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The transfer to the Nevada corporation was upon a valuable consideration, and consequently no trust resulted in favor of the California corporation.

pose of having the matters in dispute be- | York, 17 Fed. 817; Neal v. Foster, 36 Fed. tween such California corporation and an- 41; Ashley v. Presque Isle County, 27 other corporation of that state determined C. C. A. 585, 54 U. S. App. 450, 83 Fed. in a Federal rather than in the state court. 537; Woodside v. Ciceroni, 35 C. C. A. 177, where they were pending and undetermined, must be regarded as an attempt collusively 93 Fed. 1; Collins v. Ashland, 112 Fed. 178; to make a party plaintiff simply for the pur- Adams v. Shirk, 55 C. C. A. 25, 117 Fed. pose of creating a case cognizable by the 805; Cole v. Philadelphia & E. R. Co. 140 Federal court, which, under the act of Fed. 946. March 3, 1875 (18 Stat. at L. 470, 472, chap. 137, U. S. Comp. Stat. 1901, pp. 508, 511), 5, requires the dismissal of the suit, where the new corporation assumes to be the owner of the property rights which the old company had asserted only that it may have a standing in the Federal court as a litigant in respect of those rights, and the old corporation can control the conduct of the suit brought by the new corporation at any time up to the date of the decree, and can require the new corporation, in the event of a decree in its favor, to transfer the benefit of such decree to the old corporation without any new or valuable consideration.

[For other cases, see Courts, 697, 698, in Digest Sup. Ct. 1908.]

[No. 518.]

Submitted October 13, 1908. cember 7, 1908.

A

Decided De

PPEAL from the Circuit Court of the

United States for the Southern District of California to review a decree dismissing the bill in a suit between corporations of different states because of the collusive incorporation of the complainant. Affirmed. The facts are stated in the opinion. Mr. Edward F. Treadwell submitted the cause for appellant:

The mere fact (if it be a fact) that complainant was formed and this property transferred to it for the purpose of conferring jurisdiction upon the Federal courts can in no way affect the jurisdiction of those courts.

Dickerman v. Northern Trust Co. 176 U. S. 181, 191, 44 L. ed. 423, 430, 20 Sup. Ct. Rep. 311; M'Donald v. Smalley, 1 Pet. 620, 7 L. ed. 287; Smith v. Kernochen, 7 How. 198, 216, 12 L. ed. 666, 673; Barney v. Bal timore, 6 Wall. 280, 18 L. ed. 825; Morris v. Gilmer, 129 U. S. 315, 328, 32 L. ed. 690, 694, 9 Sup. Ct. Rep. 289; Cross v. Allen, 141 U. S. 528, 533, 35 L. ed. 843, 847, 12 Sup. Ct. Rep. 67; Crawford v. Neal, 144 U. S. 585, 36 L. ed. 552, 12 Sup. Ct. Rep. 759; Lake County v. Dudley, 173 U. S. 243, 254, 43 L. ed. 684, 689, 19 Sup. Ct. Rep. 398; South Dakota v. North Carolina, 192 U. S. 286, 310, 48 L. ed. 448, 457, 24 Sup. Ct. Rep. 269; Blair v. Chicago, 201 U. S. 400, 448, 50 L. ed. 801, 821, 26 Sup. Ct. Rep. 427; Briggs v. French, 2 Sumn. 251, Fed. Cas. No. 1,871; Case v. Clarke, 5 Mason. 70, Fed. Cas. No. 2,490; Van Dolsen v. New

Irvine Co. v. Bond, 74 Fed. 854.

The doctrine of resulting trusts has no possible application for many reasons: First, because when a deed declares a beneficial use to the grantee, it will prevent a trust resulting in favor of the grantor, although there was no valuable consideration to support the conveyance.

15 Am. & Eng. Enc. Law, 2d ed. p. 1125. Secondly, when the conveyance recites a consideration, this is conclusive that the grantee is to take a beneficial estate. Ibid.

So there can be no resulting trust when a deed is executed in pursuance of a written agreement.

St. John v. Benedict, 6 Johns. Ch. 111. It is perfectly obvious, therefore, that stockholders thereof have a right to compel neither the California corporation nor the a reconveyance of the property.

The dissolution or nondissolution of the California corporation is entirely immaterial.

The transfer to the Nevada corporation was an absolute one, without any understanding, express or implied, that the property should ever be reconveyed, and the case of Lehigh Min. & Mfg. Co. v. Kelly, 160 U. S. 327, 40 L. ed. 444, 16 Sup. Ct. Rep. 307, has no application to such a transfer.

It matters not how closely related two corporations may be, nor what similarity there may be in names, incorporators, stockholders, officers, and purposes, they will be considered distinct so far as Federal jurisdiction is concerned.

Louisville, N. A. & C. R. Co. v. Louisville Trust Co. 174 U. S. 552, 563, 43 L. ed. 1081, 1087, 19 Sup. Ct. Rep. 817; St. Louis & S. F. R. Co. v. James, 161 U. S. 545, 559, 40 L. ed. 802, 807, 16 Sup. Ct. Rep. 621; Lehigh Min. & Mfg. Co. v. Kelly, 160 U. S. 327, 347, 40 L. ed. 444, 451, 16 Sup. Ct. Rep. 307; Nashua & L. R. Corp. v. Boston & L. R. Corp. 136 U. S. 356, 373, 374, 379, 34 L. ed. 363, 367, 368, 370, 10 Sup. Ct. Rep. 1004; Muller v. Dows, 94 U. S. 444, 445, 24 L. ed. 207, 208; Goodwin v. New York, N. H. & H. R. Co. 124 Fed. 364; Missouri P. R. Co. v. Meeh, 30 L.R.A. 250, 16 C. C. A. 510, 32 U. S. App. 691, 69 Fed. 755; Farnum v. Blackstone Canal Corp. 1 Sumn. 62, Fed. Cas. No.

[blocks in formation]

The circuit court properly disregarded the superficial aspect of complainant as a separate and distinct corporation. In determining the jurisdictional question it had the right to look through the web of the artificial corporate entity and find the real

parties in interest.

Oriental Invest. Co. v. Barclay, 25 Tex. Civ. App. 558, 64 S. W. 88; Venner v. Great Northern R. Co. 209 U. S. 24, 52 L. ed. 666, 28 Sup. Ct. Rep. 328; Lehigh Min. & Mfg. Co. v. Kelly, 160 U. S. 327, 40 L. ed. 444, 16 Sup. Ct. Rep. 307.

The case is here upon a certificate under the act of Congress of March 3d, 1891, chap. 517, 26 Stat. at L. 826, U. S. Comp. Stat. 1901, p. 488, relating to the jurisdiction of the circuit court as affected by the 5th section of the act of March 3d, 1875, chap.

137, 18 Stat. at L. 470, 472, U. S. Comp. Stat. 1901, pp. 508, 511. That section provides that if, in any suit commenced in a circuit court, or removed from a state court to a circuit court of the United States, it shall appear at any time to the satisfaction

of said circuit court that such suit "does not

really and substantially involve a dispute or controversy properly within the jurisdicties to said suit have been improperly or tion of said circuit court, or that the parcollusively made or joined, either as plaintiffs or defendants, *for the purpose of[297 creating a case cognizable or removable under There appears, upon consideration of the this act, the said circuit court shall prowhole transaction, such a beneficial and exceed no further therein, but shall dismiss clusive interest of the California corporation the suit or remand it to the court from in the subject-matter of this suit, as to which it was removed, as justice may remake it appear beyond a doubt that the suit quire, and shall make such order as to is not really and substantially between citi costs as shall be just; but the order of said circuit court dismissing or remanding said cause to the state court shall be reviewable

zens of different states.

Lehigh Min. & Mfg. Co. v. Kelly, 160

by the Supreme Court on writ of error or appeal, as the case may be."

U. S. 327–340, 40 L. ed. 444-449, 16 Sup. Ct. Rep. 307; Waite v. Santa Cruz, 184 U. S. 325, 46 L. ed. 567, 22 Sup. Ct. Rep. 327. In stating the object and scope of that The removal was not with a bona fide in-act this court in Williams v. Nottawa, 104 tention of changing the corporate domicil. U. S. 209, 211, 26 L. ed. 719, 720, referred Butler v. Farnsworth, 4 Wash. C. C. 103, to the act of 1875 and said: "In extending Fed. Cas. No. 2,240; Morris v. Gilmer, 129 U. S. 328, 329, 32 L. ed. 694, 695, 9 Sup. of the United States, Congress was specially a long way the jurisdiction of the courts Ct. Rep. 289; Lehigh Min. & Mfg. Co. v. careful to guard against the consequences Kelly, supra. of collusive transfers to make parties, and imposed the duty on the court, on its own motion, without waiting for the parties, to stop all further proceedings and dismiss the suit the moment anything of the kind appeared. This was for the protection of the court as well as parties against frauds upon its jurisdiction; for, as was very properly said by Mr. Justice Miller, speaking for the court, in Barney v. Baltimore, 6 Wall. 280, 288, 18 L. ed. 825, 827, such transfers for such purposes are frauds upon the court, and nothing more."

So far as Federal jurisdiction is concerned, and for jurisdictional purposes in a case like this, the citizenship of the California corporation of Miller & Lux determines the question of Federal jurisdiction in this case.

Louisville, N. A. & C. R. Co. v. Louisville Trust Co. 174 U. S. 552, 563, 43 L. ed. 1081, 1087, 19 Sup. Ct. Rep. 817; St. Louis & S. F. R. Co. v. James, 161 U. S. 545, 559, 40 L. ed. 802, 807, 16 Sup. Ct. Rep. 621; Goodwin v. New York, N. H. & H. R. Co. 124 Fed. 371; Nashua & L. R. Corp. v. Boston & L. R. Corp. 136 U. S. 356, 373, 34 L. ed. 363, 367, 10 Sup. Ct. Rep. 1004; Smith v. New York, N. H. & H. R. Co. 96 Fed.

507.

In the answer of the defendant it is alleged that Miller & Lux, Incorporated, was organized as a corporation in Nevada, but to act only as an agent of "Miller & Lux," a corporation of California; but the California corporation was the owner of all the

Mr. Justice Harlan delivered the opinion capital stock of Miller & Lux, Incorporated, of the court:

This suit was brought in the circuit court of the United States for the southern district of California by “Miller & Lux, Incorporated," a corporation of Nevada, against the East Side Canal & Irrigation Company, a corporation of California.

which, as a corporation, had no existence except as a mere agency of Miller & Lux, the California corporation; that all the property held by the plaintiff was as such agent, in order that suits could be brought and prosecuted in the United States courts; and that the plaintiff does not transact

any business or do any act or thing other | docket,-the California corporation and the than such as may be necessary to carry out the purposes of the California corporation, "except to hold title to property for the purpose of prosecuting suits in the United States courts."

To these allegations the plaintiff made spe298]cial replication, *evidence was taken as to their truth, and the cause was submitted upon the issue thus made. The court found the allegation in the answer to be true; that the complainant held the title to the lands described in the bill for the purpose only of prosecuting and commencing this action in the circuit court of the United States, and that the lands were conveyed to plaintiff for that purpose; and it appearing to the satisfaction of the court that the Nevada corporation had been collusively made a party plaintiff for the purpose of creating a case cognizable by the circuit court of the United States, and that the suit did not really and substantially involve a dispute or controversy within the jurisdiction of that court, the bill was dismissed. It was established by the evidence and the court found as follows:

Henry Miller and Charles Lux were partners prior to and up to the death of Lux, one of the parties, which occurred March 15th, 1887.

In April, 1897, the heirs of the deceased partner and Miller, the surviving partner, wishing to have the partnership business liquidated and its assets distributed among those entitled thereto, made an agreement to form a corporation under the laws of California and transfer to it all the property of the partnership, each person to receive in lieu thereof capital stock proportioned to his interest in the partnership. Pursuant to that agreement the corporation of "Miller & Lux" was organized in California on the 5th day of May, 1897; to it was conveyed the property of the partnership, and the stock of the corporation was distributed as provided in the agreement.

stockholders owning more than two thirds of its capital stock entered into an agreement that they would at once form a corporation under the laws of Nevada with an authorized capital of $12,000,000,-all of such capital stock to be issued and be deemed fully paid up,-each director of the California corporation of Miller & Lux to be an incorporator of the Nevada corporation and to subscribe two shares of such capital stock, to be issued as fully paid-up stock of the new corporation.

That agreement stated that the laws of California were unsatisfactory and in many particulars uncertain and unsettled, "particularly as to dividends,-a matter of the most vital importance to us, and as to which litigation is now pending and undetermined." These difficulties, it was said, did not exist to the same extent under the laws of Nevada. Among the reasons assigned in the agreement for the formation of the Nevada corporation was the belief on the part of the stockholders of the California corporation, that their rights in litigated cases would be "most fully protected and conserved in the Federal courts, to which corporations formed in other states are entitled to resort."

The above agreement provided that, upon the formation of the Nevada corporation, all the property, real and personal, of the California corporation, should be transferred and conveyed to the Nevada Corporation, and that the capital stock of the latter corporation should be issued as fully paidup stock to the California corporation; and that, after such transfer and conveyance were completed, and as soon as the law would permit, the California corporation should be dissolved by voluntary proceedings under the state Code of Civil Procedure of that state.

On the same day, June 12th, 1905, the parties to that agreement *signed and [300 acknowledged articles of incorporation for On the 17th day of December, 1900, the the proposed Nevada corporation of "Miller California corporation of Miller & Lux com- & Lux, Incorporated." All the capital stock menced an action in the superior court of of that corporation was issued to the CaliMerced county, California, against the pres-fornia corporation. The directors of the ent defendant, the East Side Canal & Irriga- California corporation became and are also tion Company, a California corporation. The the directors of the Nevada corporation. object of that suit was to have the latter Each company had the same president, vice corporation perpetually enjoined from ob president, secretary, and treasurer, and ofstructing the natural flow of the waters offices at the same place. "Said corporation," San Joaquin river and its branches, along it was found, "are the same in name, pur299] and bordering on which the California poses, capitalization, directors, officers, office, corporation of Miller & Lux claimed certain and place of business." lands, as well as from interfering with the waters of that river above those lands and to their injury.

On the 12th day of June, 1905,-the above suit in the state court still being on the

On the 15th day of June, 1905, the California corporation of Miller & Lux directed the dismissal of the suit brought in the state court. And on the same day the present suit was brought in the circuit court of

the United States in the name of the Nevada corporation against the East Side Canal & Irrigation Company. The relief sought was substantially the same as that sought in the suit instituted in the state court.

Process in the suit brought in the circuit court by the Nevada corporation was served on June 17th, 1905, and on the same day the California corporation formally dismissed its suit in the state court.

After referring to several cases, this court, among other things, also said: "In harmony with the principles announced in former cases, we hold that the circuit court properly dismissed this action. The conveyance to the Pennsylvania corporation was without any valuable consideration. It was a conveyance by one corporation to another corporation, the grantor representing certain stockholders, entitled collectively or as The California corporation had not been one body to do business under the name of dissolved nor had it ceased to exist when the the Virginia Coal & Iron Company, while present suit was brought by the Nevada the grantee represented the same stockholdcorporation. It was then in existence, withers, entitled collectively or as one body to do all of its powers unmodified. And it does business under the name of the Lehigh Minnot appear that any steps had or have been ing & Manufacturing Company. It is true taken to disincorporate the California corpo- that the technical legal title to the lands ration. Nor can it be said when, if ever, in controversy is, for the time, in the Pennthat corporation will be dissolved. sylvania *corporation. It is also true [302 that there was no formal agreement upon the part of that corporation 'as an artificial being, invisible, intangible, and existing only in contemplation of law,' that the title should ever be reconveyed to the Virginia corporation. But when the inquiry involves the jurisdiction of a Federal court,-the presumption in every stage of a cause being that it is without the jurisdiction of a court of the United States unless the contrary appears from the record (Grace v. American Cent. Ins. Co. 109 U. S. 278, 283, 27 L. ed. 932, 934, 3 Sup. Ct. Rep. 207; Börs v. Preston, 111 U. S. 252, 255, 28 L. ed. 419, 420, 4 Sup. Ct. Rep. 407),—we cannot shut our eyes to the fact that there exists what should be deemed an equivalent to such an agreement; namely, the right and power of those who are stockholders of each corporation to compel the one holding the legal title to convey, without a valuable consideration, such title to the other corporation. In other words, although the Virginia corporation, as such, holds no stock in the Pennsylvania corporation, the latter corporation holds the legal title, subject at any time to be devested of it by the action of the stockholders of the grantor corporation who are also its stockholders. The stockholders of the Virginia corporation,-the original promoters of the present scheme, and, presumably, when a question of the jurisdiction of a court of the United States is involved, citizens of Virginia,-in order to procure a determination of the controversy between that corporation and the defendant citizens of Virginia, in respect of the lands in that commonwealth which are here in dispute, assumed, as a body, the mask of a Pennsylvania corporation, for the purpose, and the purpose only, of invoking the jurisdiction of the circuit court of the United States, retaining the power, in their discretion, and after all danger of defeating the jurisdiction of the Federal court shall

We are of opinion that the court below did not err in dismissing the suit. The question raised by the record is substantial- | ly the same as that determined in Lehigh Min. & Mfg. Co. v. Kelly, 160 U. S. 327, 336 et seq., 40 L. ed. 444, 447, 16 Sup. Ct. Rep. 307. That was an action involving the title to certain lands in Virginia in the possession of citizens of that commonwealth, and of which lands a Virginia corporation claimed to be the owner. The individual stockholders and officers of the Virginia corporation or301]ganized a *corporation in Pennsylvania, to which the former corporation conveyed all its rights, title, and interest in the Virginia lands, without any valuable consideration. The stockholders in both corporations were identical. The admitted purpose of organizing the Pennsylvania corporation and conveying to it the lands there in question was to give the circuit court of the United States, sitting in Virginia, jurisdiction to determine the disputed controversy as to the lands. All this having been done, the Pennsylvania corporation instituted a suit in the Federal court in Virginia against the individual citizens of Virginia to recover the lands. When that suit was instituted, the Virginia corporation still existed, with the same stockholders it had at the time of the conveyance by it to the Pennsylvania corporation.

This court said that "the Virginia corporation still exists, with the same stockholders it had when the conveyance of March 1, 1893, was made; and that, as soon as this litigation is concluded, the Pennsylvania corporation, if it succeeds in obtaining judgment against the defendants, can be required by the stockholders of the Virginia corporation, being also its own stockholders, to reconvey the lands in controversy to the Virginia corporation without any consideration passing to the Pennsylvania corporation."

been presented. But such is not this case. As the facts were, when this suit was brought, the California corporation could at any time, even after this suit was concluded, have required the Nevada corporation, without any new or valuable consideration, to surrender all its interest in the property which it had obtained from the California corporation for the purpose of acquiring a standing in the circuit court of the United States. In other words, the Nevada corporation had no real interest in the property. Its ownership was a sham, in that it could at any time after the bringing of this suit have been compelled by the California corporation to dismiss the suit and abandon all claim to the property in question. It took the title only as matter of form, in order that the California corporation, or the stockholders interested in it, might, under the name of the Nevada corporation, invoke the jurisdiction of the Federal court and avoid the determination of the rights of the parties in the courts of the state. Barney v. Baltimore, 6 Wall. 280, 288, 18 L. ed. 825, 827. The prosecution of the suit was really for the benefit of those who were interested in the California corporation.

have passed, to throw off that mask and re- stock, and had then ceased to exist or been appear under the original form of a Vir-dissolved, a different question might have ginia corporation,-their right in the mean time to participate in the management of the general affairs of the latter corporation not having been impaired by the conveyance to the Pennsylvania corporation. And all this may be done, if the position of the plaintiffs 303]be *correct, without any consideration passing between the two corporations." Observing that the Pennsylvania corporation received the technical legal title for the purpose only of bringing a suit in the Federal court, the court proceeded: "As we have said, that corporation may be required by those who are stockholders of its grantor, and who are also its own stockholders, at any time, and without receiving therefor any consideration whatever, to place the title where it was when the plan was formed to wrest the judicial determination of the present controversy from the courts of the state in which the land lies. It should be regarded as a case of an improper and collusive making of parties for the purpose of creating a case cognizable in the circuit court. If this action were not declared collusive, within the meaning of the act of 1875, then the provision making it the duty of the circuit court to dismiss a suit, ascertained at any time to be one in which parties have We do not intend by what has been said been improperly or collusively made or to qualify the general rule, long established, joined, for the purpose of creating a case that the jurisdiction of a circuit court, cognizable by that court, would become of when based on diverse citizenship, cannot be no practical value, and the dockets of the questioned upon the ground merely that a circuit courts of the United States will be party's motive in acquiring citizenship in crowded with suits of which neither the the state in which he sues was to invoke framers of the Constitution nor Congress the jurisdiction of a Federal court. But ever intended they should take cognizance." that rule is attended by the condition that The present case is controlled by the the acquisition of such citizenship is real, one just cited. The two cases are alike in with the purpose to establish a permanent all material respects. Looking at the facts domicil in the state of which he professes as they were when this suit was instituted to be a citizen at the time of suit, and not in the circuit court, it must be taken that fictitious or pretended. Morris v. Gilmer, the transfer of the property of the Califor- 129 U. S. 315, 328, 32 L. ed. 690, 694, 9 Sup. nia corporation to the Nevada corporation Ct. Rep. 289. In that case the question was was merely formal,-only a device by which whether the plaintiff, who was residing with to have the rights asserted by the Califor- his adversary in Alabama, actually acquired nia corporation in a state court de- such a domicil in Tennessee as en-[305 termined by the Federal court rather titled him to bring suit in the Federal court, than by the state court. The agree sitting in Alabama. This court said: "Upon ment that all the property of the Califor- the evidence in this record, we cannot resist nia corporation should be transferred to the the conviction that the plaintiff had no purNevada corporation was attended by the con- pose to acquire a domicil or settled home in dition that all the capital stock of the new Tennessee, and that his sole object in recorporation should be issued-and it was is- moving to that state was to place himself sued to the California corporation, which in a situation to invoke the jurisdiction of remained in existence with full power, as the circuit court of the United States. He the owner of such stock, to control the opera- went to Tennessee without any present in304]tions of the *Nevada corporation. If, tention to remain there permanently or for before the institution of this suit, the Cali- an indefinite time, but with a present infornia corporation had distributed among tention to return to Alabama as soon as he those entitled to it the stock of the Nevada could do so without defeating the jurisdiccorporation, issued to it as fully paid-uption of the Federal court to determine his

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