United States Court of Appeals For the First Circuit
No. 23-1429
GORE AND ASSOCIATES MANAGEMENT COMPANY, INC.,
Plaintiff, Appellant,
v.
SLSCO LTD.; HARTFORD FIRE INSURANCE COMPANY,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO
[Hon. Gustavo A. Gelpí, U.S. District Judge]
Before
Montecalvo, Thompson, and Aframe, Circuit Judges.
Veronica Ferraiuoli-Hornedo, with whom Sophia L. Bernard, Taylor Nelson PL, and Estudio Legal Ferraiuoli were on the brief, for appellant. Salvador J. Antonetti-Stutts, with whom Alfredo F. Ramírez-MacDonald and O'Neill & Borges LLC were on the brief, for appellees.
October 16, 2025 AFRAME, Circuit Judge. Gore and Associates Management
Company (Gore) filed this suit against SLSCO Ltd. (SLSCO) and
Hartford Fire Insurance Company (Hartford) on July 6, 2019, in the
United States District Court for the District of Puerto Rico. In
the suit, Gore asserted several claims assigned to it from SLSCO's
subcontractors -- Earthwrx, LLC, Uniify of Puerto Rico, LLC, and
Uniify Strategic Solutions, LLC (collectively, the
subcontractors) -- for financial losses the subcontractors
allegedly sustained after SLSCO and its surety, Hartford, failed
to pay them for work related to rebuilding projects in Puerto Rico
and the Virgin Islands after Hurricane Maria.
The complaint sought relief, in part, based on the
subcontractors' status as claimants under bonds between SLSCO and
Hartford for the rebuilding projects. Gore asserted that the
federal district court had subject matter jurisdiction over the
case because Gore was completely diverse from the defendants and
the amount in controversy exceeded $75,000. 28 U.S.C. § 1332(a).
The case came to us when Gore appealed from a district court order
staying the federal case until after Gore had pursued certain
remedies in the local courts for Puerto Rico and the Virgin
Islands.
Neither SLSCO nor Hartford questioned the existence of
subject matter jurisdiction during the years that passed between
Gore's filing of the complaint and the parties' arguments before
- 2 - us in October 2024. Nevertheless, "[b]ecause federal courts are
powerless to act in the absence of subject matter jurisdiction, we
have an unflagging obligation to notice jurisdictional defects and
to pursue them on our own initiative." Espinal-Domínguez v. Puerto
Rico, 352 F.3d 490, 495 (1st Cir. 2003). This obligation requires
us to determine whether there is, in fact, diversity jurisdiction,
even when the parties agree that there is. See Díaz-Rodríguez v.
Pep Boys Corp., 410 F.3d 56, 58–59 (1st Cir. 2005).
"Diversity jurisdiction exists only when there is
complete diversity, that is, when no plaintiff is a citizen of the
same state as any defendant." Gabriel v. Preble, 396 F.3d 10, 13
(1st Cir. 2005). On the surface, that requirement seems satisfied
here because Gore is diverse from the defendants. But there is a
deeper problem because Gore brought this case based on the claim
assignments it received from the subcontractors.
Congress perceived the potential for a non-diverse
plaintiff to manufacture diversity jurisdiction by assigning its
claims to a diverse party that could then avail itself of an
otherwise unavailable federal forum. See McCulloch v. Vélez, 364
F.3d 1, 5 (1st Cir. 2004). To guard against that situation,
Congress passed a law providing that "[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 . . . to invoke the jurisdiction of such court." 28
- 3 - U.S.C. § 1359. This statute "impels a federal court, when
confronted with suspicious circumstances, to make every effort to
determine whether a party has been insinuated into an action in
order to allow the litigants artificially to invoke the court's
jurisdiction." McCulloch, 364 F.3d at 5. We face such a
circumstance here insofar as the assignments to Gore suggest that
the subcontractors may retain some financial interest in the
outcome of the action. See id.
The problem contemplated by section 1359 arises,
however, only when the assignment has "the effect of creating
federal jurisdiction." Id. at 6. Thus, if the complaint had
adequately alleged that the subcontractors were completely diverse
from the defendants, we would have been satisfied that federal
jurisdiction existed under section 1332(a) because the
subcontractors themselves "could have sued in federal court."
Steele v. Hartford Fire Ins. Co., 788 F.2d 441, 445 (7th Cir.
1986). But Gore's complaint omitted any description of the
subcontractors' citizenship.
After recognizing this possible jurisdictional problem,
we requested that the parties provide information to us about the
subcontractors' citizenship.1 We concluded that the materials
1 Because the subcontractors were each limited liability corporations, each subcontractor's citizenship is based on the citizenship of all its members when the case commenced. Berkley
- 4 - subsequently provided were insufficient to resolve the problem.
So, on April 22, 2025, we remanded the case for the district court
to conduct jurisdictional factfinding. See Halleran v. Hoffman,
966 F.2d 45, 47 (1st Cir. 1992) ("[W]here the record on appeal
does not contain facts supporting jurisdiction, a court of appeals
must, at a minimum, remand for inquiry into jurisdictional
facts.").
In our remand order, we tasked the district court with
determining whether the subcontractors were completely diverse
from the defendants. If the district court found that they were
not, we further tasked it with determining whether the assignments
to Gore were a collusive attempt to manufacture diversity
jurisdiction. We requested a report from the district court on
August 4, 2025, and allowed the parties ten days from the district
court's report to file objections in this Court. The parties later
filed a motion to extend the deadline for the district court's
report to September 12, 2025, which we granted.
The district court's report explained that the parties
had agreed to participate in discovery, including depositions if
necessary, and that "neither party requested an evidentiary
hearing to resolve the pending jurisdictional issue, opting
instead to resolve the matter solely on their paper submissions."
Nat'l Ins. Co. v. Atl.-Newport Realty LLC, 93 F.4th 543, 549 (1st Cir. 2024).
- 5 - Based on those submissions, the district court concluded that Gore
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United States Court of Appeals For the First Circuit
No. 23-1429
GORE AND ASSOCIATES MANAGEMENT COMPANY, INC.,
Plaintiff, Appellant,
v.
SLSCO LTD.; HARTFORD FIRE INSURANCE COMPANY,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO
[Hon. Gustavo A. Gelpí, U.S. District Judge]
Before
Montecalvo, Thompson, and Aframe, Circuit Judges.
Veronica Ferraiuoli-Hornedo, with whom Sophia L. Bernard, Taylor Nelson PL, and Estudio Legal Ferraiuoli were on the brief, for appellant. Salvador J. Antonetti-Stutts, with whom Alfredo F. Ramírez-MacDonald and O'Neill & Borges LLC were on the brief, for appellees.
October 16, 2025 AFRAME, Circuit Judge. Gore and Associates Management
Company (Gore) filed this suit against SLSCO Ltd. (SLSCO) and
Hartford Fire Insurance Company (Hartford) on July 6, 2019, in the
United States District Court for the District of Puerto Rico. In
the suit, Gore asserted several claims assigned to it from SLSCO's
subcontractors -- Earthwrx, LLC, Uniify of Puerto Rico, LLC, and
Uniify Strategic Solutions, LLC (collectively, the
subcontractors) -- for financial losses the subcontractors
allegedly sustained after SLSCO and its surety, Hartford, failed
to pay them for work related to rebuilding projects in Puerto Rico
and the Virgin Islands after Hurricane Maria.
The complaint sought relief, in part, based on the
subcontractors' status as claimants under bonds between SLSCO and
Hartford for the rebuilding projects. Gore asserted that the
federal district court had subject matter jurisdiction over the
case because Gore was completely diverse from the defendants and
the amount in controversy exceeded $75,000. 28 U.S.C. § 1332(a).
The case came to us when Gore appealed from a district court order
staying the federal case until after Gore had pursued certain
remedies in the local courts for Puerto Rico and the Virgin
Islands.
Neither SLSCO nor Hartford questioned the existence of
subject matter jurisdiction during the years that passed between
Gore's filing of the complaint and the parties' arguments before
- 2 - us in October 2024. Nevertheless, "[b]ecause federal courts are
powerless to act in the absence of subject matter jurisdiction, we
have an unflagging obligation to notice jurisdictional defects and
to pursue them on our own initiative." Espinal-Domínguez v. Puerto
Rico, 352 F.3d 490, 495 (1st Cir. 2003). This obligation requires
us to determine whether there is, in fact, diversity jurisdiction,
even when the parties agree that there is. See Díaz-Rodríguez v.
Pep Boys Corp., 410 F.3d 56, 58–59 (1st Cir. 2005).
"Diversity jurisdiction exists only when there is
complete diversity, that is, when no plaintiff is a citizen of the
same state as any defendant." Gabriel v. Preble, 396 F.3d 10, 13
(1st Cir. 2005). On the surface, that requirement seems satisfied
here because Gore is diverse from the defendants. But there is a
deeper problem because Gore brought this case based on the claim
assignments it received from the subcontractors.
Congress perceived the potential for a non-diverse
plaintiff to manufacture diversity jurisdiction by assigning its
claims to a diverse party that could then avail itself of an
otherwise unavailable federal forum. See McCulloch v. Vélez, 364
F.3d 1, 5 (1st Cir. 2004). To guard against that situation,
Congress passed a law providing that "[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 . . . to invoke the jurisdiction of such court." 28
- 3 - U.S.C. § 1359. This statute "impels a federal court, when
confronted with suspicious circumstances, to make every effort to
determine whether a party has been insinuated into an action in
order to allow the litigants artificially to invoke the court's
jurisdiction." McCulloch, 364 F.3d at 5. We face such a
circumstance here insofar as the assignments to Gore suggest that
the subcontractors may retain some financial interest in the
outcome of the action. See id.
The problem contemplated by section 1359 arises,
however, only when the assignment has "the effect of creating
federal jurisdiction." Id. at 6. Thus, if the complaint had
adequately alleged that the subcontractors were completely diverse
from the defendants, we would have been satisfied that federal
jurisdiction existed under section 1332(a) because the
subcontractors themselves "could have sued in federal court."
Steele v. Hartford Fire Ins. Co., 788 F.2d 441, 445 (7th Cir.
1986). But Gore's complaint omitted any description of the
subcontractors' citizenship.
After recognizing this possible jurisdictional problem,
we requested that the parties provide information to us about the
subcontractors' citizenship.1 We concluded that the materials
1 Because the subcontractors were each limited liability corporations, each subcontractor's citizenship is based on the citizenship of all its members when the case commenced. Berkley
- 4 - subsequently provided were insufficient to resolve the problem.
So, on April 22, 2025, we remanded the case for the district court
to conduct jurisdictional factfinding. See Halleran v. Hoffman,
966 F.2d 45, 47 (1st Cir. 1992) ("[W]here the record on appeal
does not contain facts supporting jurisdiction, a court of appeals
must, at a minimum, remand for inquiry into jurisdictional
facts.").
In our remand order, we tasked the district court with
determining whether the subcontractors were completely diverse
from the defendants. If the district court found that they were
not, we further tasked it with determining whether the assignments
to Gore were a collusive attempt to manufacture diversity
jurisdiction. We requested a report from the district court on
August 4, 2025, and allowed the parties ten days from the district
court's report to file objections in this Court. The parties later
filed a motion to extend the deadline for the district court's
report to September 12, 2025, which we granted.
The district court's report explained that the parties
had agreed to participate in discovery, including depositions if
necessary, and that "neither party requested an evidentiary
hearing to resolve the pending jurisdictional issue, opting
instead to resolve the matter solely on their paper submissions."
Nat'l Ins. Co. v. Atl.-Newport Realty LLC, 93 F.4th 543, 549 (1st Cir. 2024).
- 5 - Based on those submissions, the district court concluded that Gore
had failed to present sufficient evidence to assess the citizenship
of the subcontractors or the motive behind the assignments.
These conclusions are fatal to Gore's federal suit. As
the party seeking to invoke diversity jurisdiction, Gore bore the
burden to demonstrate "the validity of the assignment[s] for
jurisdictional purposes." McCulloch, 364 F.3d at 6. The district
court's conclusions indicate that Gore neither demonstrated that
the subcontractors were completely diverse from the defendants
when the suit commenced nor demonstrated that there was some other
non-collusive reason for the subcontractor assignments to Gore.
Thus, Gore did not meet its burden to establish diversity
jurisdiction.
Gore does not challenge the district court's
characterization of the record before it as insufficient to
demonstrate either complete diversity between the subcontractors
and the defendants or the non-collusiveness of the assignments.
That should end the matter. But Gore makes one final effort to
avoid responsibility for the inadequate record by attempting to
blame the district court. It contends that "the jurisdictional
inquiry was not sufficiently thorough[,] and the [d]istrict
[c]ourt was surely not in a well[-]informed position to make any
conclusions of law regarding subject matter jurisdiction." Thus,
- 6 - Gore asks this Court for another remand to allow more time for
discovery and for an evidentiary hearing.
We disagree. Gore had from April 2025 through September
2025 to establish jurisdiction. The parties sought a single
extension of the remand period, which was granted, and Gore did
not ask for additional time before the district court ruled. Gore
also did not seek an evidentiary hearing; in fact, it agreed that
the district court could resolve the jurisdictional inquiry on the
papers. Gore cannot now complain about its own approach to
litigating the jurisdictional remand merely because that approach
proved unsuccessful. Cf. Valentín v. Hosp. Bella Vista, 254 F.3d
358, 364-65 (1st Cir. 2001) (concluding that a party was estopped
from complaining about the district court's failure to hold an
evidentiary hearing to establish jurisdictional facts where the
party received discovery and urged the district court not to hold
a hearing).
The district court diligently handled the jurisdictional
remand in this case. It held status conferences with the parties
on how to handle the remand proceedings and issued a thorough order
at the conclusion of those proceedings. Gore, which alone bore
the burden of establishing jurisdiction, has only itself to blame
for failing to create an adequate record to meet this obligation.
- 7 - For these reasons, we remand with instructions that the
district court dismiss Gore's complaint for a lack of subject
matter jurisdiction. Costs are awarded to the appellees.
So ordered.
- 8 -