Opinion ID: 359001
Heading Depth: 1
Heading Rank: 5

Heading: Collusive Jurisdiction

Text: 35 Closely intertwined with the issue of standing is defendants' contention that plaintiff Schilling was collusively joined to invoke federal diversity jurisdiction, a violation of 28 U.S.C.A. § 1359. 5 To prevail on this contention, defendants' first task is to prove that someone other than plaintiff Schilling was in control of the lawsuit. In this effort defendants note that plaintiff Schilling did not directly enter into a contract of employment with the attorneys representing him and that Belcher III agreed to underwrite plaintiff's counsel fees and costs and has in fact financed approximately 80% Of the expenses of this litigation. From these facts, defendants argue, it follows that Belcher III was in command of this suit, for He who pays the piper calls the tune. We find the converse of the ancient epigram insufficient to carry the day on this point. 36 That the nominal plaintiff was solicited to bring suit and was indemnified against liability for costs and counsel fees is not, by itself, proof of collusion. Wheeler v. Denver, 229 U.S. 342, 33 S.Ct. 842, 57 L.Ed. 1219 (1913). It must appear that the suit . . . is in reality the suit of (a nonparty), with a party plaintiff 'collusively made,' 'for the purpose of creating a (federal) case.'  Cashman v. Amador & Sacramento Canal Co., 118 U.S. 58, 61, 6 S.Ct. 926, 928, 30 L.Ed. 72 (1886); See Amar v. Garnier Enterprises, Inc., 41 F.R.D. 211 (C.D.Cal.1966) (nondiverse shareholder solicited diverse nominal plaintiff To become shareholder and thereafter bring derivative action; nominal plaintiff purchased minimum number of shares, 16, that would satisfy the $10,000 jurisdictional requirement). 37 Plaintiff Schilling is a long time resident of North Carolina and, prior to selling his stock to Coastal States, was a longstanding and substantial shareholder in the Belcher Oil Company. When this suit was filed, plaintiff had a legitimate interest in correcting unlawful and improper corporate practices. At oral argument defense counsel acknowledged that plaintiff Schilling had power to dismiss this action at any time. Cf. Cashman v. Amador & Sacramento Canal Co., 118 U.S. 58, 60, 6 S.Ct. 926, 30 L.Ed. 72 (1886) (Collusive diversity jurisdiction found where nonresident plaintiff, who had been solicited to bring suit and indemnified against the expenses of litigation by the County of Sacramento, agreed not to compromise, dismiss, or settle the said suit without the consent of the County of Sacramento, and to allow the said county and the attorneys aforesaid in its behalf to manage and conduct the said suit to the same extent and in the same manner as if such suit had been commenced by and was prosecuted in the name of the said County of Sacramento.). 38 In sum, defendants have failed to show that plaintiff Schilling was improperly or collusively made or joined to invoke federal diversity jurisdiction. Nevertheless, when plaintiff Schilling sold his stock in Belcher Oil Company, he lost his indirect interest as a stockholder in a corporate recovery and, hence, lost his derivative standing to litigate claims on behalf of the corporation. He did not, however, lose his standing to defend on appeal the $140,122 attorney's fees judgment, which runs directly in his favor, and any judgment which was a necessary predicate to the fee award. Tryforos v. Icarian Dev. Co., 518 F.2d 1258 (7th Cir. 1975), Cert. denied, 423 U.S. 1091, 96 S.Ct. 887, 47 L.Ed.2d 103 (1976).