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

Heading: Assignment to Destroy Jurisdiction

Text: 21 There has been much less case law on the question of assignments which destroy jurisdiction. Of course, assignments of that kind are not specifically covered by 28 U.S.C. § 1359. However, what modern authority there is also focuses on the reality of the transaction. Motive, again, is a factor, but courts have remained sensitive to and concerned by manipulations of their jurisdiction with partial assignments which lack reality and amount to no change in the identity of the party with the real interest in the outcome of the case. 22 In Grassi v. Ciba-Geigy, Ltd., 894 F.2d 181 (5th Cir.1990), the plaintiffs had obtained a Texas state court default judgment against a United Kingdom corporation. The United Kingdom does not allow enforcement of foreign default judgments against British corporations which do not maintain an office in the foreign country. Id. at 182. The Grassis decided to commence a collection action against the British corporation's parent, which was also a foreign corporation. Id. However, they wished to keep the action in state court. They, therefore, assigned 2% of their judgment to a Costa Rican corporation, which was to provide them with investigation and collection services. Then, they and the Costa Rican corporation brought the state court action. When the defending foreign corporation removed, the Grassis claimed that there was a lack of jurisdiction because there were foreign corporations on both sides of the case. That, they argued, precluded diversity jurisdiction. Id.; cf. 28 U.S.C. § 1332(a)(2). 23 The Fifth Circuit held that [b]ecause of their similarity, assignments which destroy diversity and assignments which create diversity should be analyzed under the same standard; that is, the issue of whether the assignment was improperly or collusively made is to be resolved as a simple question of fact. Id. at 186. It then determined that several facts supported the proposition that the assignment in question was improper: the assignee had no prior interest in the litigation, and the assignment was made shortly before suit was filed; there was no consideration for the assignment other than what was essentially a contingent fee arrangement for collection work, which could have been effectuated without an assignment; the assignment was partial; and the Grassis and the assignee were represented by the same attorney. Id. Notably, the facts were of an objective nature, regardless of motive. However, the court determined that the real motive of the Grassis was to remain in state court. Id. 24 Other cases are to the same effect. For example, Carter v. Seaboard Coast Line R.R. Co., 318 F.Supp. 368, 369, 370, 372 (D.S.C.1970), involved an 1/100 assignment of a minor's cause of action. The assignment was expressly executed in order to remain in a certain jurisdiction. The court held that whatever may have been deemed the rule prior to Kramer, the proposition is now settled that in connection with motions [based on jurisdiction] 'neither state law nor rule 17(a) demands adherence to the principle that the underlying motive or purpose of an assignment will not be examined.'  Id. at 372; see also Gentle v. Lamb-Weston, Inc., 302 F.Supp. 161, 162, 166 (D.Me.1969) (holding that 1/100 assignment made for purpose of destroying diversity jurisdiction did not defeat federal jurisdiction). 25 All of these cases involved obviously collusive partial assignments, which were motivated by a desire to defeat diversity jurisdiction. More than that, however, they were also cases where the assignee was not truly a real party in interest. Rather, the assignee was a strawman and had no real interest in the outcome of the case, although a good outcome would have had some economic value. In Grassi, of course, the interest was no more than a contingent fee arrangement in a collection matter, and the minuscule interests in Carter and Gentle had very very little value. As Carter explained, there is no more reason for federal courts to countenance destruction of jurisdiction by the use of straw parties than there is for them to countenance the creation of jurisdiction in that manner. See 318 F.Supp. at 373. In either event, another party is deprived of a forum to which he would otherwise be entitled, and the jurisdiction which Congress conferred upon the federal courts is manipulated. Thus, the nature of the assignment must be considered when it is argued that jurisdiction has been destroyed. 26 In reaching our conclusion that the nature of the assignment must be considered, we do not overlook older Supreme Court decisions regarding removal. See, e.g., Provident Sav. Life Assur. Soc'y v. Ford, 114 U.S. 635, 5 S.Ct. 1104, 29 L.Ed. 261 (1885); see also Carson v. Dunham, 121 U.S. 421, 7 S.Ct. 1030, 30 L.Ed. 992 (1887); Leather Mfrs.' Nat'l Bank v. Cooper, 120 U.S. 778, 7 S.Ct. 777, 30 L.Ed. 816 (1887); Oakley v. Goodnow, 118 U.S. 43, 6 S.Ct. 944, 30 L.Ed. 61 (1886). In those cases, the Court refused to allow removal of an action filed in state court after a diversity-destroying colorable assignment was made, even if it was for collection only. In each of those cases, the Supreme Court indicated that it was loath to interfere with state court jurisdiction, that nothing in the removal statutes referred to removal in such an instance, and that the parties could present their real party in interest objections and their assertions about destruction of federal court jurisdiction as defenses in the state court. See, e.g., Provident, 114 U.S. at 640-41, 5 S.Ct. at 1107. 27 The Fifth Circuit has expressed doubt about the continuing validity of the underlying rationales of those cases. See Grassi, 894 F.2d at 182-85. While the Fifth Circuit's doubts are well grounded, we need not recite them here, nor need we rely upon them. This is not a case where removal was sought on grounds that could be characterized as defensive and which, therefore, could not be a proper basis for removal. See, e.g., Caterpillar, Inc. v. Williams, 482 U.S. 386, 393, 107 S.Ct. 2425, 2430, 96 L.Ed.2d 318 (1987). 28 This case was filed in the district court in the first instance, and the district court should have assessed its subject matter jurisdiction over the claim of AT and CMC at the commencement of the action. In so doing, it would have been proper for the district court to look at the true jurisdictional facts and to determine whether it could proceed. At the same time, the district court would have been in a position to identify the real party in interest. However, because the issue was not raised in the district court, we must now consider the jurisdictional question ab initio. While we are not positioned to make factual determinations, we can rely upon the undisputed facts which are before us. We will now do so.