Miller & Lux, Inc. v. East Side Canal & Irrigation Co.
Headline: Affirmed dismissal because an out-of-state corporation was a sham created to move a California water and land dispute into federal court, preventing companies from dodging state courts.
Holding: The Court affirmed dismissal, holding the Nevada corporation was a sham created by the California company to manufacture federal jurisdiction, so the federal suit did not truly present a federal controversy.
- Blocks using paper transfers to move state cases into federal court.
- Courts will disregard corporations formed solely to create federal jurisdiction.
Summary
Background
A California company that owned lands and water rights created a Nevada corporation and transferred title to it while continuing to own all its stock and keep the same directors and officers. The California company had a pending state lawsuit against a California irrigation company over obstructing the river and, after forming the Nevada corporation, dismissed the state case and had the Nevada corporation file a nearly identical suit in federal court.
Reasoning
The Court asked whether the federal case truly presented a federal controversy or whether the Nevada corporation was collusively created simply to get into federal court. Looking at the facts and precedents, the Court found the Nevada company only held title as a formality, could be controlled at any time by the California company, and therefore had no real independent interest. Because the transfer was a sham made to manufacture federal jurisdiction, the lower court properly dismissed the federal suit and the Supreme Court affirmed that dismissal.
Real world impact
The ruling makes clear courts will ignore formal transfers meant solely to shift state disputes into federal court. If a transfer were genuine — with an actual change in ownership or dissolution of the original company — the result could be different, but sham transfers will not confer federal access.
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