276 U.S. 518 (1928)
In September 1925 the shareholders of a Kentucky corporation organized a new corporation of the same name under the laws of Tennessee.1 The Kentucky corporation had been carrying on a transfer business at Bowling Green and held a contract with the Louisville and Nashville Railroad Company.2 The business and property of the Kentucky corporation were transferred to the Tennessee entity.3 The original Kentucky corporation was then dissolved.4
The Tennessee corporation entered into a new contract with the Louisville and Nashville Railroad Company.5 The contract granted the exclusive privilege of going upon railroad trains and depot premises to solicit baggage and passenger transportation.6 It also assigned a plot of ground for the use of its taxicabs while awaiting trains.7 The contract required the respondent to render specified service and to make monthly payments to the railroad.8 Its term was one year and continued for successive yearly periods until terminated by either party on thirty days' notice.9
Shortly after the contract was executed the Brown and Yellow Taxicab and Transfer Company filed suit in the United States District Court for the Western District of Kentucky.10 The suit named the Black and White Taxicab and Transfer Company and the railroad company as defendants.11 The complaint alleged that the railroad had permitted others to enter its property to solicit transportation and to park vehicles.12 It further alleged that the petitioner had done so in the places assigned to the respondent and on an adjoining street so as to obstruct the respondent's operations.13
The petitioner's answer asserted that the respondent had been incorporated in Tennessee for the fraudulent purpose of creating diversity jurisdiction and evading Kentucky law.14 It also asserted that the contract was contrary to Kentucky public policy, in excess of the railroad's charter powers, and violative of section 214 of the Kentucky constitution.15 The record shows that the incorporators and railroad representatives arranged the Tennessee incorporation specifically so that the controversy could be determined in federal court.16 The district court found there was no fraud upon its jurisdiction, held the contract valid, and entered a decree enjoining the petitioner from further interference.17 The railroad company declined to join the appeal.18 The Circuit Court of Appeals affirmed the decree.19 This Court granted a writ of certiorari.20
Whether the United States District Court for the Western District of Kentucky had jurisdiction over the suit given the circumstances of the respondent's incorporation?21
Section 37 of the Judicial Code requires any suit commenced in a district court to be dismissed if the parties have been improperly or collusively made or joined for the purpose of creating a case cognizable in such court.22 Where the succession and transfer are actual and not feigned, the requisite diversity of citizenship supports jurisdiction.23
Yes. The record shows that in September 1925 the shareholders organized the Tennessee corporation, transferred the business and property, and dissolved the Kentucky corporation.24 The Tennessee corporation is the real party in interest.25 The cooperation between it and the railroad company to have the rights determined by a federal court was not improper or collusive within the meaning of section 37.26 The district court had jurisdiction over the suit.27
The district court had jurisdiction over the suit.
Whether the contract between the Louisville and Nashville Railroad Company and the respondent is valid and enforceable?28
Yes. The contract grants the respondent the exclusive privilege of going upon the trains and depot to solicit transportation and assigns a plot for its taxicabs.32 The railroad is under no obligation to permit others to use its property for that purpose.33 The grant does not impair the railroad's service to the public or infringe any right of other taxicabmen.34 The contract is valid and enforceable.35
The contract is valid and enforceable.
Whether federal courts must follow the decisions of the Kentucky Court of Appeals holding such contracts invalid?36
In determining questions of general law the federal courts, while inclining to follow the decisions of the courts of the State in which the controversy arises, are free to exercise their own independent judgment.37 The rule of decision to be followed by federal courts distinguishes between statutes of a State and the decisions of its courts on questions of general law.38
No. The question whether such contracts are valid is one of general law.39 It does not involve any provision of state statute or constitution or ancient or fixed local usage.40 The lower courts followed the well-established rule and rightly held the contract valid by exercising their independent judgment on the common law principles applicable.41 Federal courts are not required to follow the Kentucky decisions on this question of general law.42
Federal courts are not required to follow the Kentucky decisions on this question of general law.
Related opinions on this issue
Joined by Justices Brandeis And Stone
Justice Holmes dissented on the ground that there is no transcendental body of common law outside of any particular state.43 He argued that the common law enforced in a state is the law of that state existing by the authority of that state.44 Holmes maintained that the Supreme Court of a State by implication declares the law of the state and federal courts should follow it.45
He viewed the prevailing doctrine as an unconstitutional assumption of powers by the courts of the United States.46 Holmes would have reversed the decision below.47 This is a question concerning the lawful use of land in Kentucky by a corporation chartered by Kentucky.48
The policy of Kentucky with regard to it has been settled in Kentucky for more than thirty-five years.49