Should the Eighth Circuit recognize procedural misjoinder?

AuthorParsons, Ronald A., Jr.
  1. INTRODUCTION

    In the Eighth Circuit and elsewhere, traditional fraudulent joinder occurs when a plaintiff sues a diverse defendant in state court and joins a nondiverse defendant even though the plaintiff has no reasonable basis for a claim against the nondiverse defendant. (1) For example, consider a situation in which a plaintiff brings an action for breach of contract in state court against an out-of-state insurance company and, for the sole purpose of defeating diversity jurisdiction, joins a state resident, such as his local insurance agent, against whom the plaintiff has no true claim. (2) In such circumstances, the insurance agent is said to have been fraudulently joined, and the insurance company may remove the action on diversity grounds and seek to have the unviable claim against the jurisdictional spoiler (the agent) dismissed in order to preserve jurisdiction.

    Conversely, procedural or fraudulent misjoinder typically occurs when a plaintiff sues a diverse defendant in state court and joins a nondiverse defendant against which the plaintiff has a reasonable basis for a claim, but that claim has little or nothing to do with the plaintiff's claim against the diverse defendant. (3) Imagine, for example, a plaintiff who brings a common law action for product liability in state court against a nonresident manufacturer and in the same action joins a valid--but completely unrelated--state law claim for the collection of a debt against his next-door neighbor, a resident of the forum state. Prior to an amendment to the removal statute passed by Congress in 1990, the joined defendants would have been authorized to immediately remove the case to federal court on the basis of diversity jurisdiction and ask the district court to sever the unrelated claims. (4) Following the congressional amendment, some defendants in such circumstances found themselves, to their presumably undying annoyance, joined at the hip with what they believed to be an unrelated claim against another defendant and deprived of a previously available express procedural mechanism in federal court for separating the state law claims, so as to support diversity jurisdiction over the action.

    To address this situation, many courts, led by the Eleventh Circuit in Tapscott v. MS Dealer Service Corp., (5) have relied upon a judicially created solution known as "procedural misjoinder" or "fraudulent misjoinder." (6) Under this emerging and somewhat controversial doctrine, as articulated in Tapscott, a federal district court remains empowered to separate misjoined state law claims while keeping the claim with diversity and remanding the other, if it concludes that the plaintiff's attempt to join them in a single action was "so egregious as to constitute fraudulent joinder." (7)

    This article respectfully suggests that if the Eighth Circuit is ever presented with the question, it should be inclined to resist the temptation to adopt the judicially expedient doctrine of procedural misjoinder. (8) Rather, the Eighth Circuit should consider the intent of Congress in eliminating such claims from those authorized to be removed under diversity jurisdiction and instead rely upon the state court in which the action was originally filed to separate unrelated state claims. Once unrelated state law claims have been unlinked in the state proceedings, a diverse defendant, shed of the jurisdictional spoiler, may then seek to remove the action to federal court on diversity grounds.

  2. REMOVAL OF A STATE ACTION TO FEDERAL COURT ON THE BASIS OF DIVERSITY JURISDICTION

    "Federal courts are courts of limited jurisdiction." (9) Federal district courts are authorized to assume jurisdiction over a case only if granted authority by both Article III of the United States Constitution and an authorizing federal statute. (10) As the United States Supreme Court has explained, "[j]urisdiction of the lower federal courts is further limited to those subjects encompassed within a statutory grant of jurisdiction." (11) Pursuant to statute, the federal courts have jurisdiction over cases arising under federal law (12) or cases based upon diversity of citizenship. (13)

    Generally, a defendant may remove a state court action to federal court only where the federal court would have original jurisdiction over the case. (14) In resolving a motion to remand, courts typically may not consider a ground for removal that was not stated in the defendant's notice of removal. (15) Once a case has been removed, the plaintiff may make a motion to remand the case to state court. (16) Upon such a motion, or at any time, if "it appears that the district court lacks subject matter jurisdiction, the case shall be remanded" to the state court from which it was removed. (17) As the Supreme Court has made clear, removal statutes are to be strictly construed in favor of state court jurisdiction. (18) Significantly, a district court's order remanding a case to state court for lack of subject matter jurisdiction may not be appealed. (19)

    As a necessary element of diversity jurisdiction, the citizenship of each plaintiff must be diverse from the citizenship of each defendant. (20) In addition, Congress has chosen to make a district court's diversity jurisdiction on removal narrower than it is with cases originally filed in district court. (21) For cases originally filed in federal court, the citizenship element of diversity jurisdiction simply requires that the parties be citizens of different states, regardless of their relation to the forum state. (22) Pursuant to section 1441(b), however, an action filed in state court may only be removed on the basis of diversity jurisdiction if "none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought." (23) As Chief Judge Arnold succinctly explained in a case in which a defendant from Missouri attempted to remove an action filed in Missouri state court to federal court on the basis of diversity jurisdiction,

    Title 28 U.S.C. [section] 1441(b) makes diversity jurisdiction in removal cases narrower than if the case were originally filed in federal court by the plaintiff. A defendant may not remove to federal court on the basis of diversity if any of the defendants is a citizen of the state where the action was filed. As we have stated, defendant Rose is a citizen of Missouri. The fact that [plaintiff) Irene Hurt could have invoked the original jurisdiction of the federal court initially is irrelevant. She did not. The jurisdiction of the lower federal courts, both original and removal, is entirely a creature of statute. If one of the statutory requirements is not met, the district court has no jurisdiction. (24) Thus, a defendant may not remove a state court action to federal court on the basis of diversity jurisdiction unless there is: (1) complete diversity between the parties and (2) no defendant is a resident of the forum state.

  3. THE TRADITIONAL DOCTRINE OF FRAUDULENT JOINDER

    As the Eighth Circuit has explained, where the plaintiff has joined a forum resident or otherwise nondiverse party as a defendant in a state action, a removing party may avoid a remand "only by demonstrating that the additional party was fraudulently joined." (25) As it has been traditionally understood, fraudulent joinder is "the filing of a frivolous or otherwise illegitimate claim against a non-diverse defendant solely to prevent removal[.]" (26) The term "fraudulent joinder" is somewhat deceptive because, as the courts have explained, "[a] party does not need to demonstrate fraudulent intent on the part of the plaintiff in order to prove fraudulent joinder." (27) Rather, to establish fraudulent joinder a party must demonstrate "the absence of any possibility that the opposing party has stated a claim under state law." (28)

    The Eighth Circuit recently clarified the governing standard for determining fraudulent joinder. (29) In Filla v. Norfolk Southern Railway Co., (30) the Eighth Circuit held that "despite the semantical differences" between various articulations of the standard among the courts, the "common thread" between them was "reason." (31) In order to determine whether a defendant has been fraudulently joined, the district court must simply determine "whether there is arguably a reasonable basis for predicting that the state law might impose liability" against the nondiverse defendant. (32) In other words, "if there is a 'colorable' cause of action--that is, if the state law might impose liability on the resident defendant under the facts alleged-then there is no fraudulent joinder." (33) In contrast, "[w]here applicable state precedent precludes the existence of a cause of action against a defendant, joinder is fraudulent.'" (34) Put yet another way, "joinder is fraudulent ... when there exists no reasonable basis in fact and law supporting a claim against the resident defendants." (35) However, "if there is a reasonable basis in fact and law supporting the claim, the joinder is not fraudulent." (36)

    Both the United States Supreme Court and the Eighth Circuit have held that fraudulent joinder is to be determined "on the face of plaintiffs state court pleadings." (37) Thus, "[t]he right of removal is generally determined from the record and the status of the pleadings at the time the petition for removal is filed." (38) The burden of proving fraudulent joinder is on the removing party opposing remand. (39) Unless a defendant was fraudulently joined under the standard established by the Eighth Circuit, district courts lack subject matter jurisdiction and the case must be remanded to state court. (40) The Eighth Circuit has further cautioned that "where the sufficiency of the complaint against the non-diverse defendant is questionable, 'the better practice is for the federal court not to decide the doubtful question in connection with a motion to remand but simply to remand the case and leave the question...

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