Tenth Circuit: plaintiff cannot manufacture diversity jurisdiction by assigning claims to corporation

The federal district court in Utah found that J. Hoyt Stephenson was a resident of Utah, and therefore dismissed his counterclaims and third-party claims against a number of other Utah residents.

Mr. Stephenson then incorporated National Fitness Holdings, Inc. in Wyoming, and assigned his claims to the corporation. Four days after the assignment, National Fitness Holdings filed suit against the same Utah residents in the Utah federal district court. The trial court dismissed the new lawsuit, holding that assignments had been made to manufacture diversity jurisdiction in violation of 28 U.S.C. § 1359.

Yesterday, in National Fitness Holdings, Inc. v. Grand View Corporate Centre, LLC, the Tenth Circuit affirmed. Judge Gregory Phillips explained that to determine whether an assignment of claims has been made to manufacture diversity jurisdiction, a district court should consider the totality of the circumstances, including the following factors:

  • Did the assignee lack a proper connection with the matter?
  • Did the assignor select the assignee’s attorney and pay the assignee’s litigation expenses?
  • Did the assignor retain control of the litigation?
  • Did the assignee agree to pay the assignor a portion of any recovery?
  • Did the assignee provide meaningful consideration for the assignment?
  • Is the assignment’s timing suspicious?
  • Was the assignment motivated by a desire to create diversity jurisdiction?

Affirmative answers to these questions weigh in favor of dismissal, and in Mr. Stephenson’s case, most of the answers were affirmative.

Even if you are not a federal jurisdiction nerd, I recommend reading this opinion for Judge Phillips’ crystal clear writing, which is a pleasure to read. In the competition for best writer on the Tenth Circuit, it looks like Judge Phillips is going to give Judge Gorsuch a run for his money.



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