Assignees Must Prove Assignors’ Diversity or Non‑Collusive Purpose: First Circuit Orders Dismissal When Section 1359 Inquiry Fails

Case: Gore and Associates Management Co., Inc. v. SLSCO Ltd. and Hartford Fire Insurance Co.

Court: United States Court of Appeals for the First Circuit

Date: October 16, 2025

Panel: Montecalvo, Thompson, and Aframe, Circuit Judges (opinion by Aframe, J.)

Introduction

This First Circuit decision is a textbook reaffirmation—and practical sharpening—of the federal judiciary’s duty to police diversity jurisdiction in cases brought by assignees. Gore and Associates Management Company (Gore) sued SLSCO Ltd. and its surety, Hartford Fire Insurance Company, in the District of Puerto Rico, asserting claims assigned to Gore by three subcontractors (Earthwrx, LLC; Uniify of Puerto Rico, LLC; and Uniify Strategic Solutions, LLC) arising from alleged nonpayment on post–Hurricane Maria rebuilding projects in Puerto Rico and the U.S. Virgin Islands. The complaint invoked diversity jurisdiction under 28 U.S.C. § 1332(a).

Although the defendants did not challenge subject-matter jurisdiction, the First Circuit, fulfilling its “unflagging obligation” to ensure jurisdiction exists, raised concerns sua sponte because Gore’s standing in federal court depended on assignments from subcontractors whose citizenship was not alleged. That omission engaged 28 U.S.C. § 1359, which bars suits in which a party has been “improperly or collusively made or joined” to invoke federal jurisdiction—an obvious risk with assignments designed to manufacture diversity.

After ordering a jurisdictional remand for factfinding, the district court reported that Gore failed to provide sufficient evidence to establish either (1) the subcontractors’ citizenship (all three are LLCs), or (2) a non-collusive business justification for the assignments. On appeal, Gore asked for more time and an evidentiary hearing. The First Circuit declined, holding that the party invoking jurisdiction bears the burden to develop the record and cannot later complain about the chosen process. The court remanded with instructions to dismiss for lack of subject-matter jurisdiction and awarded costs to the appellees.

Summary of the Opinion

The First Circuit reaffirmed that federal courts must examine subject-matter jurisdiction sua sponte, even when the parties do not question it.
Assignments that may create diversity jurisdiction trigger scrutiny under 28 U.S.C. § 1359. The assignee must show either:
- that the assignors themselves were completely diverse from the defendants at the time suit commenced (so the assignment did not “create” jurisdiction), or
- a bona fide, non-collusive reason for the assignment beyond manufacturing a federal forum.
Because the assignors here were LLCs, Gore had to establish the citizenship of each LLC’s members as of the filing date; it failed to do so.
After a jurisdictional remand, Gore’s paper submissions were insufficient; Gore neither sought more time nor requested an evidentiary hearing, and it agreed to proceed on the papers.
Holding: Gore did not carry its burden to establish diversity jurisdiction; the case is remanded with instructions to dismiss for lack of subject-matter jurisdiction. Costs are awarded to the appellees.

Analysis

Precedents Cited and Their Influence

Espinal-Domínguez v. Puerto Rico, 352 F.3d 490, 495 (1st Cir. 2003): The court invoked its “unflagging obligation” to police subject-matter jurisdiction sua sponte. This duty exists independent of party consent or silence, and it drove the First Circuit to probe jurisdiction years into the litigation and despite the absence of a defense challenge.
Díaz-Rodríguez v. Pep Boys Corp., 410 F.3d 56, 58–59 (1st Cir. 2005): Reinforces that courts must verify jurisdiction even when the parties agree it exists. This case justified the court’s sua sponte inquiry into the assignment-based jurisdictional defect.
Gabriel v. Preble, 396 F.3d 10, 13 (1st Cir. 2005): Restates the “complete diversity” requirement—no plaintiff may share citizenship with any defendant. The opinion uses this as the baseline before turning to the added complexity of assignment-driven jurisdiction.
McCulloch v. Vélez, 364 F.3d 1 (1st Cir. 2004): The centerpiece for § 1359 analysis in the First Circuit. McCulloch recognizes the risk of manufacturing diversity via assignment and imposes a duty on courts to investigate when suspicious circumstances exist. It also places the burden on the party invoking federal jurisdiction to demonstrate the “validity of the assignment[s] for jurisdictional purposes.” McCulloch informed both the suspicion (assignors retaining an interest) and the allocation of proof.
Steele v. Hartford Fire Ins. Co., 788 F.2d 441, 445 (7th Cir. 1986): Persuasive authority adopted for the proposition that § 1359’s concern is satisfied if the assignors “could have sued in federal court” themselves. If the assignors were completely diverse from the defendants at the outset, the assignment did not create federal jurisdiction and is not a § 1359 problem per se.
Berkley Nat’l Ins. Co. v. Atlantic-Newport Realty LLC, 93 F.4th 543, 549 (1st Cir. 2024): Clarifies that an LLC’s citizenship is determined by the citizenship of all its members at the time the case commenced. This made Gore’s evidentiary task more exacting: it had to identify every member of each assignor LLC and trace their citizenship as of July 6, 2019.
Halleran v. Hoffman, 966 F.2d 45, 47 (1st Cir. 1992): When the appellate record lacks jurisdictional facts, the court should remand for jurisdictional factfinding. This is exactly what the First Circuit did in April 2025, tasking the district court to determine assignor citizenship and, if necessary, collusion.
Valentín v. Hospital Bella Vista, 254 F.3d 358, 364–65 (1st Cir. 2001): A litigant who eschews an evidentiary hearing and proceeds on the papers is estopped from later complaining that a hearing was not held. The First Circuit used this to reject Gore’s request, after an adverse outcome, for a do-over remand with more time and a hearing.

Legal Reasoning

The court’s reasoning proceeded in disciplined stages:

Sua sponte jurisdictional check. The panel emphasized that federal courts cannot act without subject-matter jurisdiction and must identify defects on their own initiative. Even though the defendants did not object, the court scrutinized diversity jurisdiction given the assignment posture.
Section 1359’s trigger: assignment as a potential jurisdictional device. Because Gore’s standing arose from assigned claims, the risk of “manufactured” diversity implicated § 1359. The court found “suspicious circumstances” insofar as the assignments suggested that the subcontractors may have retained a financial interest in the outcome.
The dispositive fork: did the assignment create jurisdiction? The § 1359 inquiry “arises only when the assignment has the effect of creating federal jurisdiction.” Thus, if the assignors themselves were completely diverse from SLSCO and Hartford at filing, then they “could have sued in federal court,” eliminating the § 1359 problem. But Gore’s complaint “omitted any description of the subcontractors’ citizenship.”
Need for jurisdictional facts; remand for factfinding. After initial supplementation proved insufficient, the First Circuit remanded to the district court to determine (a) whether the assignors (each an LLC) were completely diverse from the defendants, and (b) if not, whether the assignments were collusive. The court extended the reporting deadline once at the parties’ request.
Burden allocation and proof failure. On remand, the parties conducted discovery and agreed to resolve the matter on paper; neither sought an evidentiary hearing. The district court found Gore failed to present sufficient evidence to determine the LLC assignors’ citizenship or the motive for the assignments. That failure was fatal: as the party invoking jurisdiction, Gore bore the burden to prove the assignments’ validity for jurisdictional purposes and to establish complete diversity or a non-collusive rationale under § 1359.
No second bite at the apple. Gore’s bid for another remand, additional time, and an evidentiary hearing failed. The First Circuit held Gore to its procedural choices: it had months to develop the record, obtained an extension, and agreed to proceed on the papers. Under Valentín, Gore could not fault the absence of a hearing it did not request.
Disposition. Because Gore did not carry its burden, the appellate court remanded with instructions to dismiss for lack of subject-matter jurisdiction and awarded costs to the appellees.

Impact and Implications

This opinion materially reinforces several practical rules for litigation involving assigned claims and diversity jurisdiction:

Assignee’s dual burden in § 1359 scenarios. When assignments are central to jurisdiction, the assignee must either (1) prove the assignors were completely diverse from all defendants at the time of filing, or (2) demonstrate a non-collusive, bona fide purpose for the assignment (e.g., ordinary-course business reasons) that is not aimed at manufacturing federal jurisdiction. Mere silence or ambiguity will not suffice.
LLC citizenship demands meticulous factual development. Because LLC citizenship turns on every member’s citizenship at the time the case commenced, assignees must identify and prove those facts, including tracing through layers when members are themselves LLCs or partnerships. Failure to do this—even after remand—will result in dismissal.
Early jurisdictional housekeeping is essential. The First Circuit will not hesitate to question jurisdiction late in the case and to order dismissal if the record remains deficient. Parties who rely on assignment-based diversity must frontload jurisdictional proof, not defer it.
Procedural choices have consequences. Agreeing to resolve a jurisdictional inquiry “on the papers” and not requesting a hearing will foreclose later complaints about the lack of an evidentiary hearing or time. Counsel must proactively seek the process they need to build a sufficient record.
Practical venue implications for commercial disputes. In surety and construction disputes involving assigned bond or subcontract claims, plaintiffs often prefer federal court. This opinion makes clear that where assignments are involved, federal access hinges on a robust, evidence-backed jurisdictional showing; otherwise, the proper forum will be local courts.
Costs risk. The court awarded costs to the appellees, underscoring the financial exposure of pressing forward in federal court without solid jurisdictional footing.

Complex Concepts Simplified

Subject-matter jurisdiction: A federal court’s power to hear a case. For diversity cases (28 U.S.C. § 1332), it requires complete diversity of citizenship and an amount in controversy over $75,000.
Complete diversity: No plaintiff shares state (or Puerto Rico) citizenship with any defendant. If any overlap exists, diversity jurisdiction fails.
Time-of-filing rule: Diversity is assessed as of the date the complaint is filed. Later changes in citizenship don’t cure or create jurisdiction.
LLC citizenship: An LLC is a citizen of every state where its members are citizens. If members include other LLCs/partnerships, citizenship must be traced through their members until individuals or corporations are reached.
Assignment of claims: One party (assignor) transfers its legal claims to another (assignee). Assignments are common in commercial settings but can raise jurisdictional concerns if used to engineer federal jurisdiction.
28 U.S.C. § 1359 (collusive assignments): Bars federal jurisdiction over suits where a party has been “improperly or collusively made or joined” to invoke federal jurisdiction. Assignments that create diversity—especially where assignors retain an interest—are “suspicious” and draw scrutiny.
Burden of proof on jurisdiction: The party invoking federal jurisdiction (here, the assignee-plaintiff) must prove the jurisdictional facts. Failure to do so ends the federal case.
Jurisdictional remand for factfinding: When the appellate record lacks facts to confirm jurisdiction, the court of appeals can remand to the district court to develop the record. If the record remains inadequate, dismissal follows.

Practice Pointers

Plead with specificity. When suing as an assignee, plead the citizenship of the assignors. If the assignors are LLCs, allege the citizenship of each member as of the filing date (and trace through layers as needed).
Document the assignment’s business purpose. Preserve and present evidence showing that the assignment occurred for bona fide commercial reasons unrelated to federal forum selection (e.g., portfolio consolidation, liquidation, or standard surety collection processes), especially if assignors might not be completely diverse.
Be proactive during jurisdictional remands. Seek necessary discovery, request sufficient time, and ask for an evidentiary hearing if facts are contested or complex. Do not rely solely on paper submissions if the record is thin.
Assess alternative forums early. If diversity is uncertain, consider state or territorial courts or other federal jurisdictional bases. Do not assume that later record development can cure initial pleading and proof gaps.
Anticipate cost exposure. Litigating jurisdiction late can be expensive; adverse cost awards are possible when cases are dismissed for lack of subject-matter jurisdiction.

Conclusion

The First Circuit’s opinion in Gore v. SLSCO/Hartford is a strong reminder that assignment-driven access to federal court is a narrow path policed by § 1359 and by the courts’ independent duty to verify jurisdiction. The assignee must do one of two things: show that the assignors themselves were completely diverse at filing (so the assignment did not create jurisdiction) or demonstrate a non-collusive, bona fide basis for the assignment. In assignment cases involving LLCs, that means tracing each LLC member’s citizenship at the time of filing and building an evidentiary record capable of withstanding appellate scrutiny.

Procedurally, the opinion underscores that litigants control their own jurisdictional fate. Agreeing to resolve jurisdiction “on the papers,” declining to request a hearing, and not seeking additional time—all while bearing the burden of proof—will foreclose later complaints about the process. Substantively and practically, the decision will shape pleading and proof in construction and surety disputes (and beyond) where claim assignments are used: federal jurisdiction cannot be assumed; it must be demonstrated with precision from the outset. Because Gore failed to do so even after a targeted remand, dismissal for lack of subject-matter jurisdiction was the only result.

Key Takeaways

Assignees invoking diversity must prove assignors’ complete diversity at filing or a non-collusive assignment purpose under § 1359.
For LLC assignors, identify every member and their citizenship as of the complaint’s filing date.
Courts will raise and resolve jurisdictional issues sua sponte—even years into litigation—and order dismissal if the record is inadequate.
Litigants who forego a hearing and choose paper submissions cannot later complain that the jurisdictional inquiry was insufficient.
Result: Remand with instructions to dismiss for lack of subject-matter jurisdiction; costs to appellees.