## Facts

- Caribbean Mills, Inc., a Haitian corporation, agreed in 1959 to purchase stock, paying $85,000 down and $165,000 in 12 annual installments.
- Caribbean made no installment payments despite demands by Panama and Venezuela Finance Company, a Panamanian corporation that held the contractual rights.
- In 1964, Panama assigned its entire interest in the contract claim to Clayton S. Kramer, a Texas attorney, for stated consideration of $1.
- In a separate agreement, Kramer promised to remit 95% of any net recovery to Panama as a “bonus,” leaving Panama with nearly all economic benefit.
- Kramer sued Caribbean in the U.S. District Court for the Northern District of Texas, alleging diversity jurisdiction based on the assignment.
- The district court denied a jurisdictional motion under 28 U.S.C. § 1359, tried the case, and a jury awarded Kramer $165,000.
- The Fifth Circuit reversed, holding the assignment was improperly or collusively made to invoke federal jurisdiction, so the district court lacked jurisdiction.

## Issues

1. Whether Panama’s assignment of its claim to Kramer—on terms preserving to Panama 95% of any recovery—was “improperly or collusively made” to invoke federal jurisdiction under 28 U.S.C. § 1359.
2. Whether the federal jurisdictional analysis turns on the assignment’s validity under state law.
3. Whether § 1359 applies when the asserted jurisdiction is based on alienage as well as when it is based on different state citizenship.

## Decision

- The Supreme Court affirmed the Fifth Circuit.
- The Court held the assignment was “improperly or collusively made” within the meaning of 28 U.S.C. § 1359.
- Because the assignment manufactured federal jurisdiction, the federal courts lacked subject-matter jurisdiction over the action.

## Legal Principles

- 28 U.S.C. § 1359 bars jurisdiction where a party has been improperly or collusively made or joined to invoke federal jurisdiction, including through assignments designed to create diversity.
- Courts evaluate the practical economic substance of an assignment, not merely its formal validity, to determine whether it was used to manufacture jurisdiction.
- The existence of federal subject-matter jurisdiction is a question of federal law; a transaction’s validity under state law does not control the § 1359 inquiry.
- Section 1359 applies to alienage-based diversity jurisdiction as well as diversity based on different state citizenship.

## Conclusion

An assignment that transfers formal title for nominal consideration while leaving the assignor with the overwhelming economic interest, and is arranged to create diversity, is collusive under § 1359; federal courts must dismiss for lack of subject-matter jurisdiction.


Kramer v. Caribbean Mills, Inc., 394 U.S. 823 (1969)