Facts
- James N. Gilmer, a lifelong Alabama citizen, transferred 60 shares of Elyton Land Company stock to Josiah Morris, which Gilmer later claimed was held in trust as collateral for a debt to Morris & Co.
- In 1884, Gilmer sued Morris and Morris & Co. (all Alabama citizens) in an Alabama chancery court seeking an accounting and reconveyance of the shares upon payment of any balance due.
- The Alabama chancery court dismissed the suit as time-barred, and the Alabama Supreme Court affirmed the final decree.
- In 1886, Gilmer filed a new suit in federal circuit court in Alabama against Morris and F.M. Billing, seeking substantially the same equitable relief concerning the same shares, but alleging Gilmer was a citizen of Tennessee.
- Defendants challenged federal jurisdiction, asserting Gilmer’s purported Tennessee citizenship was not genuine but undertaken only to create diversity after losing in state court.
- Evidence showed Gilmer physically relocated to Memphis with his family and goods for a period, but also included testimony that he was advised to move to enable a federal suit and later statements suggesting he returned to Alabama intending to reside there permanently.
- The circuit court denied the motion to dismiss for lack of jurisdiction and entered a decree for Gilmer; Morris appealed.
Issues
- Whether a federal court has diversity jurisdiction when the plaintiff’s alleged change of domicile to another state was made solely to create diversity and access federal court.
- Whether federal courts must dismiss a case when the record shows the controversy is not properly within federal subject-matter jurisdiction, even if the parties litigate merits issues.
Decision
- The Supreme Court reversed the federal circuit court’s decree.
- The Court held that the circuit court lacked subject-matter jurisdiction because Gilmer’s move was not a bona fide change of domicile but was undertaken solely to manufacture diversity.
- The Court directed dismissal of the suit for want of jurisdiction.
- The Court stated it would correct jurisdictional error on review even if not properly resolved below, because federal courts must not proceed when jurisdiction is lacking.
Legal Principles
- Federal courts have an affirmative duty to examine subject-matter jurisdiction; if the record discloses the court cannot properly take cognizance, it must dismiss, and a failure to do so is reversible error.
- Diversity jurisdiction depends on actual domicile, requiring physical presence plus an intent to make a settled home in the new state.
- A purported change of citizenship does not create diversity jurisdiction when the sole object of moving is to invoke federal jurisdiction without a genuine intent to establish a new domicile.
Conclusion
The Supreme Court held that diversity jurisdiction cannot rest on a merely colorable change of residence undertaken solely to create federal jurisdiction, and it required dismissal because the plaintiff did not establish a bona fide change of domicile.