in a footnote, declined to decide the particular relevance of motive in manufactured diversity cases.) Certainly there is no reason to give motive controlling weight in every case, although it will surely illuminate an otherwise hidden improper motive and may be virtually controlling in some cases. The objective fact of who really is the party in interest is the most important thing to be determined. But even more interesting than the factors themselves are the results of the cases applying them. 17 Broadly speaking, if an assignment is entire, not partial, there is a very good chance that it will be found to be proper. See Westinghouse Credit Corp. v. Shelton, 645 F.2d 869, 871 (10th Cir.1981) (Kramer held that assignments for collection, meaning recovery on a money debt by litigation, were collusive, not assignments in which lender acquired right to  'collect' installments from the buyer for sale of goods); Baker v. Latham Sparrowbush Assocs., 808 F.Supp. 992, 1001-02 (S.D.N.Y.1992) (plaintiff who received assignment of rights to leasehold not a mere shell entity or collection agent like the plaintiff in Kramer ), aff'd, 72 F.3d 246 (2d Cir.1995); Haskin, 666 F.Supp. at 354-56 (assignment which transferred all rights, title and interest and made for value received deemed bona fide after consideration of several factors); R.C. Hedreen Co. v. Crow Tribal Hous. Auth., 521 F.Supp. 599, 607 (D.Mont.1981) (assignment valid on its face where assignor relinquished all of its interest in the contracts at issue and business purpose for assignment existed); Nagle v. LaSalle Nat'l Bank, 472 F.Supp. 1185, 1190 (N.D.Ill.1979) (assignment in which assignee may derive an indirect benefit from a successful suit by partially absolving its debts but not receive any proceeds of a judgment is bona fide); Dickson v. Tattnall County Hosp. Auth., 316 F.Supp. 531, 533-34 (S.D.Ga.1970) ( '[t]he body of case law surrounding [§ 1359] is presently in a state of flux'  but [t]here is no real problem in cases like Kramer  and if assignment is bona fide, § 1359 is not applicable even though assignment may have been motivated in part by desire to create diversity). 18 While motive can often be important, if the assignment is truly absolute and complete, motive often recedes into almost nothing. See R.C. Hedreen Co., 521 F.Supp. at 607. However, even when there is a complete assignment, collusion may be found. That is most likely to be where there is an excellent opportunity for manipulation, as in transfers between corporations and their subsidiaries or transfers to a shell corporation. See, e.g., Toste Farm Corp. v. Hadbury, Inc., 70 F.3d 640, 642, 646 (1st Cir.1995) (merger of corporation into another corporate shell ineffective to create diversity jurisdiction); Nike, Inc., 20 F.3d at 991, 993 (assignment by wholly owned corporate subsidiary of its rights to parent corporation ineffective to create diversity jurisdiction); Yokeno v. Mafnas, 973 F.2d 803, 809-11 (9th Cir.1992) (assignment between corporation and director presumptively collusive and on remand could only be overcome with proof of legitimate business reason and consideration of several other factors); see also J.F. Pritchard & Co. v. Dow Chem. of Canada, Ltd., 331 F.Supp. 1215, 1220, 1222 (W.D.Mo.1971) (whether assignment by wholly owned corporate subsidiary of its rights to parent corporation was collusive presented very close question of fact and law; claim dismissed on forum non conveniens ground), aff'd, 462 F.2d 998 (8th Cir.1972). But other fishy complete assignments may suffer the same fate. See, e.g., Pasquotank Action Council, 909 F.Supp. at 379-80, 386 (a complete assignment of part of a parcel of property, where a larger part of the parcel was retained). And even an assignment meant to preserve existing diversity might run afoul of these rules where the true real party in interest is not diverse. Compare Pratt v. First Hays Banshares, Inc., 682 F.Supp. 1177, 1181 (D.Kan.1988) (assignment of fractional interest in claim to preserve jurisdiction when assignor remained interested party in name only collusive) with Samincorp, Inc. v. Southwire Co., Inc., 531 F.Supp. 1, 3 (N.D.Ga.1980) (no collusion as contemplated by 28 U.S.C. § 1359 where diversity jurisdiction existed before assignment). 19 On the other hand, where an assignment is partial, the courts are very likely to find that there is an improper or collusive transfer because the prior owner still has an interest. There are a few minor exceptions. See Bailey v. Prudence Mut. Casualty Co., 429 F.2d 1388, 1389-90 (7th Cir.1970) (assignment of claim not collusive even though assignor would receive any excess recovery not necessary to satisfy judgment against assignor); Long John Silver's, Inc. v. Architectural Eng'g Prods. Co., Inc., 520 F.Supp. 753, 754-57 (W.D.Pa.1981) (unclear whether assignment was complete or if the assignor still had some interest). But they are unusual. In fact, research has not disclosed a single case where an assignment for collection (however framed or disguised) has been held to be anything but collusive. See, e.g., Kramer, 394 U.S. at 827-30, 89 S.Ct. at 1490-91 (assignor retained 95% of proceeds); Airlines Reporting Corp. v. S & N Travel, Inc., 58 F.3d 857, 859, 861-62 (2d Cir.1995) (twenty-nine air carriers real and substantial parties because collection agency was mere conduit for a remedy owing to others); Harrell & Sumner Contracting Co., Inc. v. Peabody Petersen Co., 546 F.2d 1227, 1228-29 (5th Cir.1977) (assignment of 50% interest in net proceeds of recovery, after payment of attorney's fees and costs, plus finding that interest assigned for legal and tactical reasons collusive under Kramer ); Syms v. Castleton Indus., Inc., 470 F.2d 1078, 1082, 1090 (5th Cir.1972) (assignor retained 30% interest in claim despite contrary language in assignment; no consideration given for assignment); cf. Fowler, 418 F.Supp. at 910, 913 (assignment to corporate officer for benefit of shareholders). 20 While the courts are interested in motive because it can shed a great deal of light on otherwise ambiguous circumstances and can even be virtually controlling in some situations, the main focus is usually upon the reality of the transaction itself. Does the assignee have something to lose because he had preexisting rights; or has the assignee paid for the assignment; or has he acquired only a relatively small part of the underlying interest, a part that could be expected to relate to expenses of collection alone; or, finally, is the assignment merely one for collection? In fine, is the assignee truly a real party in interest or just a strawman for all practical purposes? If the latter, an assignment which creates jurisdiction will be dubbed improper.