In Fugedi v. Initram, Inc., No. 24-40283 (5th Cir. Sept. 9, 2025), the Fifth Circuit affirms dismissal of a case for lack of diversity jurisdiction, holding that appointment of a supposedly diverse trustee was a sham in violation of 28 U.S.C. § 1359.
Section 1359 provides 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 or joined to invoke the jurisdiction of such court.”
Plaintiff Fugedi filed this quiet title case in 2019 in his capacity as trustee for the Carb Pura Vida Trust, brought under Texas law. While Elberger (the trust’s beneficiary) was not diverse from the defendant (both were citizens of Texas), Fugedi was from Michigan and – as trustee – it was his citizenship that mattered under 28 U.S.C. § 1332 under Navarro Savings Association v. Lee, 446 U.S. 458 (1980).
In the first proceeding in the district court Fugedi lost, yet the Fifth Circuit reversed and remanded in 2022. The panel noted, though, that there were facts casting doubt on whether “the trust [w]as a sham concocted by Texas individuals,” which, if true, would “destroy[] diversity jurisdiction.”
On remand from the Fifth Circuit, the district court took evidence and found that plaintiff was a sham (or straw) trustee appointed “to create diversity jurisdiction that would otherwise have been lacking. For instance, the court found that: Fugedi had met Elberger . . . less than two months before being appointed trustee; Fugedi does only what his attorneys tell him to do such that he seemingly does not control the trust; Fugedi has no special experience to qualify him as trustee; a nondiverse individual would normally be expected to represent the interests at stake here; there is no credible non-collusive reason to select an out-of-state trustee; and the suit is wholly local in nature.”
The Fifth Circuit affirms dismissal for lack of diversity jurisdiction. Fugedi principally argued that § 1359 does not apply to a trust, but the Fifth Circuit notes that the language did not exclude trusts and that a trust could indeed be a vehicle for confecting jurisdiction. “So, if someone wanted to concoct diversity in a property dispute, one way would be to create a trust to manage the property and choose a trustee with citizenship different from everyone on the other side of the v. That’s the kind of skullduggery § 1359 is designed to prevent.”
And thus a case filed in federal court six years ago is flushed into oblivion.
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