§ 12.21 Removal - Fraudulent Joinder

• Library: Guide to South Carolina Liability and Property Insurance Law (SCBar) (2019 Ed.)

§ 12.21 Removal - Fraudulent Joinder

While the general rule provides that there must be complete diversity to remove an action to federal court, there is an exception to this general rule. In some instances the plaintiff may name a defendant from the plaintiff's home state in order to defeat the defendant's ability to remove an action from state court to federal court. The fraudulent joinder doctrine is intended to prevent this type of conduct from infringing on the right of the defendant to remove a case that would otherwise be removable. "'The fraudulent joinder doctrine permits removal when a non-diverse party is (or has been) a defendant in the case.'"¹⁴⁶

The Fourth Circuit Court of Appeals has stated that "'[t]o show fraudulent joinder, the removing party must demonstrate either (1) outright fraud in the plaintiff's pleading of jurisdictional facts or (2) that there is no possibility that the plaintiff would be able to establish a cause of action against the in-state defendant in state court.'"¹⁴⁷ "'The party alleging fraudulent joinder bears a heavy burden - it must show that the plaintiff cannot establish a claim even after resolving all issues of law and fact in the plaintiff's favor.'"¹⁴⁸ Further, "[t]he plaintiff need not establish that he will ultimately succeed on his claims; '[t]here need be only a slight possibility of a right to relief.'"¹⁴⁹ To determine whether a pleading is fraudulent, "the Court is not bound by the allegations of the pleadings, but instead it may consider the entire record and may resolve the issue by any means available."¹⁵⁰ "Additionally, the Fourth Circuit has held a defendant's burden when alleging fraudulent joinder exceeds the burden for dismissal based on Fed. R. Civ. P. 12(b) (6)," and "[i]n contrast, all the plaintiff must show is a 'glimmer of hope' for recovery" or "'a slight possibility of relief' in state court to counter a defendant's alleged fraudulent joinder."¹⁵¹

Often the issue of fraudulent joinder arises when the plaintiff insured joins an in-state adjuster to the lawsuit with the insurance company. The federal district court addressed such an issue in Price v. Allstate Insurance Co.¹⁵² and determined that the insurer failed to meet the high burden of demonstrating that the adjuster had been fraudulently joined. In arriving at this determination, the court explained that the allegations of the complaint against the in-house insurance adjuster provided a "glimmer of hope" of recovery to the insured...