
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________        No. 95-1506                           TOSTE FARM CORPORATION, ET AL.,                                Plaintiffs, Appellees,                                          v.                                HADBURY, INC., ET AL.,                               Defendants, Appellants.                                ______________________        No. 95-1544                           TOSTE FARM CORPORATION, ET AL.,                               Plaintiffs, Appellants,                                          v.                                HADBURY, INC., ET AL.,                                Defendants, Appellees.                                 ____________________                    APPEALS FROM THE UNITED STATES DISTRICT COURT                           FOR THE DISTRICT OF RHODE ISLAND                [Hon. Raymond J. Pettine, Senior U.S. District Judge]                                          __________________________                                 ____________________                                        Before                                 Lynch, Circuit Judge,                                        _____________                     Aldrich and Campbell, Senior Circuit Judges.                                           _____________________                                 ____________________            John Blish  with whom Stephen J.  Reid, Jr.,  Raymond A. Marcaccio            __________            _____________________   ____________________        and Blish & Cavanagh were on brief for plaintiffs.             ________________            John William Ranucci for defendants.            ____________________                                 ____________________                                   December 4, 1995                                 ____________________                      CAMPBELL,   Senior  Circuit  Judge.    These  cross                                  ______________________            appeals are from  orders of the United States  District Court            for the  District of  Rhode Island dismissing  the respective            claims  of  plaintiffs and  defendants  for  lack of  subject            matter jurisdiction.  Toste Farm  Corp. v. Hadbury, Inc., 882                                  _________________    _____________            F.  Supp. 240  (D.R.I.  1995).   Plaintiffs are  two entities            wholly  controlled   by  Carl  Acebes,  namely,   Toste  Farm            Corporation ("TFC") and  PaineWebber, Inc.  Custodian/Trustee            of   IRA  FBO  Carl   Acebes,  account   numbered  JG12642-69            ("PaineWebber IRA").   Defendants  are Richard N.  Morash and            his  corporation Hadbury,  Inc.  ("Hadbury").1   At issue  is            whether the  court below  correctly concluded that  diversity            jurisdiction over the plaintiffs'  claim failed for violation            of  28 U.S.C.     1359, and  whether,  in the  circumstances,            diversity  jurisdiction  over  defendants' counterclaim  also            failed.   We affirm  the district  court's dismissal of  both            claims.                                            I.                                          I.                                  Factual Background                                  Factual Background                      In  June  of  1991,  Richard  Morash  obtained  the            exclusive  right to acquire 417 acres of land in Rhode Island            known as Toste Farm.   Intending to purchase and  develop the                                            ____________________            1.  Raymond  C. Holland,  Jr., an  attorney and  Rhode Island            citizen, was also named as a defendant in the district court.            However, he has not appealed from the orders below.                                         -2-            property, Morash and Carl Acebes, on November 4, 1991, formed            the Toste  Farm Limited  Partnership composed of  the "Morash            Partners"  and the  "Acebes Partners."   The  Morash Partners            consisted of  Hadbury, an entity incorporated  under the laws            of  Rhode  Island  with  a principal  place  of  business  in            Massachusetts,  and Morash,  a  Massachusetts  citizen.   The            Acebes  Partners  consisted  of PaineWebber  IRA,  an  entity            incorporated  under the  laws  of Delaware  with a  principal            place of  business in New  York, and Toste  Farm Corporation,            Inc. ("TFCI"), a corporation  newly formed under the  laws of            Rhode  Island with  a principal  place  of business  in Rhode            Island.2                        According to  Carl Acebes,  TFCI was formed  "for a            single purpose  -- to act as  a general partner of  the Toste            Farm  Limited  Partnership."   Acebes'  attorney  stated that            TFCI's "principal  asset"  was its  partnership interest  and            added that TFCI "may  have had an incidental bank  account as            well."  TFCI was capitalized with a bank account valued at  a            little over $200,000, of which about  $12,000 was invested in            the  partnership.   Acebes gave  two reasons  for overfunding            TFCI.  First, he wanted to avoid having to request additional            funds  from   PaineWebber  IRA   in  the  event   the  thinly                                            ____________________            2.  TFCI was later merged into TFC, a plaintiff in this case.            The  sole  stockholder  of   both  corporations  was  Acebes'            PaineWebber  IRA account, which was itself a partner of Toste            Farm Limited Partnership and also a plaintiff in this action.                                         -3-            capitalized  partnership  required cash.   Second,  the extra            funds  were  available  for  "other   business  opportunities            . . . quite outside of the . . . partnership."3                      During  1992, Acebes  announced  his  intention  to            retire  from the  partnership.   Pursuant to  the partnership            agreement, Morash  and Acebes conducted a  buy-sell procedure            in which each party bid to purchase the partnership interests            of the other.   This procedure ended in  a dispute with  each            party claiming to have purchased the other's interests.                        In November of 1992, the Acebes Partners brought an            action against  the Morash Partners and  Raymond Holland, the            attorney for the  partnership, in the District  Court for the            District  of  Rhode  Island  seeking  a  declaration  of  the            parties' rights  and duties under the  partnership agreement.            See  28  U.S.C.     2201-2202;  Fed. R.  Civ.  P.  57.   They            ___            asserted diversity jurisdiction pursuant to 28 U.S.C.   1332,            but  later voluntarily  dismissed  the suit  when the  Morash            Partners pointed  out that the parties were not fully diverse            because plaintiff  TFCI, like defendants Hadbury and Holland,            was a citizen of Rhode Island.4                                            ____________________            3.  Acebes  also asserted  that TFC,  the successor  to TFCI,            "has bid on other real estate and has prepared to bid on real            estate located in Massachusetts."              4.  The citizenship of a  corporation is determined  pursuant            to   28 U.S.C.   1332(c)(1), which provides:                       "[A] corporation shall be deemed to be  a                      citizen of any State by which it has been                                         -4-                      In December of  1992, TFCI was  merged into TFC,  a            New York corporate shell that had been created earlier in the            year.   Presumably,  TFC's principal  place of  business also            became New  York, rather  than  Rhode Island  where TFCI  was            based,  although  the  record   is  not  absolutely   clear.5            Pursuant to  the merger, TFC  received all of  TFCI's assets.            Plaintiffs  concede  that one  purpose  of  creating TFC  and            dissolving TFCI was to manufacture diversity for this action,            although  they  also  contend,  without  specifics, that  the            merger served the administrative convenience of Acebes  whose            residence  and other  business activities  were in  New York.            Defendants  allege that  the  merger was  effected solely  to            create diversity in this action.                      Having created  diversity via  the merger,  TFC and            PaineWebber  IRA refiled  their  action in  January of  1993.            Defendants   filed  a  counterclaim.     During   the  trial,            defendants  moved to dismiss  for lack of  jurisdiction.  The            district court dismissed both  the claim and the counterclaim            for lack of  subject matter jurisdiction  after the trial  on            the merits.                                            ____________________                      incorporated  and of  the State  where it                      hasits principalplace ofbusiness . . . ."            TFCI and Hadbury were  citizens of Rhode Island because  they            were incorporated under the laws of Rhode Island.            5.  TFC's certificate  of incorporation states:   "The office            of the  Corporation in the State of New York is to be located            in the County of New York, State of New York."                                           -5-                                         II.                                         II.                      This court  reviews de  novo the legal  question of            whether the  district court had  subject matter  jurisdiction            over the parties' claims.   Murphy v. United States,  45 F.3d                                        ______    _____________            520,  522 (1st  Cir. 1995).   However,  the district  court's            factual findings made in  conjunction with its jurisdictional            determination  receive  deference  unless clearly  erroneous.            Dweck v. Japan CBM Corp., 877 F.2d 790, 792 (9th Cir. 1989).            _____    _______________                      The district courts have original jurisdiction over            civil actions  between citizens of different  states in which            the amount  in  controversy exceeds  $50,000.   28  U.S.C.               1332(a). Diversity must be  complete: the citizenship of each            plaintiff  must  be shown  to be  diverse  from that  of each            defendant.   Owen Equip. &  Erection Co. v.  Kroger, 437 U.S.                         ___________________________     ______            365, 373-74 (1978).   For purposes of diversity jurisdiction,            a corporation  is deemed  to be a  citizen of both  the state            where it is incorporated and the state where it maintains its            principal  place of  business,  28 U.S.C.    1332(c)(1),  and            citizenship is determined as of the  date of the commencement            of  the lawsuit.    See, e.g.,  Taber  Partners, I  v.  Merit                                ___  ____   __________________      _____            Builders, Inc., 987 F.2d 57, 59 n.1 (1st Cir.), cert. denied,            ______________                                  ____________            Desarrollos Metropolitanos, Inc.  v. Taber  Partners, I,  ___            ________________________________     __________________            U.S.  ___, 114 S. Ct.  82 (1993);   Rodriguez-Diaz v. Sierra-                                                ______________    _______            Martinez, 853 F.2d 1027, 1029 (1st Cir. 1988).  The burden of            ________            proof  is  on  the  party  attempting  to  sustain  diversity                                         -6-            jurisdiction.  Thomson v. Gaskill, 315  U.S. 442, 446 (1942);                           _______    _______            Media  Duplication Servs.,  Ltd. v.  HDG Software,  Inc., 928            ________________________________     ___________________            F.2d 1228, 1235 (1st Cir. 1991).                        It  is undisputed  that  plaintiffs  satisfied  the            requirements of   1332.  By the time this action was brought,            TFCI had  effectively merged into  TFC, a New  York corporate            citizen.     Defendants,   however,   sought   dismissal   of            plaintiffs' claim under 28 U.S.C.   1359, which provides:                      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                      such court.            The  district court held  that   1359  barred jurisdiction               not only  over plaintiffs' claim  but over the  entire action            including  defendants' counterclaim.  The court reasoned that            although  "[t]he merger  was  real enough,  . . . it did  not            create   diversity  jurisdiction"   because   there  was   "a            manufactured assignment."  Toste Farm, 882 F. Supp. at 247.                                         __________                      For   over   a   century,   Congress   has   denied            jurisdiction  of  suits  where  a  party  is  "improperly  or            collusively  made or  joined to  invoke . . . jurisdiction."6                                            ____________________            6.   Section  5 of the Act of March 3, 1875, a predecessor to              1359, stated:                      . . . if  in  any  suit  commenced  in  a                      circuit  court  [which then  had original                      diversity  jurisdiction]  . . . it  shall                      appear  to  the   satisfaction  of   said                      circuit  court,  at any  time  after such                                         -7-            The Supreme Court in  Williams v. Nottawa, 104 U.S.  209, 211                                  ________    _______            (1881), described transfers to create  diversity jurisdiction            as "frauds  upon the  court."   Commentators and  courts have            construed   "improper   or   collusive"    as   "confer[ring]            jurisdiction not justified by aims of diversity."  O'Brien v.                                                               _______            AVCO Corp., 425 F.2d 1030, 1034 (2d Cir. 1969); 14 Charles A.            __________            Wright, Arthur R. Miller & Edward D. Cooper, Federal Practice            and  Procedure: Jurisdiction 2d    3637, at 93  (1985 & Supp.            1995).  See  also  Airlines Reporting Co. v.  S and N Travel,                    _________  ______________________     ______________            58  F.3d 857, 862 (2d Cir. 1995) ("[W]e construe section 1359            broadly  to  bar any  agreement  whose  'primary  aim' is  to            concoct federal diversity  jurisdiction"); Amoco Rocmount Co.                                                       __________________            v. Anschutz  Corp., 7 F.3d 909, 916 (10th Cir. 1993);  Yokeno               _______________                                     ______            v.  Mafnas, 973 F.2d 803,  809 (9th Cir.  1992) ("The federal                ______            anti-collusion statute is  aimed at  preventing parties  from            manufacturing   diversity  jurisdiction   to  inappropriately            channel  ordinary business litigation  into federal courts");            Nolan v. Boeing  Co., 919  F.2d 1058, 1067  (5th Cir.  1990),            _____    ___________            cert. denied, 499 U.S. 962 (1991).  The district court in the            ____________            present  case  found  that  "Section  1359's  policy  against                                            ____________________                      suit  has  been  brought  . . . that  the                      parties to said suit have been improperly                      or collusively made or  joined, . . . for                      the purpose of creating a case cognizable                      . . . under  this  act; the  said circuit                      court . . . shall dismiss the suit.            Act of March 3, 1875, c. 137,   5, 18 Stat. 470.                                         -8-            improper or collusive  manufacture of diversity  jurisdiction            would   be  completely  undermined   if  a  corporate  merger            involving a transfer of  the chose in action and  some amount            of money  could create diversity jurisdiction."   Toste Farm,                                                              __________            882 F. Supp. at 247.                      In its most recent pronouncement, the Supreme Court            has construed   1359 in a similarly broad manner.  In  Kramer                                                                   ______            v. Caribbean  Mills,  Inc., 394  U.S. 823  (1969), the  Court               _______________________            noted that  "Kramer candidly admits that  the 'assignment was            in  substantial  part  motivated  by  a desire  ...  to  make            diversity  jurisdiction available.'"   Id.  at 828.   Holding                                                   ___            that the otherwise valid assignment of the claim to a diverse            party  was  improper or  collusive  under    1359,  the Court            reasoned that the mere legality  of an assignment cannot make            it valid for purposes of federal jurisdiction because  such a            ruling   "would   render       1359   largely  incapable   of            accomplishing  its  purpose."   Id. at  829.   The  Court was                                            ___            concerned that "the ease with which a party may 'manufacture'            federal  jurisdiction"  could lead  to   "a vast  quantity of            ordinary  contract and  tort litigation  . . . channeled into            the federal courts"  which is "the very  thing which Congress            intended  to   prevent  when  it  enacted      1359  and  its            predecessors."  Id. at 828-29.                              ___                      In  applying   Kramer,  lower  courts   have  often                                     ______            determined an improper  or collusive assignment  from whether                                         -9-            or  not  the  parties  have  shown  an  independent  business            justification for  assigning the  claim to a  diverse party.7            Courts  have also  applied  elevated scrutiny  to assignments            between affiliated parties.   In these  situations, "[s]imply            articulating a business reason is insufficient; the burden of            proof is with the party asserting diversity to establish that            the reason is  legitimate and not  pretextual."  Yokeno,  973                                                             ______            F.2d at 810.  See also Airlines Reporting, 58 F.3d at 862-63;                          ________ __________________            Nike, Inc.  v.  Comercial Iberica  de Exclusivas  Deportivas,            __________      _____________________________________________            S.A., 20 F.3d 987,  991-93 (9th Cir. 1994);   Dweck, 877 F.2d            ____                                          _____            at 792-93;   Prudential Oil Corp. v. Phillips  Petroleum Co.,                         ____________________    _______________________            546  F.2d 469,  475 (2d  Cir. 1969)  ("The scrutiny  normally            applied to transfers or assignments of claims which have  the            effect of creating diversity  must be doubled in the  case of                                            ____________________            7.  See Western Farm Credit Bank v. Hamakua Sugar Co., 841 F.                ___ ________________________    _________________            Supp. 976, 981  (D. Haw. 1994) ("[O]nce a  party has stated a            legitimate business purpose for  the assignment and has shown            the assignment is absolute,  district courts need not explore            whether one  motivating factor  behind the assignment  was to            create diversity jurisdiction");  Baker v. Latham Sparrowbush                                              _____    __________________            Assocs., 808  F. Supp. 992, 1002  (S.D.N.Y. 1992) (assignment            _______            for  "facially  valid  business  purpose"  not  collusive  or            improper);  AmeriFirst Bank v. Bomar, 757 F. Supp. 1365, 1372                        _______________    _____            (S.D.  Fla. 1991);    Blythe Indus.,  Inc.  v.   Puerto  Rico                                  ____________________     ______________            Aqueduct and Sewer Auth., 573 F. Supp. 563, 564 (D.P.R. 1983)            ________________________            (diversity   jurisdiction   denied  where   "[n]o  legitimate            commercial interest  is apparent from the  assignment").  But                                                                      ___            see Haskin v.  Corporacion Insular de  Seguros, 666 F.  Supp.            ___ ______     _______________________________            349, 354 (D.P.R. 1987) ("In examining a Section 1359 claim of            collusion  . . .  motive  must be  considered but  given less            weight than the determinations  of whether the assignment was            real or  colorable and, most  important, whether  or not  the            assignee  has  some   independent,  pre-existing   legitimate            interest in the causes of action assigned to him").                                         -10-            assignments  between related or affiliated corporations since            common   ownership   . . . only   serves   to   increase  the            possibility   of  collusion   and  compound   the  difficulty            encountered  in   detecting   the   real   purpose   of   the            assignment");  Western Farm Credit Bank v. Hamakua Sugar Co.,                           ________________________    _________________            841 F. Supp. 976, 981 (D. Haw. 1994);  Blythe Indus., Inc. v.                                                   ___________________            Puerto Rico Aqueduct  & Sewer  Auth., 573 F.  Supp. 563,  564            ____________________________________            (D.P.R. 1983).                        The  above  authorities,  as  well  as   the  clear            language of   1359, are consistent  with the district court's            analysis  here.  Plaintiffs rely, for a contrary view, upon a            Supreme Court case decided in the 1920s that seemingly points            in  a  different  direction.   In  Black  &  White Taxicab  &                                               __________________________            Transfer  Co. v. Brown &  Yellow Taxicab &  Transfer Co., 276            _____________    _______________________________________            U.S. 518 (1928), a Kentucky taxi company created diversity by            reincorporating  in  Tennessee.     Otherwise,  the   company            continued its taxi business in Kentucky.8   The newly created                                            ____________________            8.  When Black  & White Taxicab was decided a corporation was                     ______________________            considered  a   citizen  of  the   state  in  which   it  was            incorporated,  regardless  of the  location of  its principal            place of  business.   This definition of  citizenship allowed            corporations to  change citizenship  very easily, as  Black &                                                                  _______            White Taxicab  demonstrates.   The enactment  of 28 U.S.C.               _____________            1332(c) in 1958 redefined the citizenship of a corporation to            include  the state where  its principal place  of business is            located,   in  addition   to  the  state   in  which   it  is            incorporated.  Thus, today,  a corporation with its principal            place  of business  in  Kentucky could  not create  diversity            jurisdiction  with  a  Kentucky  opposing  party   by  merely            reincorporating  in  Tennessee.     Its  principal  place  of            business would also have  to move away from Kentucky,  a more            difficult feat for an active business.                                         -11-            Tennessee company brought suit in federal court.  The Supreme            Court upheld diversity jurisdiction stating:  "The succession            and transfer  were actual,  not feigned or  merely colorable.            In these circumstances, courts  will not inquire into motives            when deciding  concerning their  jurisdiction."  Id.  at 524.                                                             ___            Cf.  Mecom v.  Fitzsimmons  Drilling Co.,  284 U.S.  183, 190            ___  _____     _________________________            (1931);  Cross v. Allen, 141 U.S. 528, 533 (1891).                     _____    _____                      Black & White  Taxicab has been sharply  criticized                      ______________________            for allowing  the manufacture of diversity in conflict with              1359's purpose.  Charles A. Wright, Law of Federal Courts 373            (1994) ("The reincorporation . . . to create diversity verged            on fraud, and  it was  not necessary to  hold that  diversity            jurisdiction  could be  so  readily abused");   American  Law            Institute,  Study of  the  Division  of Jurisdiction  Between            State and Federal Courts  159 (1969) ("One of the  most cited            examples  of  improper  creation  of  diversity  jurisdiction            involved a corporation which simply reincorporated in another            state  for  the purpose  of  creating diversity  jurisdiction            [citing Black & White Taxicab]").                      _____________________                      This  court has interpreted   1359 in light both of            Black & White Taxicab and Kramer in a case strikingly similar            _____________________     ______            to the  one at hand.   Greater Dev. Co. v.  Amelung, 471 F.2d                                   ________________     _______            338 (1st Cir. 1973)  (per curiam).  In Amelung,  the district                                                   _______            court  dismissed  the  original  claim  of  a   Massachusetts                                            ____________________                                                     -12-            corporation for  lack of jurisdiction.   To create diversity,            the   corporation's   controlling   stockholder    formed   a            Connecticut shell  corporation which purchased  the assets of            the Massachusetts corporation.   The Connecticut  corporation            then  refiled the  suit.   The district  court dismissed  the            action relying on   1359, and this court  summarily affirmed,            stating in part:                      [W]e think . . . that when  a corporation                      conducting an on-going business transfers                      all  its  assets   and  its  business  to                      another  corporation, and  the transferor                      is dissolved, diversity jurisdiction will                      exist,  even  though the  shareholders of                      the  two corporations  are the  same, and                      the purpose of the transfer  is to obtain                      diversity    of   citizenship.       Here                      admittedly  the  transfer  is  real,  the                      transferor  has  been  dissolved and  the                      shareholder  is the  same.   However, the                      claim which is the basis of this suit was                      the only asset  transferred, and, as  far                      as the record  shows, the  only asset  of                      the new corporation, which apparently has                      no  payroll and no  other activities.  To                      extend an already  eroded case like Black                                                          _____                      &   White,   see  Kramer   . . . to  this                      _________    ___  ______                      situation would be to destroy the meaning                      of   this   salutary  and   long-standing                      statute [28 U.S.C.   1359].                                         -13-            Id.  at 339.9    Amelung has  been  praised for  refusing  to            ___              _______            extend Black & White Taxicab beyond its facts.10                     _____________________                      In the  instant case, the  district court concluded            that  the factual  situation "approximates that  in Amelung."                                                                _______            Toste  Farm, 882 F. Supp. at 246.   We agree.  As in Amelung,            ___________                                          _______            the  principal asset transferred was  a legal claim.   As the            district court found, TFCI  had no employees nor did  it have            ongoing  activities beyond  its  interest in  the Toste  Farm            Limited Partnership.  It was formed for the single purpose of            acting as a general partner in the partnership.  After Acebes            determined  to  leave   the  partnership  and   the  buy-sell            negotiations foundered,  resulting in this lawsuit, TFCI and,            after  the merger, TFC were left mainly with a legal dispute.            Unlike  the  transferred  taxi  business  in  Black  &  White                                                          _______________            Taxicab, there  was no  ongoing business to  operate separate            _______                                            ____________________            9.  Another court  has taken  a similar  approach to  that in            Amelung.   In Piermont Heights, Inc. v. Dorfman, 820 F. Supp.            _______       ______________________    _______            99, 100 (S.D.N.Y. 1993), the District Court for the  Southern            District of New York held: "If a plaintiff assigns a claim or            takes a similar action [in this case a merger] solely for the            purpose  of manufacturing diversity jurisdiction, and without            a legitimate business purpose apart from the creation of such            jurisdiction, [section 1359] is violated."             10.  14  Charles A.  Wright,  Arthur R.  Miller  & Edward  D.            Cooper,  Federal Practice  and Procedure:  Jurisdiction 2d               3638, at 99 (1985)  ("The approach taken in the  Amelung case                                                             _______            seems  sound . . . .   To  ignore the obvious  purpose behind            what had  been done, as  some language  in the Black  & White                                                           ______________            Taxicab  case  . . . could be  read  as  requiring, would  be            _______            contrary to  the objectives of Section  1359 and inconsistent            with  the principle that federal courts are courts of limited            jurisdiction") (footnotes omitted).                                         -14-            from the legal claim.  Had TFCI assigned its  interest in the            claim to TFC in New York,   1359 would plainly, under Kramer,                                                                  ______            have overridden the existing diversity.  We see no reason for            a different outcome merely because the merger route was  used            to  accomplish essentially  the  same result.   Section  1359            proscribes the  improper or collusive  making of  a party  to            invoke jurisdiction, "by assignment  or otherwise"  (emphasis                                                 ____________            added).                      It is  true, as  plaintiffs argue, that  the assets            transferred  to  TFC  included      besides  the  partnership            interest     a bank account containing under $200,000.  While            plaintiffs  concede that  one purpose  of the  merger was  to            manufacture diversity, they note the availability of the bank            account for possible future  investments and contend that the            transfer to New York served Acebes' convenience, as his other            business  activities were  also in  New York.   But,  on this            record,  the  district  court  could  reasonably  view  these            assertions as make-weights.   Acebes would scarcely be deeply            concerned  as  to  where   the  state  of  incorporation  and            principal  office of  this  paper  corporation were  located,            given that there were no employees and no ongoing operations.            Nor does the placing of an amount of cash in TFC for possible            future use  seem significant.   The record does  not indicate            the existence  of active outside business  investments at the            time  of transfer.   None  of these  factors,  by themselves,                                         -15-            suggests  a likely  reason  for the  move to  New York.   The            significant reason appears to be the improper one: "to invoke            the jurisdiction" of the federal court,   1359.                      The district court justifiably concluded that there            was "a  manufactured assignment  concocted and designed  by a            single individual  using the diversity  statute as a  ploy to            create jurisdiction."   Toste Farm, 882 F. Supp.  at 247.  To                                    __________            be sure, the court elsewhere said that creating diversity was            "at least one of the reasons for the merger," id. at 245, but                                                          ___            the tenor of the court's opinion, including the "manufactured            assignment"   statement,  indicates  that   the  creation  of            diversity was the principal     indeed, one might suppose the            sole     purpose for the merger.   There was no error in this            factual analysis.                      We recognize, as plaintiffs argue, that the Supreme            Court,  in  the  circumstances  of  Black  &  White  Taxicab,                                                ________________________            declined to inquire into motives. Id. at  524.  Black & White                                              ___           _____________            Taxicab, however,  involved the  transfer of an  ongoing taxi            _______            business, not  a paper  corporation whose single  purpose had            been  to  act  as a  general  partner  in  a partnership  now            embroiled in litigation.   Viewing cases of this nature  on a            continuum  defined by Kramer on  one side, and  Black & White                                  ______                    _____________            Taxicab  on the  other, the  present case  falls well  to the            _______            Kramer side.  And in this circuit the instant case is further            ______            controlled    as the district court correctly found    by our                                         -16-            Amelung decision.  We, therefore, affirm the district court's            _______            finding that   1359 bars jurisdiction over plaintiffs' claim.                                         III.                                         III.                      We turn next to the issue of whether any portion of            defendants'  counterclaim  can  survive   the  jurisdictional            failure of plaintiffs' claim.                        There are  two ways for district  courts to acquire            jurisdiction   over  counterclaims:     (1)  pursuant  to  an            independent  basis for  federal  jurisdiction present  in the            counterclaim; or  (2)  pursuant to  28  U.S.C.    1367  which            provides  supplemental  jurisdiction over  counterclaims that            are  part of  the same  case or  controversy as  the original            claim.   Only  those counterclaims  that have  an independent            basis  for  jurisdiction  can  survive  a  dismissal  of  the            original  claim for  lack of  jurisdiction.11   6  Charles A.            Wright, Arthur R. Miller, Mary K. Kane,  Federal Practice and            Procedure: Civil 2d    1414, at 112 (1990).   See also  Scott                                                          ________  _____            v. Long Island Savings  Bank, FSB, 937 F.2d 738, 743 (2d Cir.               ______________________________            1991);  Kuehne & Nagel (AG & CO) v. Geosource, Inc., 874 F.2d                    ________________________    _______________            283, 291 (5th Cir. 1989);  DHL Corp. v. Loomis Courier Serv.,                                       _________    _____________________            Inc., 522 F.2d 982, 985 (9th Cir. 1975).              ____                                            ____________________            11.  Supplemental jurisdiction,  28  U.S.C.    1367,  is,  in            effect, derivative  of the original claim's  jurisdiction and            thus  cannot  survive  the  jurisdictional  failure  of   the            original claim.                                           -17-                      Defendants  urge  this  court  to   find  that  the            district court  has mandatory jurisdiction over  Count III of            their counterclaim because jurisdiction  exists independently            within the  scope of  its  allegation.12   Count III  alleges            that the TFCI-TFC  merger violated sections 11.2  and 11.3 of            the partnership  agreement, which prohibit the  transfer of a            partner's interest without giving notice and a right of first            refusal to the other partners.                      Defendants  argue  that   the  district  court  has            mandatory jurisdiction  over Count III because  they have met            all the requirements of diversity under   1332.  Section 1359                 which destroyed diversity  in plaintiffs' claim     does            not apply  to them,  defendants say, because  they themselves            did  not  engage  in  the collusive  or  improper  acts  that            defeated diversity jurisdiction  over plaintiffs' claim.   In            defendants' view, the district court's holding penalizes them            for losing "the  race to  the courthouse" since  if they  had            sued  plaintiffs, instead  of vice versa,  jurisdiction would            exist.                                              ____________________            12.  Defendants' counterclaim consists of three counts: Count            I  requests a  declaration  of rights  under the  partnership            agreement;  Count II  requests injunctive  relief instructing            the  parties to  abide  by  the  rights  and  duties  of  the            partnership  agreement;  Count  III requests  damages  for an            alleged  breach of  the partnership  agreement.   The parties            agree that Counts I and II must be dismissed because they are            not independent  of plaintiffs'  claim, and therefore  do not            survive that claim's jurisdictional failure.                                           -18-                      We are not persuaded.  Section  1359, by its terms,            destroys diversity not  only for the original claim,  but for            the entire action.  Section 1359 provides:  "A district court            shall  not have jurisdiction of  a civil action  in which any                                               ____________           ___            party . . . has  been improperly or collusively made . . . to            _____            invoke  [federal]  jurisdiction"  (emphasis  added).13    The            district  court's lack of jurisdiction  is not limited to the            claim  of a collusive plaintiff but extends to any portion of            the civil  action whose jurisdictional basis  depends in fact            upon the plaintiff's  improper or  collusive act.14   We  can            see no  reason not to  construe the  statute as written.   It            could  well  be  unfair,  within the  contours  of  the  same            lawsuit,  to  find  that diversity  jurisdiction  exists  for            purposes  of defendants'  claim after  dismissing plaintiffs'            claim for  want of diversity.   To bifurcate  jurisdiction in            this manner would be to fragment the case.  One aspect of the            partnership  agreement here  might have  to be  determined in                                            ____________________            13.  The  term "action" has been used in the Federal Rules of            Civil  Procedure to include counterclaims.   See Fed. R. Civ.                                                         ___            P. 54(b) ("When more  than one claim for relief  is presented            in an  action, whether as a  claim, counterclaim, cross-claim                   ______                       ____________            or third party claim, ... the court may direct the entry of a            [partial] final judgement ...") (emphasis added).            14.  We do not  reach the  question of whether    1359  would            require   dismissal  of   a  counterclaim   supported  by   a            jurisdictional  basis   that  would  have   existed  even  if            plaintiffs had not improperly manufactured jurisdiction.                                         -19-            federal  court  and   another  in   state  court,15   causing            friction  between state  and federal  courts, the  wasting of            judicial resources,  and a  greater likelihood of  unfair and            inconsistent outcomes.   It  could  also be  unfair to  allow            defendants,  who  successfully  challenged jurisdiction  over            plaintiffs'  claim,  to  use  the  same  improperly  achieved            jurisdictional basis  for their  counterclaim.  In  any case,            the statute  seems  clear.   We affirm  the district  court's            refusal to assert jurisdiction over defendants' counterclaim.                      Affirmed.  Each party bears its own costs.                       Affirmed.  Each party bears its own costs.                      __________________________________________                                            ____________________            15.  Defendants  argue that it is  not at all  clear that the            case  would be bifurcated  because if they  are successful in            Count III and the federal court awards them TFCI  partnership            interest  as  a  remedy, they  would  have  control  over the            partnership  and plaintiffs' claim would be moot.  We are not            persuaded  by this  argument  because it  is unclear  whether            defendants would be successful and whether the district court            would  award TFC's  partnership interest  to defendants  as a            remedy in the event that they were successful.                                          -20-
