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Fraudulent Joinder and How to Defeat It In Federal Diversity Cases

Federal courts have diversity jurisdiction over all civil actions where the amount in controversy exceeds $50,000 and the action is between the citizens of different states. 28 U.S.C. § 1332.3 Diversity jurisdiction requires complete diversity; every plaintiff must be diverse from every defendant. Tapscott v. MS Dealer Service Corp., 77 F.3d 1353, 1355 (11th Cir. 1996).

Fraudulent joinder is a judicially created doctrine that provides an exception to the requirement of complete diversity. Joinder is deemed fraudulent in two situations. The first is when there is no possibility that the plaintiff can prove a cause of action against the resident (non-diverse) defendant. Coker v. Amoco Oil Co., 709 F.2d 1433, 1440 (11th Cir.1983). The second is when there is outright fraud in the plaintiff's pleading of jurisdictional facts. Coker, 709 F.2d at 1440.

The “fraudulent joinder” doctrine permits removal when a non-diverse party is (or has been) a defendant in the case. See Poulos v. Naas Foods, Inc., 959 F.2d 69 (7th Cir.1992) (cited in Marshall, 6 F.3d at 233); Triggs v. John Crump Toyota, Inc., 154 F.3d 1284, 1287 (11th Cir. 1998) (noting that “[f]raudulent joinder is a judicially created doctrine that provides an exception to the requirement of complete diversity”). Under this doctrine, a district court can assume jurisdiction over a case even if, inter alia, there are non-diverse named defendants at the time the case is removed. Marshall, 6 F.3d at 232–33; Cobb, 186 F.3d at 677.

This doctrine effectively permits a district court to disregard, for jurisdictional purposes, the citizenship of certain non-diverse defendants, assume jurisdiction over a case, dismiss the non-diverse defendants, and thereby retain jurisdiction. Cobb, 186 F.3d at 677–78. Since the fraudulent joinder doctrine justifies a federal court's initial assumption of diversity jurisdiction, it has no effect once the district court actually possesses jurisdiction—including after the case has been removed. Mayes v. Rapoport, 198 F.3d 457, 461 (4th Cir. 1999).

A claim of fraudulent joinder must be pleaded with particularity, and supported by clear and convincing evidence. Barron and Holtzoff, Federal Practice and Procedure, § 103, p. 478, citing McLeod v. Cities Service Gas Company, 10th Cir. 1956, 233 F.2d 242. That case holds that bad faith in joining a resident defendant for the sole purpose of preventing removal may be shown by any means available but must be proven with certainty (emphasis added). The denial of remand was affirmed as not being clearly erroneous. Parks v. New York Times Co., 308 F.2d 474, 478 (5th Cir. 1962).

In order to establish that a fictitious resident defendant has been fraudulently joined, the removing party must show either that there is no possibility that the plaintiff would be able to establish a cause of action against the resident defendant in state court or that there has been outright fraud in the plaintiff's pleading of jurisdictional facts. Keating v. Shell Chemical Co., 610 F.2d 328 (5th Cir. 1980); Tedder v. F.M.C. Corp., 590 F.2d 115 (5th Cir. 1979); Bobby Jones Garden Apartments v. Suleski, 391 F.2d 172, 177 (5th Cir. 1968); Parks v. New York Times Co., 308 F.2d at 478. Both parties may submit affidavits and deposition transcripts. See B., Inc. v. Miller Brewing Co., 663 F.2d at 549. The district court must evaluate all factual issues and questions of controlling substantive law in favor of the plaintiff. Bobby Jones Garden Apartments, 391 F.2d at 177.

If there is even a possibility that a state court would find that the complaint states a cause of action against any one of the resident defendants, the federal court must find that the joinder was proper and remand the case to the state court. Id.; Parks v. New York Times Co., 308 F.2d at 477–78. The standard for determining when joinder is fraudulent is stated in Parks: “[B]ad faith in the joinder is necessary. The defendant may show bad faith in joinder by proving that the plaintiff stated the facts knowing them to be false, or with enough information within reach so that he should have known them to be false.” Id. at 478.


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