Lehigh Nin Manufacturing Company v. Kelly/Dissent Shiras

Mr. Justice SHIRAS, dissenting.

In April, 1893, the Lehigh Mining & Manufacturing Company, asserting itself to be a corporation organized and existing under the laws of the state of Pennsylvania, and a citizen and resident of said state, brought, in the circuit court of the United States for the Western district of Virginia, an action of ejectment for a tract of land in Wise county, state of Virginia, and within the jurisdiction of that court, against J. J. Kelly, James C. Hubbard, and others, all of whom were averred to be citizens of the state of Virginia, and residents of the Western district thereof.

The defendants filed two special pleas which were traversed by replications. The record shows that, subsequently, the cause was submitted to the court on the issues thus made, and with an agreed statement of facts, and that the court, on May 30, 1893, sustained the pleas, found that it had no jurisdiction of the case, and dismissed the action for want of jurisdiction, but without prejudice. Upon exceptions duly taken, this judgment was brought to this court.

It is admitted, in the agreed statement of facts, that the Lehigh Mining & Manufacturing Company was, in February, 1893, duly organized as a corporation of the state of Pennsylvania, and was existing as such at the time of the commencement of this action.

The constitution of Pennsylvania, of which we take judicial notice, provides, in the seventh section of article 3, that such a corporation cannot be created by any local or special law, and we are thus given to know that the company in question was organized under a general law of the state. On resorting to that law, being the act of April 29, 1874 (1 Purd. Dig. p. 335), and of the contents of which we also take judicial notice, we find it provided that, to become duly organized as a mining and manufacturing company, the charter must be subscribed by five or more persons, three of whom, at least, must be citizens of Pennsylvania; that the certificate must set forth that 10 per centum of the capital stock has been paid in cash to the treasurer of the intended corporation; and these facts, as to citizenship and the payment of the requisite proportion of the capital in cash, must be sworn to by at least three of the subscribers. Upon such proof the governor is authorized to direct letters patent to be issued, but no corporation shall go into operation without first having the name of the company, the date of the incorporation, the place of business, the amount of capital paid in, and the names of the president and treasurer registered in the office of the auditor general of the state. While, therefore, it is stated in the agreed statement of facts that the said company was organized by the individual stockholders and the officers of the Virginia Coal & Iron Company, such statement is by no inconsistent with the other statement that the Lehigh Mining & Manufacturing Company was duly organized, and therefore included in its membership citizens of Pennsylvania.

The presumption, therefore, must be that the Lehigh Mining & Manufacturing Company was, in all respects, a corporation regularly and legally organized, and the concession of the agreed statement is that, as matter of fact, at least three of its corporators are citizens of the state of Pennsylvania. As matter of law, as we shall presently see, all of its corporators are to be indisputably deemed, for the purpose of jurisdiction in the circuit court of the United States, citizens of that state.

The record, therefore, discloses that a regularly organized body corporate of the state of Pennsylvania, seeking to assert its title to a tract of land situated in Wise county, Va., as against certain citizens of Virginia in possession of said tract, and having brought an action at law in the circuit court of the United States, has been dismissed from that court for alleged want of jurisdiction.

Such want of jurisdiction is not apparent on the face of the record, apart from the allegations contained in the special pleas. That the circuit court of the United States has jurisdiction of a dispute about the title to land between a corporation of another state and citizens of the state where the land is situated is, of course, now settled beyond controversy. After a long dispute, the history of which we need not here follow, it was finally decided in Railroad Co. v. Letson, 2 How. 497, that 'a corporation, created by and transacting business in a state, is to be deemed an inhabitant of the state, capable of being treated as a citizen, for all purposes of suing and being sued, and an averment of the facts of its creation and the place of transacting business is sufficient to give the circuit court jurisdiction.' Accordingly, in that case, a plea to the jurisdiction, alleging that some of the corporators of the defendant company, which was a corporation of the state of South Carolina, were citizens of New York, of which latter state the plaintiff was a citizen, was, on demurrer, overruled. In Railroad Co. v. Wheeler, 1 Black, 296, the court, speaking by Chief Justice Taney said: 'Where a corporation is created by the laws of a state, the legal presumption is that its members are citizens of the state which created the corporate body; that a suit by or against a corporation, in its corporate name, must be presumed to be a suit by or against citizens of the state which created the corporate body; and that no averment or evidence to the contrary is admissible for the purpose of withdrawing the suit from the jurisdiction of a court of the United States. * *  * After these successive decisions, the law upon this subject must be regarded as settled, and a suit by or against a corporation in its corporate name as a suit by or against citizens of the state which created it.'

If these cases correctly state the law, was it competent for the court below, upon the facts agreed upon, to disregard the corporate character of the plaintiff company, and to find that it was composed, in a jurisdictional sense, of citizens of Virginia? It is true that the defendants, in their second plea, alleged that 'there was no such legally organized corporation as the plaintiff company at the date of the institution of this suit.' But, as we have seen, the statement of facts, agreed upon after the pleas were filed, states that the plaintiff company was a duly-organized corporation of the state of Pennsylvania, and was existing as such at the time of the bringing of the suit.

Assuming, then, as we have a right to do, that the corporate existence of the plaintiff company is conceded, and that, under the authorities, the members of the company are to be deemed citizens of the state of Pennsylvania, and that no averment or evidence to the contrary is admissible for the purpose of withdrawing the suit from the jurisdiction of the circuit court, were there any other facts which justified the action of the court below in dismissing the action for want of jurisdiction?

It is said that because it is conceded, in the agreed statement of facts, that the land in controversy had been claimed by the Virginia Coal & Iron Company, a corporation organized under the laws of the state of Virginia, and that said company had executed and delivered a deed a bargain and sale to the Lehigh Mining & Manufacturing Company, by which it conveyed all its right, title, and interest in and to the land in controversy to the Lehigh Mining & Manufacturing Company in fee simple, and because it is admitted that the Pennsylvania company was organized by the individual stockholders and officers of the Virginia company, and that the purpose in organizing said Lehigh Mining & Manufacturing Company, and in making to it said conveyance, was to give the circuit court jurisdiction in the case, the legal effect of such a state of facts would constitute a fraud upon the court, and would justify it in dismissing the suit.

It is difficult to see, in the first place, how this could be a case of fraud. The facts were conceded; not concealed, not falsely stated. It would be one thing to say that an acknowledged state of facts failed to confer jurisdiction; another thing to say that such acknowledged state of facts, though formally conferring jurisdiction, constituted fraud on the court, not because untrue and pretended, and intended to deprive a court of jurisdiction, but because intended to bring a legal cause of action within its jurisdiction. We have seen that, ex necessitate, and as matter of fact, there were citizens of Pennsylvania who had, as members of a corporation of that state, an interest in the subject-matter of the suit; and we have seen that, by a well-settled proposition of law, the Pennsylvania company must, for jurisdictional purposes, be indisputably deemed to be wholly composed of citizens of the state that created it. How, then, in the absence of misstatement or suppression of facts, can it be said that the Pennsylvania company was guilty of any fraud in invoking the jurisdiction of the federal court?

I submit that the true question, under the pleading and statement of facts, was whether the transaction, whereby title to the land in dispute was granted and conveyed by the Virginia company to the Pennsylvania company, was an actual one,-was really what it purported to be. If the conveyance by the Virginia company really and intentionally conferred its title on the Pennsylvania company, so that the latter company could legally assert its title against the parties in possession in a state court, no reason existed why the same cause of action might not be asserted in a federal court. That, if the transaction were an actual one, and the conveyance one intended to vest an absolute title, unqualified by any trust, the jurisdiction of the circuit court validly attached, has been frequently declared, even if the purpose was to make a case cognizable by the federal court.

McDonald v. Smalley, 1 Pet. 620, was a case where a citizen of Ohio, under the apprehension that his title to lands in that state could not be maintained in the state court, and being indebted to a citizen of Alabama, offered to sell and convey to him the land in payment of the debt, stating in the letter by which the offer was made that the title would most probably be maintained in the courts of the United States, but would fail in the courts of the state. The Alabama citizen accepted the conveyance, and afterwards gave to a third party his bond to make a quitclaim title to the land, on condition of receiving $1,000. The circuit court of the United States for the district of Ohio, in which the grantee filed, as a citizen of Alabama, a bill in equity, held that, upon the above state of facts, the court had no jurisdiction to entertain the suit. But this court held otherwise and reversed the judgment. Chief Justice Marshall, for the court, said:

'It has not been alleged, and certainly cannot be alleged, that a citizen of one state, having title to lands in another, is disabled from suing for those lands in the courts of the United States by the fact that he derives his title from a citizen of the state in which the lands lie. Consequently, the single inquiry must be whether the conveyance from McArthur to McDonald was real or fictitions. * *  * This testimony shows a sale and conveyance to the plaintiff, which was binding on both parties. * *  * McArthur's title was extinguished, and the consideration was received. The motives which induced him to make the contract, whether justifiable or censurable, can have no influence on its validity. They were such as had sufficient influence with himself, and he had a right to act upon them. A court cannot enter into them when deciding on its jurisdiction. The conveyance appears to be a real transaction, and the real as well as nominal parties to the suit are citizens of different states. The only part of the testimony which can inspire doubt, respecting its being an absolute sale, is the admission that the plaintiff gave his bond to a third party for a quitclaim deed to the land, on paying him $1,100. We are not informed who this third party was, nor do we suppose it to be material. The title of McArthur was vested in the plaintiff, and did not pass out of him by this bond. A suspicion may exist that it was for McArthur. The court cannot act upon this suspicion. But suppose the fact to be averred, what influence could it have upon the jurisdiction of the court? It would convert the conveyance, which on its face appears to be absolute, into a mortgage. But this would not affect the question. In a contest between the mortgagor and mortgagee, being citizens of different states, it cannot be doubted that an ejectment, or a bill in foreclosure, may be brought by the mortgagee, residing in a different state, in a court of the United States. Why, then, may he not sustain a suit in the same court against any other person, being a citizen of the same state with the mortgagor? We can perceive no reason why he should not. The case depends, we think, on the question whether the transaction between McArthur and McDonald was real or fictitious; and we perceive no reason to doubt it reality, whether the deed be considered as absolute or as a mortgage.'

In Smith v. Kernochen, 7 How. 198, where a mortgagee, a citizen of Alabama, assigned the mortgage to a citizen of New York, both parties concurring in the motive to have the question involved passed upon by a federal court, it was held that 'the motive imputed could not affect the validity of the conveyance. This was so held in McDonald v. Smalley, 1 Pet. 620. The suit would be free from objection in the state courts; and the only ground upon which it can be made effectual here is that the transaction between the company and plaintiff was fictitious and not real, and the suit still, in contemplation of law, between the original parties to the mortgage. The question, therefore, is one of proper parties to give jurisdiction to the federal courts, not of title in the plaintiff. That would be a question on the merits, to decide which the jurisdiction must first be admitted. The true and only ground of objection in all these cases is that the assignor, or the grantor, as the case may be, is the real party in the suit, and the plaintiff on the record but nominal and colorable, his name being used merely for the purpose of jurisdiction.'

So, in Barney v. Baltimore City, 6 Wall. 280, the court said: 'If the conveyance by the Ridegelys of the district to Samuel C. Ridegely, of Maryland, had really transferred the interest of the former to the latter, although made for the avowed purpose of enabling the court to entertain jurisdiction of the case, it would have accomplished that purpose. McDonald v. Smalley, 1 Pet. 620, and several cases since, have well established this rule.'

If, then, anything can be regarded as settled, it is that the motive or purpose of securing a right of action in a federal court by a conveyance or assignment will not defeat the jurisdiction, if the conveyance or assignment be real and not fictitious.

It therefore follows, in the present case, that the concession in the agreed statement of facts, that the purpose was to give jurisdiction to the circuit court, will not defeat that jurisdiction unless it appears that the conveyance was not real but fictitious. This presents a question of fact. Stated in directterms, the question is this: given a Pennsylvania corporation, indisputably composed of citizens of that state, and a conveyance in fee simple to such company of a tract of land, situated in the state of Virginia, by a corporation of that state, the land being in possession of citizens of the latter state, was this apparent jurisdiction defeated by the admitted facts? It has been established, by the cases cited, that the mere purpose or intention to put the claim into an owner who would be entitled to go into a federal court would not be objectionable if the conveyance were an actual one, and where the interest asserted belonged wholly to the plaintiff.

Hence, the only matter now to determine is, what was the character of the conveyance in the present case? It was, in form, a deed of bargain and sale, purporting to convey a fee simple. It is admitted in the agreed statement of facts that 'said conveyance passed to said Lehigh Mining & Manufacturing Company all the right, title, and interest of said Virginia Coal & Iron Company in and to said land, and that since said conveyance said Virginia Coal & Iron Company has had no interest in said land, and has not and never has had any interest in that suit, and that it owns none of the stock of said Lehigh Mining & Manufacturing Company, and has no interest therein whatsoever.'

It is contended, in the opinion of the majority, that 'it appears, in view of what the agreed statement of facts contains, as well as what it omits to disclose, that the conveyance was without any valuable consideration, and that, as soon as this litigation is concluded, the Pennsylvania corporation, if it succeeded in obtaining judgment against the defendants, can be required by the stockholders of the Virginia corporation, being also stockholders of the Pennsylvania corporation, to reconvey the land in controversy to the Virginia corporation.'

This contention-and the fate of the case turns upon it-can be readily met. It assumes two facts, neither of which is found in the record, and both of which, if found, would be immaterial. First, it is said that the conveyance was without any valuable consideration. But it is distinctly admitted that the Virginia company 'executed and delivered a deed of bargain and sale to the Lehigh Mining & Manufacturing Company, by which it conveyed all its right, title, and interest in the land in controversy in fee simple.' It is not found that no consideration was given, and in the absence of such a finding the presumption would be that a deed of conveyance under seal, and granting an estate in fee simple, implies a consideration. But it is unnecessary to consider this, because it is wholly immaterial whether the grantee paid a consideration or not. The deed, even if it were a deed of gift, was executed and delivered, and an executed gift is irrevocable. Nor does it concern the defendants whether the grant by deed was or was not for a valuable consideration.

This very question came up in the case of De Laveaga v. Williams, 5 Sawy. 573, Fed. Cas. No. 3,759, in the circuit court of the district of California, and where it was urged that no consideration was ever paid, and that the deed was executed to enable the suit to be brought in the circuit court of the United States. But the court said, by Mr. Justice Field: 'There is no doubt that the sole object of the deed to the complainant was to give jurisdiction, and that the grantor has borne and still bears the expenses of the suit. But neither of these facts renders the deed inoperative to transfer the title. The defendants are not in a position to question the right of the grantor to give away the property, if he chooses so to do. And the court will not, at the suggestion of a stranger to the title, inquire into the motives which induced the grantor to part with his interest. It is sufficient that the instrument executed is valid in law, and that the grantee is of the class entitled unde the laws of congress to proceed in the federal courts for the protection of his rights. It is only when the conveyance is executed to give the court jurisdiction, and is accompanied with an agreement to retransfer the property at the request of the grantor upon the termination of the litigation, that the proceeding will be treated as a fraud upon the court. Here there was no such agreement, and it will be optional with the complainant to retransfer or to retain the property. He is, by the deed, the absolute owner of the interest conveyed, and can only be deprived of it by his own will, and upon such considerations as he may choose to exact.'

The only operation that could be given to the absence of proof of an actual consideration would be to create a suspicion of a secret trust. But this is negatived in the present case by the admission that a deed in fee simple was executed and delivered, and that by it the entire title, interest, and right of the grantor company passed to the Pennsylvania corporation, and that 'since said conveyance said Virginia Coal & Iron Company has had no interest in said land, and has not and never has had any interest in this suit.'

It is admitted, in the opinion of the majority, that 'the legal title to the lands in controversy is in the Pennsylvania corporation, and that there was no formal agreement or understanding upon its part that the title shall ever be reconveyed to the Virginia corporation.' But it is said 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, that title to the other corporation.' This seems to me to be a strained conjecture. Stock in a corporation is continually changing hands, and to suppose that, at the end of a pending litigation, the holders will be the identical persons who held it at the beginning is too uncertain and fanciful to form a basis for a judicial action. As was well said by Mr. Justice Grier, in Marshall v. Railroad Co., 16 How. 327: 'The necessities and conveniences of trade and business require that such numerous associates and stockholders should act by representation, and have the faculty of contracting, suing, and being sued in a factitious or collective name. * *  * It is not reasonable that representatives of unknown and ever-changing associates should be permitted to allege the different citizenship of one or more of these stockholders,' in order to defeat the jurisdiction of federal courts.

Some expressions used in the opinion of the court below, and likewise in the majority opinion, seem to imply that the act of March 3, 1875 (18 Stat. 470), has operated to change the law in respect to the jurisdiction of the circuit courts of the United States. I do not so understand the purpose of that enactment. I have supposed that it only operates as a rule of practice. As the law previously stood, if the face of the record disclosed a suit between citizens of different states, and thus within the jurisdiction of the circuit court, it was necessary to traverse the averment of citizenship by a plea in abatement, and if the defendant went to trial on a plea to the merits he could not afterwards question the truth of such averment. Smith v. Kernochen, 7 How. 198; Barney v. Baltimore, 6 Wall. 280.

But since the passage of the act of March 3, 1875, 'it is competent for the court at any time, during the trial of the case, without plea and without motion, to stop all further proceedings and dismiss the suit the moment a fraud on its jurisdiction is discovered.' Hartog v. Memory, 116 U.S. 588, 6 Sup. Ct. 521.

It is not perceived that the legal rights of owners of property are in anywise affected by this law, and it is still true, as was said in Barry v. Edmunds, 116 U.S. 550, 6 Sup. Ct. 501, that 'the order of the circuit court dismissing the cause for want of jurisdiction is reviewable by this court on writ of error by the express words of the act. In making such an order, therefore, the circuit court exercises a legal, and not a personal, discretion, which must be exerted in view of the facts sufficiently proven, and controlled by fixed rules of law. It might happen that the judge, on the trial or hearing of a cause, would receive impressions amounting to a moral certainty that it does not really and substantially involve a dispute or controversy within the jurisdiction of the court. But upon such a personal conviction, however strong, we would not be at liberty to act, unless the facts on which the persuasion is based, when made distinctly to appear on the record, create a legal certainty of the conclusion based on them. Nothing less than this is meant by the statute, when it provides that the failure of its jurisdiction, on this account, shall appear to the satisfaction of the court.'

As, then, the plaintiff company is conceded to be a duly organized and existing body corporate of the state of Pennsylvania; as the land in dispute is within the jurisdiction of the court, and the defendants in possession thereof are citizens of the state of Virginia; and as it is conceded that, by a deed of conveyance in fee simple, the Virginia company passed all its right, title, and interest in said land, and has since had 'no interest in said land, or in the suit,'-I think the jurisdiction of the circuit court ought not to be defeated by the conjecture that the presons owning the stock of the corporation when the deed of conveyance was made might continue to own it years afterwards when the suit should terminate, and might choose, as such owners, to cause another transfer and conveyance of the land to be made. Such conjectures are very far from furnishing for judicial action that 'legal certainty' which, in Barry v. Edmunds, is said to be the proper basis upon which to deprive parties of their right of access to the national tribunals.

If we are permitted to enter into the realm of supposition, it is easy to suggest that the present stockholders, so far as they are citizens of Virginia, might dispose of their stock in good faith and absolutely to citizens of Pennsylvania. Then, upon another action brought in the same court, the same pleas being interposed, it would be competent, according to the views which prevail in the present case, to meet the pleas by a replication averring that the individual stockholders are citizens of Pennsylvania, and thus the jurisdiction would be sustained. What, in such a case, would have become of the long-settled rule that the status, as to citizenship, of the individual stockholders is not a matter of allegation and proof? Has the court retraced its steps, and can state corporations be turned out of the federal courts on a plea that one or more of the stockholders is a citizen of the same state in which the litigation is pending?

Mr. Justice FIELD and Mr. Justice BROWN concur in this dissent.