## Facts

- A railroad granted a taxicab company an exclusive right at its station to solicit passengers and baggage and to use designated railroad property to stage cabs.
- The taxicab business had been operated by a Kentucky corporation; shareholders dissolved it, formed a Tennessee corporation of the same name, and transferred the business and contract to the new entity.
- The purpose of the reorganization, with railroad cooperation, was to create diversity of citizenship for federal jurisdiction.
- A competing Kentucky taxicab company allegedly solicited business and parked cabs on railroad property in violation of the exclusive arrangement, allegedly with the railroad’s acquiescence.
- The competitor asserted the incorporation was fraudulent to create federal jurisdiction and argued the exclusive contract was unlawful under Kentucky public policy, beyond the railroad’s powers, and barred by the Kentucky Constitution.

## Issues

1. Whether the plaintiff’s Tennessee incorporation and transfer of the business constituted improper or collusive creation of diversity requiring dismissal under the federal anti-collusion statute.
2. Whether the railroad had power to enter the exclusive station-solicitation and staging contract, and whether the contract violated Kentucky Constitution § 214.
3. In a diversity case, whether federal courts must follow state-court decisions invalidating similar contracts on common-law public policy grounds when no controlling statute or constitutional provision applies.

## Decision

- The Supreme Court affirmed the injunction enforcing the exclusive contract.
- The Court held diversity jurisdiction was proper because the plaintiff was the real party in interest and the controversy was real and substantial, even if the reorganization aimed to obtain a federal forum.
- The Court held the contract was within the railroad’s authority and consistent with Kentucky Constitution § 214.
- The Court held that, absent controlling state statutory or constitutional law, the public-policy validity of the contract was a question of general law, so the federal court was not bound by contrary state-court common-law decisions.

## Legal Principles

- A corporation formed or restructured to create diversity does not defeat jurisdiction if the entity genuinely owns the rights at issue and is not a nominal or sham party; motive to invoke federal jurisdiction alone is insufficient for dismissal under anti-collusion rules.
- A railroad may, as part of managing its facilities and property, grant exclusive station-area solicitation and staging privileges to a private carrier where not barred by the railroad’s governing charter limits or controlling state law.
- In diversity cases under the pre-Erie general-law approach, federal courts apply controlling state statutes and constitutional provisions, but are not bound by state-court common-law determinations on general public policy questions.

## Conclusion

The Court sustained federal diversity jurisdiction despite a deliberate corporate change to create it and enforced an exclusive railroad-station taxicab contract, treating the contract’s public-policy validity as a general-law question not controlled by state common-law decisions in the absence of governing state statutory or constitutional law.


Black & White Taxicab & Transfer Co. v. Brown & Yellow Taxicab & Transfer Co., 276 U.S. 518 (1928)