CHAPTER X. JURISDICTION OF FEDERAL COURTS AS 261. TRANSFERS. Introduction.-We have seen of what cases District Courts have jurisdiction and in what districts suits may be brought. We have thus far been dealing with proceedings which have been instituted by the original party to the contract or by the one actually injured by the tort, or by someone who succeeded by operation of law to his rights. Some times would-be plaintiffs would like to go into the Federal Court. They are citizens of the same State with the defendants, and have not the right to take their cases there. Under such circumstances they are tempted to transfer their claims to assignees who are citizens of another State. 262. General Jurisdictional Test in All Cases of Assignment -Sham Assignments Will Not Confer Jurisdiction. Sometimes the assignment is a pure form. It is not made with intent to make the assignee the real owner of that which is assigned to him. In such cases, independent of any statutory provisions, the Courts will hold that they have no jurisdiction; the plaintiff has no interest in the subject-matter of the controversy. A citizen of Pennsylvania, without consideration, made a conveyance of land to a citizen of Maryland. The latter, to accommodate the grantor, allowed his name to be used in the Federal Court as a plaintiff in an action of ejectment against another citizen of Pennsylvania. The Court held that the conveyance was entirely colorable and collusive, and therefore incapable of laying a foundation for jurisdiction.1 Citizens of the District of Columbia wished to have certain litigation concerning land in which they were interested 'Maxwell's Lessee vs. Levy, 2 Dallas, 381. prosecuted in the United States Court for the District of Maryland. They conveyed their interest in the lands to a citizen of that State. The conveyance was without consideration and the grantee was on the request of the grantors to reconvey to them. The complainant in the proceeding was a citizen of Delaware. The Supreme Court said: "If the conveyance" *** "had really transferred the interest" of the grantor to the grantee, "although made for the avowed purpose of enabling the Court to entertain jurisdiction of the case, it would have accomplished that purpose"***"But in point of fact that convey“But ance did not transfer the real interest of the grantors. It was made without consideration, with a distinct understanding that the grantors retained all their real interest, and that the deed was to have no other effect than to give jurisdiction to the Court" *** "The Court will not, under such circumstances, give effect to what is a fraud upon the Court, and is nothing more."2 263. Do. If Assignment Genuine, Motive Immaterial. The Supreme Court said, it will be noted, that if the conveyance had been real, transferring the interest in the land to the grantee, it would have been immaterial what the motive of the grantor was. A citizen of Alabama filed a bill in the United States Court for the District of Ohio, against certain citizens of the latter State, to compel them to convey to him certain land, which had been granted to him by a citizen of Ohio. The grantor feared that his title would not be sustained in the Ohio State Courts. He was indebted to the plaintiff in the sum of $1,100. He offered to sell and convey the land to the latter in payment of this debt. He said. that he thought the title was good; that it would most probably be established in the Courts of the United States, but would fail in those of the State. In his opinion the property was worth much more than the sum he was willing to take for it, but in consequence of the difficulties attending the title he would convey it in satisfaction of the debt. He offered to render any service in his power to the grantee in the 2 Barney vs. Baltimore City, 6 Wall. 288. prosecution of his claim in the Courts of the United States. The testimony showed a sale and conveyance binding on both parties. The title of the grantor was extinguished. The Supreme Court thought that the motives which induced him to make the contract, whether justifiable or censurable, could not affect its validity. It said: "The conveyance appears to be a real transaction, and the real as well as nominal parties to the suit are citizens of different States." The jurisdiction was therefore upheld. When one or the other of the parties to the controversy claims under a deed, grant or assignment from someone else, if the conveyance is a real conveyance by which the grantor parts with the property and the grantee gets it, then if the Court will have jurisdiction, if the grantee be a party to the suit, it will, except where statute otherwise directs, have jurisdiction although the motive for the transfer was the desire to have the case tried in the United States Court. On the other hand, if the grantor still remains the real owner, the Court will not have jurisdiction unless it would have were the grantor himself a party to the suit. 264. Special Statutory Jurisdictional Test as to Assigned Choses in Action-District Court Has No Jurisdiction Unless it Would Have, Had There Been No Assignment.-But Congress has never felt that it was wise to leave the law in this state. There are many classes of contracts, nominal title to which can be transferred with facility. In many, if not most, cases it is impossible to determine whether the assignment was an actual transfer of the beneficial interests or was merely colorable. And, therefore, in the original Judiciary Act the first Congress provided, that except in cases of foreign bills of exchange, no District or Circuit Court should have cognizance of any suit to recover the contents of any promissory note or other chose in action in favor of an assignee unless the suit might have been prosecuted in such Court to recover the said contents if no assignment had been 'McDonald vs. Smalley, 1 Peters, 623. made. With slight changes in phraseology, this provision has remained the law ever since. In the Judicial Code it forms 2 sentence of that same first paragraph of section 24, about which so much has been said. As there worded, it reads: "No District Court shall have cognizance of any suit. (except upon foreign bills of exchange) to recover upon any promissory note or other chose in action in favor of any assignee, or of any subsequent holder if such instrument be payable to bearer and be not made by any corporation, unless such suit might have been prosecuted in such Court to recover upon said note or other chose in action if no assignment had been made." 265. At What Time Must Court Have Had Jurisdiction Had There Been No Assignment.-The Code provides that the assignee may not sue in a Federal Court unless suit could have been brought in that Court if no assignment had been made. As of what time does the statute here speak? Suppose a citizen of Maryland gives his promissory note to another citizen of the same State. The payee endorses it over to a citizen of Pennsylvania. After its endorsement and maturity, the payee moves to Delaware. The Pennsylvania holder brings suit against the Maryland maker in the United States Court for the District of Maryland. Has the Court jurisdiction? At the time suit was brought that Court would have had jurisdiction had no assignment been made. for the original payee was then a citizen of Delaware and competent to sue the maker in the Federal Court. Or does the restriction relate to the time when the assignment became effective? If it does, the Federal Court would have no jurisdiction because at that time both the maker and the payee were citizens of the same State. The law is settled that, if at the time the action was instituted, the assignor could have brought suit in the Federal Court, it is immaterial whether he could have done so when the assignment was made.1 266. When There Have Been Several Successive Assignments, to Which Does the Statute Refer?Suppose that a citizen of Maryland gives his promissory Emsheimer vs. New Orleans, 186 U. S. 33. note to a citizen of Delaware. The citizen of Delaware endorses the note over to another citizen of Maryland. The endorser endorses it to a citizen of Pennsylvania, who endorses it over again to a citizen of New York. Can the citizen of New York sue the original maker in the Federal Courts? The original payee could have sued because he was of Delaware, and if the assignment referred to in the statute is the first assignment, suit could have been brought in the Federal Courts had no such assignment been made. On the other hand, the holder of the note at the time suit was instituted, traced his title to it through mesne assignment from a person incapable of suing in the Federal Courts, viz, the Maryland holder. This question has been fully considered by the Circuit Court of Appeals for the Seventh Circuit." It reached the conclusion that when there are a number of successive assignments, not more than two of them at the most need be taken into account; the statute has no reference to any which are intermediate between the first and the last. If the original payee and the immediate assignor of the plaintiff are both at the time suit brought competent to sue the maker in the Federal Courts, the jurisdiction of those Courts is not defeated by the fact that some intermediate assignor or endorser is not. Suppose at the time suit brought the plaintiff is a citizen of another State than that of the maker. At that time the original payee might have sued the maker in the Federal Court. The plaintiff himself claims under an assignment made directly to him by an intermediate holder, who at the time suit is brought is not competent to sue the maker. Has a Federal Court jurisdiction of the case? The Court of Appeals for the Seventh Circuit in the opinion last cited did not find it necessary to decide that question and reserved it. The authorities are there reviewed. All hold that unless the Federal Courts would at the time suit brought have had jurisdiction of an action between the original parties they will not have it as between the then 1 Farr vs. Hobe-Peters Land Co., 188 Fed. 10. |