Introduction

The Fifth Circuit’s decision in Fugedi v. Initram squarely holds that 28 U.S.C. § 1359 bars parties from manufacturing diversity jurisdiction by appointing an out-of-state trustee for the purpose of filing in federal court. The court affirms the district court’s dismissal for lack of subject-matter jurisdiction after finding that the trustee of the Carb Pura Vida Trust, a Michigan resident, was a “sham” or “straw” fiduciary selected to concoct complete diversity in what was otherwise a local property dispute over 829 Yale Street in Houston, Texas.

The case has a long procedural history. In 2019, Nicholas Fugedi, acting as trustee of the Carb Pura Vida Trust, filed a quiet-title action in the Southern District of Texas. Although a prior Fifth Circuit panel reversed the district court’s original merits ruling against the trust, it expressly invited the district court on remand to consider new evidence that the trust arrangement was a jurisdictional sham that would destroy diversity. On remand, the district court did just that and dismissed under § 1359. The Fifth Circuit now affirms, clarifying two key issues:

• Section 1359’s prohibition on “improperly or collusively” making or joining a party to invoke federal jurisdiction applies to trusts and their trustees.
• The district court did not clearly err in finding, on specific facts, that the trustee appointment in this case was a collusive device to create diversity.

Summary of the Opinion

Writing for a unanimous panel, Judge Stuart Kyle Duncan affirms the dismissal for lack of subject-matter jurisdiction. The court holds that:

• Section 1359’s text—“by assignment or otherwise”—is broad and encompasses the use of a trust structure to manufacture diversity jurisdiction. It is not limited to formal assignments.
• Precedent supports looking beyond a trustee’s citizenship when there is an allegation of sham or collusion, and other circuits have applied § 1359 to fiduciary appointments designed to create diversity.
• The district court’s factual findings that the trustee was a straw fiduciary—appointed shortly after meeting the beneficiary, lacking independent control or expertise, taking direction from counsel, and selected without a credible non-collusive reason in a wholly local dispute—were not clearly erroneous.

Because the trustee’s appointment was collusive under § 1359, the court treats the arrangement as jurisdictionally defective; without the trustee’s out-of-state citizenship, complete diversity is lacking and federal jurisdiction fails. The judgment is affirmed and all pending motions are denied.

Analysis

Precedents Cited and Their Influence

• Kramer v. Caribbean Mills, Inc., 394 U.S. 823 (1969). The Supreme Court condemned the “manufacture of Federal jurisdiction,” holding that collusive assignments designed to create diversity are barred by § 1359. Fugedi draws on Kramer’s core principle: parties cannot funnel ordinary disputes into federal court through artifice.
• O’Brien v. AVCO Corp., 425 F.2d 1030 (2d Cir. 1969). O’Brien emphasizes that § 1359’s purpose is to prevent agreements whose primary aim is to vest courts with jurisdiction they would not otherwise have. The Fifth Circuit uses this purpose-driven lens to reject the notion that trusts are categorically beyond § 1359’s reach.
• Navarro Savings Association v. Lee, 446 U.S. 458 (1980). Navarro holds that when trustees are real parties in interest with customary powers, their citizenship is used for diversity purposes. Importantly for Fugedi, Navarro also contemplates that allegations of sham or collusion warrant looking beyond the trustee’s citizenship. The Fifth Circuit relies on this to reject a categorical bar to applying § 1359 in the trust context.
• Grede v. Bank of N.Y. Mellon, 598 F.3d 899 (7th Cir. 2010). The Seventh Circuit treated an assignment to a trust as collusive when its sole function was to shift litigation to federal court and noted that assigning to a trust can exploit the trustee-citizenship rule. Grede helps show inter-circuit agreement that fiduciary structures are subject to § 1359 scrutiny.
• McSparran v. Weist, 402 F.2d 867 (3d Cir. 1968) (en banc). McSparran condemned the artificial selection of a nonresident “straw” fiduciary whose only function was to offer his citizenship to create diversity. This case provides a framework for identifying a sham fiduciary and strongly influences the Fifth Circuit’s acceptance of similar reasoning here.
• Cook v. Marshall, 126 F.4th 1031 (5th Cir. 2025), petition for cert. filed, No. 25-4 (U.S. July 1, 2025). Cook reiterates the trustee-citizenship rule for traditional trusts when trustees are real parties in interest. Fugedi reconciles Cook by noting that even when trustee citizenship ordinarily controls, § 1359 allows a court to look past the trustee if the appointment is collusive.
• Doermer v. Oxford Financial Group, Ltd., 884 F.3d 643 (7th Cir. 2018). Cited in Cook, Doermer discusses trustee citizenship and provides broader context for how courts treat traditional trusts for § 1332 purposes.
• Bass v. Texas Power & Light Co., 432 F.2d 763 (5th Cir. 1970). Bass states that whether a device is so lacking in substance as to be collusive under § 1359 is a question of fact. In Fugedi, this supports the deferential clear-error review of the district court’s sham findings.
• Robinson v. TCI/US West Communications, Inc., 117 F.3d 900 (5th Cir. 1997); In re Southern Recycling, L.L.C., 982 F.3d 374 (5th Cir. 2020); Garner v. Kennedy, 713 F.3d 237 (5th Cir. 2013). These decisions supply the standard of review: de novo for the jurisdictional dismissal; clear error for underlying jurisdictional fact findings.
• Wright & Miller, Federal Practice and Procedure. The opinion invokes the treatise both for § 1359’s scope and its application to fiduciary appointments, reinforcing that courts should examine the substance of the fiduciary relationship to determine whether there is a true controversy between diverse parties.

Legal Reasoning

The court’s reasoning proceeds in two steps—one statutory and doctrinal, the other factual.

1. Statutory scope of § 1359: The panel begins with the statutory text. Section 1359 bars federal jurisdiction over any civil action in which a party “by assignment or otherwise” has been improperly or collusively made or joined to invoke the court’s jurisdiction. The phrase “or otherwise” is critical; it extends beyond formal assignments to capture any device or arrangement whose purpose is to manufacture federal jurisdiction. Nothing in the statute excludes trusts. Indeed, the very concern that parties might exploit trustee citizenship to create diversity underscores why “or otherwise” must include fiduciary appointments. The court rejects the argument that § 1359 is inapplicable to “natural persons,” noting the statute speaks broadly of “any party” and the appellant offered no authority for such a limitation.
2. Doctrinal fit with trust citizenship rules: The court recognizes that, as a default rule, the citizenship of a trustee who is the real party in interest controls for diversity (the Navarro line of cases, as reaffirmed in Cook). But it emphasizes that this default yields when the trusteeship itself is a sham. Navarro expressly contemplates that courts may look beyond trustee citizenship upon an allegation of sham or collusion. Grede and McSparran demonstrate that appointing a fiduciary solely to create diversity violates § 1359. Thus, using a trust as a jurisdictional vehicle falls squarely within § 1359’s prohibition when the appointment is collusive.
3. Application to the facts: On remand, the district court found multiple “badges of collusion,” including (a) the trustee’s recent and tenuous relationship with the beneficiary (meeting less than two months before appointment), (b) the trustee’s lack of independent control, effectively acting only at counsel’s direction, (c) the trustee’s lack of relevant expertise, (d) the expectation that a nondiverse individual would ordinarily represent the interests at stake, (e) the absence of any credible non-collusive reason to select an out-of-state trustee, and (f) the wholly local nature of the property dispute. On appeal, these are reviewed for clear error. The panel concludes the appellant made no serious showing that any finding was clearly erroneous. Given these facts, the district court permissibly determined that the trustee was a “sham trustee” or “straw fiduciary,” making § 1359 dispositive.

Impact and Implications

Fugedi establishes a clear, precedential rule in the Fifth Circuit (Texas, Louisiana, Mississippi): parties cannot create diversity jurisdiction by appointing an out-of-state trustee (or similar fiduciary) when the appointment is substantially for the purpose of accessing federal court. Key implications include:

• Heightened scrutiny for fiduciary appointments tied to litigation. District courts may allow jurisdictional discovery and will examine the timing, purpose, and substance of fiduciary relationships. Appointments made shortly before suit, lacking independent fiduciary function, or in purely local controversies are especially suspect.
• Practical constraints on forum shopping via trusts and other fiduciaries. Litigants hoping to remove or file in federal court cannot rely on the trustee-citizenship rule as a loophole; § 1359 allows courts to look past the trustee when the trusteeship lacks substance.
• Guidance for legitimate trusts. Parties with bona fide fiduciary arrangements should document non-jurisdictional reasons for the selection (e.g., longstanding relationships, specialized management expertise, preexisting administration predating the dispute, trustee independence and oversight, compensation and duties reflective of a real fiduciary role).
• Spillover to other fiduciaries. Although this case involves a trustee, the reasoning naturally extends to guardians, executors, receivers, and other representatives if appointed primarily to create diversity.
• Interplay with trust citizenship doctrine. Cook v. Marshall underscores that trustee citizenship generally controls for traditional trusts. Fugedi shows that § 1359 is a supervening check: even if trustee citizenship would ordinarily control, collusive appointments fail.
• Procedural posture matters. Because sham determinations are fact-intensive and reviewed for clear error, trial courts have substantial leeway. Appellants face a steep uphill climb unless they can demonstrate clear error in the findings.

Complex Concepts Simplified

• Diversity jurisdiction (28 U.S.C. § 1332): Federal courts can hear cases between citizens of different states if the amount in controversy exceeds $75,000. “Complete diversity” means no plaintiff shares a state of citizenship with any defendant.
• Manufactured or collusive jurisdiction (28 U.S.C. § 1359): A federal court lacks jurisdiction if a party was “improperly or collusively made or joined” to invoke federal jurisdiction. Classic examples include assignments or appointments created primarily to enable a federal forum.
• Trustee citizenship rule: In suits by or against a traditional trust where the trustee is the real party in interest with customary powers, the trustee’s citizenship controls for diversity purposes (Navarro; Cook). This is distinct from the rule for unincorporated entities whose citizenship tracks their members or beneficiaries.
• Sham or straw fiduciary: A fiduciary appointed primarily to supply diverse citizenship for litigation rather than to perform genuine fiduciary functions. Courts look at timing, independence, duties, expertise, compensation, and the locality of the dispute.
• Standards of review: Jurisdictional dismissals are reviewed de novo, but the underlying fact findings (e.g., whether an appointment was collusive) are reviewed for clear error, a deferential standard.
• Real party in interest: The person who actually possesses the substantive right being asserted and has a significant interest in the outcome. If a trustee is only nominally in control and acts at the behest of others, a court may question whether he is the true party in interest for jurisdictional purposes.

Practical Takeaways and Practitioner Guidance

Indicators of a Collusive Fiduciary Appointment

• Appointment shortly before litigation with no prior fiduciary relationship.
• Fiduciary lacks relevant expertise or experience for the trust’s assets.
• Fiduciary does not exercise independent judgment; acts solely at counsel’s direction.
• No credible non-jurisdictional reason for selecting an out-of-state fiduciary.
• Dispute is wholly local (local property, local parties, local law) yet an out-of-state fiduciary is chosen.
• Fiduciary duties, compensation, and oversight appear perfunctory or illusory.

How to Substantiate a Legitimate Appointment

• Document preexisting, non-litigation reasons for the trusteeship (e.g., longstanding financial management relationship).
• Demonstrate the trustee’s actual control, decision-making, and fiduciary responsibilities independent of litigation.
• Show specialized skills matched to the trust’s assets and needs.
• Establish that the appointment predated the controversy or had an organic connection to estate or asset planning.
• Provide clear terms regarding compensation, reporting, and oversight consistent with genuine fiduciary administration.

Litigation Strategy

• For defendants: When diversity is predicated on a newly minted out-of-state fiduciary, promptly seek jurisdictional discovery; move to dismiss under § 1359 (or to remand if removed).
• For plaintiffs: Anticipate § 1359 challenges; build a record showing substantive fiduciary function, independence, and non-jurisdictional reasons for the appointment.
• For both sides: Recognize the deferential clear-error standard on appeal. The critical battle is often in the district court’s fact-finding stage.

Conclusion

Fugedi v. Initram crystallizes an important jurisdictional principle in the Fifth Circuit: Section 1359’s prohibition on collusive devices to create federal jurisdiction encompasses the appointment of trustees and other fiduciaries. The opinion harmonizes the trustee-citizenship rule with § 1359 by confirming that courts may look past a trustee’s citizenship when there is credible evidence of a sham appointment. The decision provides a practical framework for evaluating “straw fiduciary” claims and signals heightened scrutiny of litigation-driven fiduciary arrangements—especially in local disputes—aimed at achieving a federal forum.

The key takeaway is straightforward: while traditional trust structures remain valid pathways to federal court when trustees are genuine real parties in interest, parties cannot use out-of-state fiduciary appointments as a jurisdictional shortcut. In the Fifth Circuit, manufactured diversity via trust appointments will not stand.