Defining the contours of the emerging fraudulent misjoinder doctrine.

• Author: Percy, E. Farish

1. INTRODUCTION II. THE TRADITIONAL FRAUDULENT JOINDER DOCTRINE III. DEVELOPMENT OF THE FRAUDULENT MISJOINDER DOCTRINE IV. NECESSITY OF THE FRAUDULENT MISJOINDER DOCTRINE V. UNRESOLVED ISSUES A. Federal Versus State Procedural Rules 1. Reasonable Joinder Under State Rules Cannot be Fraudulent 2. Statutory Language Suggests State Joinder Rules Control 3. Application of the Federal Joinder Rule Violates Rule 82 of the Federal Rules of Civil Procedure 4. The District Courts' Rationales for Applying the Federal Rule are Misguided 5. The Use of State Joinder Rules Is Supported by Legislative History B. Application of the Doctrine to Misjoined Plaintiffs C. Defining Fraudulent Misjoinder 1. "Egregious Misjoinder" Standard 2. "Mere Misjoinder" Standard 3. "Reasonable Basis for the Joinder" Standard D. The Appropriate Response: Dismissal Versus Remand VI. CONCLUSION I. INTRODUCTION

   Over the past decade, procedural misjoinder has emerged as a new and distinct type of fraudulent joinder (1) and has given rise to removal jurisdiction in numerous complex civil cases, including many mass tort and multi-district litigation cases. (2) As plaintiffs, who generally prefer to litigate in state court, and defendants, who generally prefer to litigate in federal court, (3) continue to fight forum selection battles with increasing intensity, (4) the emerging fraudulent misjoinder doctrine may prove to be a vital tool for defendants who desire to litigate in federal court.

   Removal based on general diversity jurisdiction is proper only when there is both complete diversity among the parties (5) and there is no properly joined and served in-state defendant. (6) Thus, plaintiffs desiring to litigate in state court may defeat removal jurisdiction by joining a non-diverse or in-state defendant. (7) Traditional fraudulent joinder occurs when a plaintiff sues a diverse defendant in state court and joins a non-diverse or in-state defendant, the jurisdictional spoiler, (8) even though the plaintiff has no reasonable basis for the claim against the spoiler. (9) The diverse defendant may then remove the case to federal court even though the case lacks complete diversity. The federal court will ignore the citizenship of the fraudulently joined defendant, assume jurisdiction over the case, and dismiss the claims against the spoiler. (10)

   Fraudulent misjoinder occurs when a plaintiff sues a diverse defendant in state court and joins a non-diverse or in-state defendant even though the plaintiff has no reasonable procedural basis to join such defendants in one action. (11) While the traditional fraudulent joinder doctrine inquires into the substantive factual or legal basis for the plaintiff's claim against the jurisdictional spoiler, the fraudulent misjoinder doctrine inquires into the procedural basis for the plaintiff's joinder of the spoiler. Most state joinder rules are modeled after the federal joinder rule that authorizes permissive joinder of parties when the claims brought by or against them arise "out of the same transaction, occurrence, or series of transactions or occurrences" and give rise to a common question of law or fact. (12) Thus, in a case where the joined claims are totally unrelated, a federal district court may find removal jurisdiction pursuant to the fraudulent misjoinder doctrine even though the plaintiff has a reasonable substantive basis for the claim against the jurisdictional spoiler.

   For example, suppose Ann, a New York citizen, has a colorable fraud claim for more than $75,000 against Smith Motors, a New Jersey corporation, arising from Smith Motors's sale of an automobile to Ann. Suppose that Ann also has a colorable fraud claim against Best Bargains, a New York corporation, arising from Best Bargains's sale of a television to Ann. (13) Further, assume Smith Motors's sale of the automobile was completely unrelated to Best Bargains's sale of the television. Ann should not be able to defeat removal jurisdiction by joining her claim against Smith Motors with her claim against Best Bargains in the same civil action in state court. If Ann joins the unrelated claims in state court, Smith Motors, the diverse defendant, could remove the case to the appropriate district court pursuant to the fraudulent misjoinder doctrine. The district court could then sever the misjoined claims, retain jurisdiction over the claim against Smith Motors, and remand the claim against Best Bargains to state court.

   Although the fraudulent misjoinder doctrine may be necessary to protect a defendant's statutory right to remove a civil case from state to federal court based on diversity jurisdiction, the few appellate opinions that have discussed this new doctrine have provided little guidance concerning its application. (14) The Eleventh Circuit first found fraudulent misjoinder a decade ago in Tapscott v. MS Dealer Service Corp. (15) As commentators have noted, parts of the Tapscott opinion, particularly the court's holding that only "egregious" misjoinder constitutes fraudulent misjoinder, are rather cryptic and have produced a great deal of ambiguity concerning the contours of the fraudulent misjoinder doctrine. (16)

   In the wake of Tapscott, district courts have been forced to resolve many questions concerning the application of the new doctrine; unfortunately, they have failed to establish a coherent, uniform framework. For example, at least two district courts have rejected the doctrine entirely. (17) Of the courts that have accepted it, many have adopted the Eleventh Circuit's position that only egregious misjoinder constitutes fraudulent misjoinder, (18) while others have held that mere misjoinder gives rise to removal jurisdiction. (19) Courts have also split on the issue of whether the federal or state joinder rule controls; some have referred to the state joinder rule, while others have referred to the federal joinder rule. (20) There also appears to be some uncertainty whether the doctrine is equally applicable to the misjoinder of plaintiffs and defendants. (21) Additionally, the responses to fraudulent misjoinder differ. Some courts have remanded the misjoined claims over which they cannot exercise diversity jurisdiction, while other courts have dismissed such claims despite lacking jurisdiction over them. (22) Thus, at a time when an increasing number of defendants are removing complex civil cases based on allegations of fraudulent misjoinder, (23) the doctrine giving rise to such removal lacks clarity and is applied inconsistently by the district courts.

   In addition to the current lack of clarity and uniformity concerning the doctrine's application, some courts have framed the fraudulent misjoinder doctrine in a manner that raises serious federalism concerns. (24) For instance, courts that analyze allegations of fraudulent misjoinder by referring to the federal joinder rule rather than the state joinder rule arguably intrude upon the States' authority to govern state court procedure. (25) In addition, courts that authorize removal based on mere misjoinder rather than egregious misjoinder may inappropriately resolve novel or ambiguous issues of state procedural law in cases that lack complete diversity. (26) Finally, when federal courts dismiss misjoined claims between non-diverse parties, rather than remanding them to state court, they do so without jurisdiction over the misjoined claims. (27) For these reasons, it is imperative that appellate courts carefully review and refine the emerging doctrine, not only to clarify the existing uncertainty and create uniformity, but also to ensure that federal district courts do not overstep the bounds of their limited statutory jurisdiction and intrude upon the "judicial 'turf' of the state courts." (28)

   This Article examines the emerging fraudulent misjoinder doctrine in an attempt to more clearly define and articulate its contours. Part II reviews the development of the traditional fraudulent joinder doctrine for the purpose of determining how it might inform the evolving fraudulent misjoinder doctrine. Part III examines Tapscott and the appellate court opinions that cite Tapscott and discuss the emerging doctrine. Part IV analyzes whether the new doctrine is necessary given the additional complexity and increased litigation it has already created and will likely continue to create. Following the fourth Part's conclusion that the doctrine is necessary to protect a diverse defendant's statutory right to remove, Part V addresses many of the issues raised by the doctrine's application. First, it considers whether state or federal joinder rules should be used to determine when a jurisdictional spoiler has been fraudulently misjoined and concludes that state rules must be used. Second, Part V demonstrates that the doctrine should be applied to the procedural misjoinder of non-diverse plaintiffs as well as defendants. Third, it surveys the various definitional tests used by district courts when applying the new doctrine and suggests that the emerging fraudulent misjoinder doctrine should mimic the traditional fraudulent joinder doctrine: Courts should find fraudulent misjoinder only when the plaintiff has no reasonable basis under state procedural law for joining the jurisdictional spoiler. Finally, Part V argues that federal district courts should remand, rather than dismiss, misjoined claims.

2. THE TRADITIONAL FRAUDULENT JOINDER DOCTRINE (29)

   For more than a century, plaintiffs have attempted to defeat removal jurisdiction based on diversity by joining a non-diverse or in-state defendant. (30) In response to plaintiffs' "attempts to wrongfully deprive parties entitled to sue in the Federal courts of the protection of their rights in those tribunals," (31) the Supreme Court developed the fraudulent joinder doctrine. (32) The emerging fraudulent misjoinder doctrine is based upon the same proposition as the traditional fraudulent joinder doctrine: Courts should not permit plaintiffs...