USCA1 Opinion

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT
____________________
No. 95-1506

TOSTE FARM CORPORATION, ET AL.,

Plaintiffs, Appellees,

v.

HADBURY, INC., ET AL.,

Defendants, Appellants.

______________________

No. 95-1544

TOSTE FARM CORPORATION, ET AL.,

Plaintiffs, Appellants,

v.

HADBURY, INC., ET AL.,

Defendants, Appellees.

____________________

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF RHODE ISLAND

[Hon. Raymond J. Pettine, Senior U.S. District Judge]

__________________________

____________________

Before

Lynch, Circuit Judge,

_____________
Aldrich and Campbell, Senior Circuit Judges.
_____________________
____________________

John Blish
__________

with whom Stephen J. Reid, Jr.,

_____________________

Raymond A. Marcac
_________________

and Blish & Cavanagh were on brief for plaintiffs.

________________
John William Ranucci for defendants.
____________________
____________________
December 4, 1995
____________________

CAMPBELL,

Senior Circuit Judge.

______________________

These

cross

appeals are from

for the

claims

orders of the United States

District of

of

Rhode Island dismissing

plaintiffs and

matter jurisdiction.

F.

Supp. 240

wholly

1995).

by

Carl

Corporation ("TFC") and

of

IRA

FBO

Carl

("PaineWebber IRA").

his

defendants

Acebes,

Acebes,

account

Defendants

court below

Inc.

28 U.S.C.

subject

two entities

namely,

Toste

1359, and

Farm

Custodian/Trustee

numbered

JG12642-69

are Richard N.

Morash and

("Hadbury").1

At issue

correctly concluded that

jurisdiction over the plaintiffs'

of

lack of

Plaintiffs are

PaineWebber, Inc.

corporation Hadbury,

whether the

for

the respective

Toste Farm Corp. v. Hadbury, Inc., 882

_________________
_____________

(D.R.I.

controlled

District Court

is

diversity

claim failed for violation

whether,

in the

circumstances,

diversity

failed.

jurisdiction

We affirm

over

defendants' counterclaim

the district

court's dismissal of

also

both

claims.

I.
I.

Factual Background
Factual Background

In

exclusive

June

of

1991,

Richard

Morash

obtained

the

right to acquire 417 acres of land in Rhode Island

known as Toste Farm.

Intending to purchase and

develop the

____________________

1.

Raymond

C. Holland,

Jr., an

attorney and

Rhode Island

citizen, was also named as a defendant in the district court.

However, he has not appealed from the orders below.

-2-

property, Morash and Carl Acebes, on November 4, 1991, formed

the Toste

Farm Limited

Partners"

and the

consisted of

of

Rhode

"Acebes Partners."

The

Island

Partners

with

a principal

and Morash,

consisted

place

Massachusetts

of PaineWebber

the "Morash

Morash Partners

Hadbury, an entity incorporated

Massachusetts,

Acebes

Partnership composed of

under the laws

of

business

citizen.

IRA,

an

in

The

entity

incorporated

place of

under the

laws

business in New

York, and Toste

Inc. ("TFCI"), a corporation

Rhode

Island with

of Delaware

with a

principal

Farm Corporation,

newly formed under the

a principal

place

laws of

of business

in Rhode

Island.2

According to

single purpose

Farm

Limited

-- to act as

asset"

added that TFCI "may

Acebes'

was its

TFCI.

attorney

"for a

the Toste

stated that

partnership interest

have had an incidental bank

partnership.

Acebes gave

and

account as

TFCI was capitalized with a bank account valued at

little over $200,000, of which about

the

TFCI was formed

a general partner of

Partnership."

TFCI's "principal

well."

Carl Acebes,

$12,000 was invested in

two reasons

for overfunding

First, he wanted to avoid having to request additional

funds

from

PaineWebber

IRA

in

the

event

the

thinly

____________________

2.
The

TFCI was later merged into TFC, a plaintiff in this case.

sole

PaineWebber

stockholder

of

both

corporations

was

Acebes'

IRA account, which was itself a partner of Toste

Farm Limited Partnership and also a plaintiff in this action.

-3-

capitalized

partnership

funds

available

were

required cash.

for

"other

Second,

business

the extra

opportunities

. . . quite outside of the . . . partnership."3

retire

During

1992, Acebes

from the

partnership.

agreement, Morash

announced

his

Pursuant to

and Acebes conducted a

intention

to

the partnership

buy-sell procedure

in which each party bid to purchase the partnership interests

of the other.

This procedure ended in

a dispute with

each

party claiming to have purchased the other's interests.

In November of 1992, the Acebes Partners brought an

action against

the Morash Partners and

attorney for the

District

of

partnership, in the District

Rhode

parties' rights

Raymond Holland, the

Island

seeking

and duties under the

Court for the

declaration

of

the

partnership agreement.

See
___

28

U.S.C.

2201-2202;

Fed. R.

Civ.

P.

57.

asserted diversity jurisdiction pursuant to 28 U.S.C.

but

later voluntarily

dismissed

the suit

when the

They

1332,

Morash

Partners pointed

out that the parties were not fully diverse

because plaintiff

TFCI, like defendants Hadbury and Holland,

was a citizen of Rhode Island.4

____________________

3.

Acebes

also asserted

that TFC,

the successor

to TFCI,

"has bid on other real estate and has prepared to bid on real
estate located in Massachusetts."

4.
to

The citizenship of a
28 U.S.C.

corporation is determined

1332(c)(1), which provides:

"[A] corporation shall be deemed to be

citizen of any State by which it has been

-4-

pursuant

In December of

1992, TFCI was

merged into TFC,

New York corporate shell that had been created earlier in the

year.

Presumably,

became New

based,

York, rather

although

Pursuant to

Plaintiffs

TFC's principal

the

than

record

the merger, TFC

concede

that one

place of

Rhode Island

is

not

where TFCI

absolutely

received all of

purpose

business also

of

was

clear.5

TFCI's assets.

creating TFC

and

dissolving TFCI was to manufacture diversity for this action,

although

they

also

contend,

without

specifics, that

merger served the administrative convenience of Acebes

residence

and other

Defendants

business activities

allege that

the

were in

merger was

the

whose

New York.

effected solely

to

create diversity in this action.

Having created

PaineWebber

IRA refiled

Defendants

filed

defendants

diversity via

their

district court dismissed both

for lack of

the merits.

action in

counterclaim.

moved to dismiss

the merger,

for lack of

TFC and

January of

During

the

1993.

trial,

jurisdiction.

The

the claim and the counterclaim

subject matter jurisdiction

after the trial

on

____________________

incorporated

and of

the State

where it

hasits principalplace ofbusiness . . . ."

TFCI and Hadbury were

citizens of Rhode Island because

they

were incorporated under the laws of Rhode Island.

5.

TFC's certificate

of the

of incorporation states:

"The office

Corporation in the State of New York is to be located

in the County of New York, State of New York."

-5-

II.
II.

This court

whether the

reviews de

district court had

over the parties' claims.

520,

522 (1st

determination

receive

question of

subject matter

jurisdiction

Murphy v. United States,

______
_____________

Cir. 1995).

factual findings made in

novo the legal

However,

the district

45 F.3d

court's

conjunction with its jurisdictional

deference

unless clearly

erroneous.

Dweck v. Japan CBM Corp., 877 F.2d 790, 792 (9th Cir. 1989).
_____
_______________

The district courts have original jurisdiction over

civil actions

the amount

in

between citizens of different

controversy exceeds

1332(a). Diversity must be

plaintiff

must

be shown

$50,000.

states in which

28

U.S.C.

complete: the citizenship of each

to be

diverse

from that

of each

defendant.

Owen Equip. & Erection Co. v.

___________________________

365, 373-74 (1978).

a corporation

Kroger, 437 U.S.

______

For purposes of diversity jurisdiction,

is deemed

to be a

citizen of both

the state

where it is incorporated and the state where it maintains its

principal

place of

business,

28 U.S.C.

citizenship is determined as of the

of

the lawsuit.

See, e.g.,
___ ____

1332(c)(1),

and

date of the commencement

Taber Partners, I
__________________

v.

Merit
_____

Builders, Inc., 987 F.2d 57, 59 n.1 (1st Cir.), cert. denied,
______________
____________

Desarrollos Metropolitanos, Inc.

________________________________

U.S.

___, 114 S. Ct.

82 (1993);

v. Taber Partners, I,
__________________

Rodriguez-Diaz v. Sierra______________
_______

Martinez, 853 F.2d 1027, 1029 (1st Cir. 1988).

________

proof

is

on

the

party

___

attempting

to

The burden of

sustain

diversity

-6-

jurisdiction.

Thomson v. Gaskill, 315

_______
_______

Media Duplication Servs., Ltd. v.

________________________________

U.S. 442, 446 (1942);

HDG Software, Inc., 928

___________________

F.2d 1228, 1235 (1st Cir. 1991).

It

is undisputed

that

plaintiffs

satisfied

the

requirements of

TFCI had

1332.

By the time this action was brought,

effectively merged into

citizen.

Defendants,

TFC, a New

however,

plaintiffs' claim under 28 U.S.C.

district

court

jurisdiction
any

party,

dismissal

shall

not

have

action in which

by assignment

or otherwise,

or collusively

joined to invoke

of

1359, which provides:

of a civil

has been improperly

or

sought

York corporate

made

the jurisdiction of

such court.

The

district court held

not only

including

although

create

that

1359

over plaintiffs' claim

but over the

defendants' counterclaim.

"[t]he merger

diversity

was

entire action

The court reasoned that

real enough,

jurisdiction"

manufactured assignment."

barred jurisdiction

because

. . . it did

there

not

was

Toste Farm, 882 F. Supp. at 247.

__________

"a

For

jurisdiction

collusively

over

of

century,

suits

made or

where

joined to

Congress

party

is

has

denied

"improperly

or

invoke . . . jurisdiction."6

____________________

6.

Section

5 of the Act of March 3, 1875, a predecessor to

1359, stated:

. . . if

in

circuit

court

diversity
appear
circuit

any

suit

[which then

jurisdiction]

to

the

court,

commenced

. . . it

-7-

time

had original

satisfaction
at any

in

of

shall
said

after such

The Supreme Court in

Williams v. Nottawa, 104 U.S.

________
_______

(1881), described transfers to create

as "frauds

upon the

court."

construed

"improper

or

diversity jurisdiction

Commentators and

collusive"

209, 211

as

courts have

"confer[ring]

jurisdiction not justified by aims of diversity."

O'Brien v.
_______

AVCO Corp., 425 F.2d 1030, 1034 (2d Cir. 1969); 14 Charles A.
__________

Wright, Arthur R. Miller & Edward D. Cooper, Federal Practice

and

Procedure: Jurisdiction 2d

1995).

58

See also
_________

3637, at 93

Airlines Reporting Co. v.

______________________

(1985 & Supp.

S and N Travel,
______________

F.3d 857, 862 (2d Cir. 1995) ("[W]e construe section 1359

broadly

to

bar any

agreement

concoct federal diversity

whose

'primary

aim' is

jurisdiction"); Amoco Rocmount Co.

__________________

v. Anschutz Corp., 7 F.3d 909, 916 (10th Cir. 1993);

_______________

v.

Mafnas, 973 F.2d 803,

______

809 (9th Cir.

anti-collusion statute is

aimed at

manufacturing

jurisdiction

channel

diversity

present

case

found

____________________

that

1992) ("The federal

to

"Section

from

inappropriately

into federal courts");

F.2d 1058, 1067

cert. denied, 499 U.S. 962 (1991).

____________

Yokeno
______

preventing parties

ordinary business litigation

Nolan v. Boeing Co., 919

_____
___________

to

(5th Cir.

1990),

The district court in the

1359's

policy

against

suit

has

been

brought

. . . that

the

parties to said suit have been improperly

or collusively made or

joined, . . . for

the purpose of creating a case cognizable

. . . under

this

act; the

said circuit

court . . . shall dismiss the suit.

Act of March 3, 1875, c. 137,

5, 18 Stat. 470.

-8-

improper or collusive

would

be

completely

manufacture of diversity

undermined

if

jurisdiction

corporate

merger

involving a transfer of

of money

the chose in action and

some amount

could create diversity jurisdiction."

Toste Farm,
__________

882 F. Supp. at 247.

In its most recent pronouncement, the Supreme Court

has construed

1359 in a similarly broad manner.

v. Caribbean Mills, Inc., 394

_______________________

noted that

in

"Kramer candidly admits that

substantial

diversity

U.S. 823

part

motivated

by

jurisdiction available.'"

Kramer
______

(1969), the

Court

the 'assignment was

a desire

Id.
___

In

...

at 828.

to

make

Holding

that the otherwise valid assignment of the claim to a diverse

party

was

improper or

collusive

reasoned that the mere legality

under

1359,

the Court

of an assignment cannot make

it valid for purposes of federal jurisdiction because

ruling

"would

accomplishing

render

its

1359

purpose."

largely

Id. at
___

829.

such a

incapable

The

of

Court was

concerned that "the ease with which a party may 'manufacture'

federal

jurisdiction"

ordinary

contract and

the federal courts"

intended

to

predecessors."

In

could lead

to

"a vast

quantity of

tort litigation

. . . channeled into

which is "the very

thing which Congress

prevent

when

it

enacted

1359

and

its

Id. at 828-29.
___

applying

determined an improper

Kramer,
______

lower

courts

or collusive assignment

-9-

have

often

from whether

or

not

the

parties

have

shown

justification for

assigning the

Courts

applied

have also

between affiliated parties.

an

independent

claim to a

diverse party.7

elevated scrutiny

In these

business

to assignments

situations, "[s]imply

articulating a business reason is insufficient; the burden of

proof is with the party asserting diversity to establish that

the reason is

legitimate and not

pretextual."

Yokeno,
______

973

F.2d at 810.

Nike, Inc.
__________

See also Airlines Reporting, 58 F.3d at 862-63;

________ __________________

v.

Comercial Iberica de Exclusivas Deportivas,

_____________________________________________

S.A., 20 F.3d 987,

____

at 792-93;

546

991-93 (9th Cir. 1994);

Dweck, 877 F.2d

_____

Prudential Oil Corp. v. Phillips Petroleum Co.,

____________________
_______________________

F.2d 469,

475 (2d

Cir. 1969)

("The scrutiny

normally

applied to transfers or assignments of claims which have

effect of creating diversity

must be doubled in the

the

case of

____________________

7.

See Western Farm Credit Bank v. Hamakua Sugar Co., 841 F.

___ ________________________
_________________

Supp. 976, 981

(D. Haw. 1994) ("[O]nce a

legitimate business purpose for

the assignment is absolute,
whether one

party has stated a

the assignment and has shown

district courts need not explore

motivating factor

create diversity jurisdiction");

behind the assignment

was to

Baker v. Latham Sparrowbush

_____
__________________

Assocs., 808
_______
for

F. Supp. 992, 1002

"facially

improper);
(S.D.

valid

(S.D.N.Y. 1992) (assignment

business

purpose"

not

collusive

or

AmeriFirst Bank v. Bomar, 757 F. Supp. 1365, 1372

_______________
_____

Fla. 1991);

Blythe Indus., Inc.

____________________

v.

Puerto Rico
______________

Aqueduct and Sewer Auth., 573 F. Supp. 563, 564 (D.P.R. 1983)
________________________
(diversity

jurisdiction

commercial interest
see Haskin v.
___ ______

denied

where

is apparent from the

"[n]o

legitimate

assignment").

Corporacion Insular de Seguros, 666 F.

_______________________________

But
___
Supp.

349, 354 (D.P.R. 1987) ("In examining a Section 1359 claim of

collusion

. . .

motive

must be

weight than the determinations

real or
assignee

colorable and, most

has

some

considered but

given less

of whether the assignment was

important, whether

independent,

or not

pre-existing

interest in the causes of action assigned to him").

-10-

the

legitimate

assignments

common

between related or affiliated corporations since

ownership

possibility

encountered

of

in

assignment");

. . . only

collusion

and

detecting

the

serves

to

compound

real

increase

the

purpose

the

difficulty

of

the

Western Farm Credit Bank v. Hamakua Sugar Co.,

________________________
_________________

841 F. Supp. 976, 981 (D. Haw. 1994);

Blythe Indus., Inc. v.

___________________

Puerto Rico Aqueduct & Sewer Auth., 573 F.

____________________________________

Supp. 563,

564

(D.P.R. 1983).

The

language of

above

authorities,

1359, are consistent

as

well

as

the

clear

with the district court's

analysis

here.

Plaintiffs rely, for a contrary view, upon a

Supreme Court case decided in the 1920s that seemingly points

in

different

direction.

In

Black & White Taxicab &

__________________________

Transfer Co. v. Brown & Yellow Taxicab & Transfer Co., 276
_____________
_______________________________________

U.S. 518 (1928), a Kentucky taxi company created diversity by

reincorporating

in

Tennessee.

Otherwise,

continued its taxi business in Kentucky.8

the

company

The newly created

____________________

8.

When Black & White Taxicab was decided a corporation was

______________________

considered

incorporated,
place of

citizen
regardless

business.

corporations to
White Taxicab
_____________

of

the
of the

state

location of

This definition of

change citizenship
demonstrates.

in

which

it

was

its principal

citizenship allowed

very easily, as

The enactment

Black &
_______

of 28 U.S.C.

1332(c) in 1958 redefined the citizenship of a corporation to

include

the state where

located,

in

addition

incorporated.
place

of business is

to

which

Thus, today,

of business

jurisdiction

its principal place

with

reincorporating

in

in
a

the

state

it

is

a corporation with its principal

Kentucky could
Kentucky

Tennessee.

business would also have

in

not create

opposing

party

Its

principal

diversity
by

merely

place

to move away from Kentucky,

of

a more

difficult feat for an active business.

-11-

Tennessee company brought suit in federal court.

Court upheld diversity jurisdiction stating:

The Supreme

"The succession

and transfer

were actual,

not feigned or

In these circumstances, courts

will not inquire into motives

when deciding

concerning their

Cf.
___

Fitzsimmons Drilling Co.,

_________________________

Mecom v.
_____

(1931);

merely colorable.

jurisdiction."

Id.
___

284 U.S.

at 524.

183, 190

Cross v. Allen, 141 U.S. 528, 533 (1891).

_____
_____

Black & White Taxicab has been sharply

______________________

for allowing

criticized

the manufacture of diversity in conflict with

1359's purpose.

Charles A. Wright, Law of Federal Courts 373

(1994) ("The reincorporation . . . to create diversity verged

on fraud, and

it was

jurisdiction

could be

Institute,

Study of

not necessary to

so

the

hold that

readily abused");

Division

diversity

American

of Jurisdiction

Law

Between

State and Federal Courts

examples

of

improper

159 (1969) ("One of the

creation

of

diversity

most cited

jurisdiction

involved a corporation which simply reincorporated in another

state

for

the purpose

of

creating diversity

jurisdiction

[citing Black & White Taxicab]").

_____________________

This

court has interpreted

1359 in light both of

Black & White Taxicab and Kramer in a case strikingly similar

_____________________
______

to the

one at hand.

338 (1st Cir. 1973)

court

dismissed

the

Greater Dev. Co. v.

________________

Amelung, 471 F.2d

_______

(per curiam).

In Amelung,
_______

original

of

____________________

-12-

claim

the district

Massachusetts

corporation for

the

lack of jurisdiction.

corporation's

Connecticut shell

controlling

refiled the

action relying on

stating in part:

stockholder

corporation which purchased

the Massachusetts corporation.

then

To create diversity,

suit.

The Connecticut

The district

1359, and this court

formed

the assets of

corporation

court dismissed

the

summarily affirmed,

[W]e think . . . that when

a corporation

conducting an on-going business transfers

all

its

assets

another

and

its

corporation, and

business

to

the transferor

is dissolved, diversity jurisdiction will

exist,
the

even

though the

two corporations

shareholders of

are the

the purpose of the transfer

diversity

of

admittedly

the

transfer

transferor

has

been

shareholder

same, and

is to obtain

citizenship.

is the

real,

the

dissolved and

the

same.

is

Here

However, the

claim which is the basis of this suit was

the only asset
as the record

transferred, and, as
shows, the

only asset

far
of

the new corporation, which apparently has

no

payroll and no

extend an already
&
White,
_________

see
___

other activities.

To

eroded case like Black

_____
Kramer
______

. . . to

this

situation would be to destroy the meaning

of

this

salutary

statute [28 U.S.C.

and
1359].

long-standing

-13-

Id.
___

at 339.9

Amelung has
_______

been

praised for

refusing

to

extend Black & White Taxicab beyond its facts.10

_____________________

In the

that

instant case, the

the factual

situation "approximates that

Toste Farm, 882 F. Supp. at 246.

___________

the

district court concluded

We agree.

principal asset transferred was

in Amelung."
_______

As in Amelung,
_______

a legal claim.

As the

district court found, TFCI

had no employees nor did

it have

ongoing

its

activities beyond

Limited Partnership.

interest in

the Toste

It was formed for the single purpose of

acting as a general partner in the partnership.

determined

to

Farm

leave

negotiations foundered,

the

partnership

and

After Acebes

the

buy-sell

resulting in this lawsuit, TFCI and,

after

the merger, TFC were left mainly with a legal dispute.

Unlike

the

transferred

Taxicab, there
_______

was no

taxi

business

in

ongoing business to

Black & White

_______________

operate separate

____________________

9.

Another court

Amelung.
_______

has taken

a similar

approach to

that in

In Piermont Heights, Inc. v. Dorfman, 820 F. Supp.

______________________
_______

99, 100 (S.D.N.Y. 1993), the District Court for the

Southern

District of New York held: "If a plaintiff assigns a claim or

takes a similar action [in this case a merger] solely for the
purpose

of manufacturing diversity jurisdiction, and without

a legitimate business purpose apart from the creation of such

jurisdiction, [section 1359] is violated."

10.

14

Charles A.

Cooper,

Federal Practice

3638, at 99 (1985)
seems

been done, as
case

Arthur R.

Miller

and Procedure:

To

ignore the obvious

some language

. . . could be

read

as

& Edward

D.

Jurisdiction 2d

("The approach taken in the

sound . . . .

what had
Taxicab

Wright,

Amelung case
_______
purpose behind

in the Black & White

______________
requiring, would

be

_______
contrary to
with

the objectives of Section

1359 and inconsistent

the principle that federal courts are courts of limited

jurisdiction") (footnotes omitted).

-14-

from the legal claim.

Had TFCI assigned its

claim to TFC in New York,

interest in the

1359 would plainly, under Kramer,

______

have overridden the existing diversity.

We see no reason for

a different outcome merely because the merger route was

used

to

accomplish essentially

proscribes the

the

same result.

improper or collusive

invoke jurisdiction, "by assignment

Section

making of

1359

a party

or otherwise"
____________

to

(emphasis

added).

It is

true, as

included

to

interest

a bank account containing under $200,000.

concede that

besides

one purpose

of the

the

the assets

transferred

plaintiffs

TFC

plaintiffs argue, that

partnership

While

merger was

to

manufacture diversity, they note the availability of the bank

account for possible future

investments and contend that the

transfer to New York served Acebes' convenience, as his other

business

record,

activities were

the

district

also in

court

could

New York.

reasonably

But,

view

on this

these

assertions as make-weights.

concerned

as

to

where

principal

office of

this

Acebes would scarcely be deeply

the

state

paper

of

incorporation

corporation were

and

located,

given that there were no employees and no ongoing operations.

Nor does the placing of an amount of cash in TFC for possible

future use

seem significant.

the existence

time

The record does

of active outside business

of transfer.

None

of these

-15-

not indicate

investments at the

factors,

by themselves,

suggests

a likely

reason

for the

move to

New York.

The

significant reason appears to be the improper one: "to invoke

the jurisdiction" of the federal court,

1359.

The district court justifiably concluded that there

was "a

manufactured assignment

single individual

concocted and designed

using the diversity

create jurisdiction."

statute as a

Toste Farm, 882 F. Supp.

__________

by a

ploy to

at 247.

To

be sure, the court elsewhere said that creating diversity was

"at least one of the reasons for the merger," id. at 245, but
___

the tenor of the court's opinion, including the "manufactured

assignment"

statement,

indicates

diversity was the principal

sole

that

the

creation

of

indeed, one might suppose the

purpose for the merger.

There was no error in this

factual analysis.

We recognize, as plaintiffs argue, that the Supreme

Court,

in

the

circumstances

of

Black & White Taxicab,

________________________

declined to inquire into motives. Id. at

___

Taxicab, however,
_______

involved the

business, not

a paper

been

as a

to

act

continuum

transfer of an

corporation whose single

general

embroiled in litigation.

524.

partner

in

Black & White

_____________

ongoing taxi

purpose had

a partnership

Viewing cases of this nature

defined by Kramer on
______

one side, and

now

on a

Black & White

_____________

Taxicab
_______

on the

other, the

present case

falls well

to the

Kramer side.
______

And in this circuit the instant case is further

controlled

as the district court correctly found

by our

-16-

Amelung decision.
_______

finding that

We, therefore, affirm the district court's

1359 bars jurisdiction over plaintiffs' claim.

III.
III.

We turn next to the issue of whether any portion of

defendants'

counterclaim

can

survive

the

jurisdictional

failure of plaintiffs' claim.

There are

two ways for district

jurisdiction

over

independent

basis for

counterclaim; or

provides

are

basis

(2)

federal

the same

Only

for

28

case or

can

pursuant

U.S.C.

jurisdiction over

that have

survive

to

an

in the

1367

which

counterclaims that

controversy as

those counterclaims

jurisdiction

(1)

jurisdiction present

pursuant to

supplemental

part of

claim.

counterclaims:

courts to acquire

the original

an independent

dismissal

of

the

original

claim for

lack of

jurisdiction.11

Wright, Arthur R. Miller, Mary K. Kane,

Procedure: Civil 2d

Charles A.

Federal Practice and

1414, at 112 (1990).

See also
________

Scott
_____

v. Long Island Savings Bank, FSB, 937 F.2d 738, 743 (2d Cir.
______________________________

1991);

Kuehne & Nagel (AG & CO) v. Geosource, Inc., 874 F.2d
________________________
_______________

283, 291 (5th Cir. 1989);

DHL Corp. v. Loomis Courier Serv.,

_________
_____________________

Inc., 522 F.2d 982, 985 (9th Cir. 1975).

____

____________________

11.

Supplemental jurisdiction,

effect, derivative
thus

cannot

28

U.S.C.

of the original claim's

survive

the

jurisdictional

original claim.

-17-

1367,

is,

in

jurisdiction and
failure

of

the

Defendants

district court

urge

this

court

scope of

that the TFCI-TFC

the partnership

find

has mandatory jurisdiction over

their counterclaim because jurisdiction

within the

to

its

allegation.12

that

the

Count III of

exists independently

Count III

merger violated sections 11.2

agreement, which prohibit the

alleges

and 11.3 of

transfer of a

partner's interest without giving notice and a right of first

refusal to the other partners.

Defendants

argue

mandatory jurisdiction

that

the

over Count III because

all the requirements of diversity under

which destroyed diversity

not apply

did

not

to them,

engage

in

district

Section 1359

in plaintiffs' claim

the collusive

or

has

they have met

1332.

defendants say, because

defeated diversity jurisdiction

court

does

they themselves

improper

acts

over plaintiffs' claim.

that

In

defendants' view, the district court's holding penalizes them

for losing "the

sued

exist.

race to

plaintiffs, instead

the courthouse" since

of vice versa,

if they

had

jurisdiction would

____________________

12.
I

Defendants' counterclaim consists of three counts: Count

requests a

agreement;
the

declaration

Count II

parties to

partnership
alleged

under the

requests injunctive

abide

agreement;

breach of

of rights

by

the

Count

rights

relief instructing
and

III requests

the partnership

partnership

duties
damages

agreement.

of

the

for an

The parties

agree that Counts I and II must be dismissed because they are

not independent

of plaintiffs'

claim, and therefore

survive that claim's jurisdictional failure.

-18-

do not

We are not persuaded.

destroys diversity not

the entire action.

shall

invoke

claim

Section 1359 provides:

"A district court

a civil action
____________

jurisdiction"

(emphasis

court's lack of jurisdiction

in which any
___

added).13

The

is not limited to the

of a collusive plaintiff but extends to any portion of

the civil

action whose jurisdictional basis

upon the plaintiff's

see no

could

but for

been improperly or collusively made . . . to

[federal]

district

1359, by its terms,

only for the original claim,

not have jurisdiction of

party . . . has
_____

Section

improper or

reason not to

well

lawsuit,

to

be

find

collusive act.14

construe the

unfair,

within the

that diversity

depends in fact

We

can

statute as written.

It

contours

jurisdiction

of

the

same

exists

for

purposes

of defendants'

claim for

claim after

want of diversity.

dismissing plaintiffs'

To bifurcate

this manner would be to fragment the case.

partnership

agreement here

might have

jurisdiction in

One aspect of the

to be

determined in

____________________

13.

The

Civil

term "action" has been used in the Federal Rules of

Procedure to include counterclaims.

P. 54(b) ("When more

in an

See Fed. R. Civ.

___

than one claim for relief

action, whether as a
______

is presented

claim, counterclaim, cross-claim

____________

or third party claim, ... the court may direct the entry of a
[partial] final judgement ...") (emphasis added).

14.

We do not

require

reach the

dismissal

jurisdictional

basis

of

question of whether
a

that

counterclaim
would

have

1359

supported
existed

would
by

even

if

plaintiffs had not improperly manufactured jurisdiction.

-19-

federal

friction

court

and

another

between state

judicial resources,

defendants,

who

plaintiffs'

claim,

It

use

court,15

causing

courts, the

wasting of

greater likelihood of

unfair and

could

successfully

to

state

and federal

and a

inconsistent outcomes.

in

also be

unfair to

challenged jurisdiction

the

same

improperly

allow

over

achieved

jurisdictional basis

the statute

seems

for their

clear.

counterclaim.

We affirm

In

the district

any case,

court's

refusal to assert jurisdiction over defendants' counterclaim.

Affirmed. Each party bears its own costs.

Affirmed. Each party bears its own costs.
__________________________________________

____________________

15.
case

Defendants

argue that it is

would be bifurcated

not at all

because if they

clear that the

are successful in

Count III and the federal court awards them TFCI

interest

as

partnership
persuaded

remedy, they

would

have

control

and plaintiffs' claim would be moot.

by this

argument

because it

partnership
over the
We are not

is unclear

whether

defendants would be successful and whether the district court

would

award TFC's

partnership interest

to defendants

remedy in the event that they were successful.

-20-

as a