Matthew J. Richardson, Clarifying and Limiting Fraudulent Joinder

58 Fla. L. Rev. 119 (2006) | | | |

INTRODUCTION :: Defendants in state court may properly remove civil actions to federal court on the basis of diversity jurisdiction. However, before the defendants remove the action, plaintiffs may have already attempted to defeat diversity jurisdiction by having joined a local or nondiverse defendant who may have no real connection to the case. In this situation, assuming the amount-in-controversy requirement is met, the diverse defendants may remove the action to federal district court, arguing both that complete diversity is present and that the plaintiffs have fraudulently joined the nondiverse defendants.

At this stage, the plaintiff may file a motion to remand the action back to state court to avoid litigating the matter in the federal forum, a forum often less sympathetic to plaintiffs than the state courts in which they originally filed their complaints. Whether the action will remain in federal court typically hinges on one issue: whether the plaintiff has a possibility of recovery against the nondiverse defendant under state law. On this issue, the defendant bears the burden of proof. If the removing defendant shows that there is no such possibility of recovery, the action remains in federal court because the district court need not consider the fraudulently joined defendant in determining diversity; if not, the action is remanded to state court.

Answering this one question, however, has proved difficult and time-consuming for many federal courts, even though the issue is essentially a threshold jurisdictional question. The trouble is understandable, however, considering the circumstances. The fraudulent joinder doctrine is inherently complex, and this complexity is reflected and exacerbated in federal circuits, which have split over a number of the important issues in defining and applying the doctrine.

For purposes of clarifying the doctrine, this Article surveys the case law in which federal appellate courts apply the doctrine, noting the key aspects that engender disagreement among federal judges. By addressing such points of divergence, the Article also advances a normative claim that the fraudulent joinder analysis should be more limited than some of the leading jurisdictions maintain. Finally, the Article proposes a better model of fraudulent joinder by drawing on the diverse experience of the federal courts on this matter.

Fraudulent joinder’s inherent complexity may be seen in several doctrinal nuances that risk obscuring fundamental principles. For instance, one of the basic principles of the fraudulent joinder doctrine is that the removing defendants bear the burden of showing that the plaintiff has no possibility of recovery against the nondiverse defendant, and that burden is heavy. However, defendants can subtly, but improperly, lessen the burden, or even shift the burden back to the plaintiffs, through a combination of argument and affidavits submitted in either the notice of removal or the response to the plaintiff’s motion to remand. These arguments and affidavits might blur the line between jurisdictional facts and facts relating to the merits of the plaintiff’s claims against the nondiverse defendant; and the court may not notice such impropriety, producing a decision in which the court has improperly “pre-tried” the plaintiff’s claims against the nondiverse defendant.

Furthermore, the federal circuits are split as to significant, and even fundamental, ways of stating and applying the doctrine. The circuits split on the following three issues: (1) scope of inquiry; (2) how the standard “no possibility of recovery” is defined; and, most importantly, (3) whether the fraudulent joinder inquiry is analogized to a narrow jurisdictional inquiry, or to a wider inquiry under Federal Rule of Civil Procedure 12(b)(6). Such doctrinal confusion and difference are grounds for clarifying fraudulent joinder.

Clarifying fraudulent joinder is best achieved by surveying the case law in which the doctrine is defined and applied. This survey and clarification of fraudulent joinder then may be measured against normative policy principles to determine the best fraudulent joinder doctrine, one that is less complex and easier to apply than that which currently holds in many jurisdictions, especially because a complex fraudulent joinder doctrine risks violating the strong federal policies undergirding the doctrine.

At base, this means not forgetting that fraudulent joinder analysis is essentially an issue of subject matter jurisdiction and should not relate to the merits of the plaintiff’s claims. It also means respecting the separation of powers, particularly between the federal courts and Congress, when considering the removal statutes-strong congressional policies to be strictly construed that limit federal jurisdiction and favor remand. It means that the principle of notice pleading, one of the touchstones of the Federal Rules, should be respected, as federal courts should not plumb the merits of plaintiffs’ claims against nondiverse defendants before much, if any, discovery has occurred. It means respecting federalism because, if fraudulent joinder is misunderstood and misapplied, federal courts improperly retain jurisdiction over matters that should be left to the wider jurisdiction of the state courts, as Articles III and VI of the Constitution imply. Finally, it means that extensive judicial resources should not be allocated to discrete questions of subject matter jurisdiction.

More specifically, I propose limiting fraudulent joinder by resolving the circuit split on the topic along the three areas of dispute, favoring a limited scope of inquiry for a doctrine that neither fusses over the precise definition of the plaintiff’s possibility of recovery nor forgets the essentially jurisdictional question before the court.

Part II of this Article consists of two elements: (1) a brief history of the fraudulent joinder doctrine through pronouncements from the Supreme Court and the lower federal courts; and (2) a closer look at the doctrine’s inherent complexity. Then, Part III presents an account of the circuit split on the doctrine structured by the issues on which the circuits disagree: (1) scope of inquiry; (2) applying the “no possibility” standard; and (3) whether the fraudulent joinder inquiry is closer to a jurisdictional or a 12(b)(6) inquiry.

Part IV of this Article analyzes both the doctrine’s complexity and its history of definition and application to propose the best approach to fraudulent joinder, which limits its application on the basis of four arguments: (1) a separation of powers argument derived from the removal statutes; (2) an argument deploying the liberal notice pleading standards animating the Federal Rules of Civil Procedure; (3) a federalism argument based on the federal-state divide as articulated in Articles III and VI of the Constitution; and (4) a judicial economy argument that treats fraudulent joinder as a question merely of subject matter jurisdiction capable of swift, inexpensive resolution. Finally, Part IV proposes the best fraudulent joinder doctrine in light of these policy concerns by indicating how the circuit split should be resolved. Part V concludes the discussion.

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