Commercial Litigation and Arbitration

Diversity Jurisdiction — Assignment of Claims by Non-Diverse Subsidiaries to Diverse Parent

28 U.S.C. § 1359 provides that "[a] district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of the court." There is a split in the Circuits as to whether to apply a presumption of collusive invocation of jurisdiction when evaluating assignments between related entities. The District Judge in Ambrosia Coal & Constr. Co. v. Morales, 482 F.3d 1309 (11th Cir. 2007) applied such a presumption where two non-diverse, wholly-owned subsidiaries assigned their claim to their diverse corporate parent, and dismissed the action for lack of subject matter jurisdiction. The Eleventh Circuit reversed.

Reviewing the authorities, the Eleventh Circuit held that no such presumption was appropriate, following the approach of the Seventh Circuit in Herzog Contracting Corp. v. McGowen Corp., 976 F.2d 1062, 1067 (7th Cir. 1992), and declining to follow the approach of the Second and Ninth Circuits in Prudential Oil Corp. v. Phillips Petroleum Co., 546 F.2d 469, 476 (2d Cir. 1976), and Nike, Inc. v. Comercial Iberica de Exclusivas Deportivas, S.A., 20 F.3d 987, 991-992 (9th Cir. 1994). The Ambrosia opinion relies on the absolute nature of the transfer as the doctrinal basis for its conclusion. It stressed, in addition, the pervasive factual involvement of the parent in the underlying transaction as further making it ‛the real party in interest“ in the litigation.

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