Posted on: 7/10/2012
Sarah Elizabeth Deskins, Greenberg Traurig
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As defense counsel, it can be particularly frustrating when it appears that a plaintiff has named a party in a lawsuit solely to destroy diversity and prevent the case from being removed to federal court. This is especially true when the basis of plaintiff’s state court complaint primarily involves allegations against other defendants that are already involved in multidistrict litigation (MDL) consolidated in federal district court. Unless defense counsel can remove the case to federal court, the case will not be included in the coordinated MDL proceedings and the defendants will be forced to litigate the same issues in multiple jurisdictions. This scenario brings with it the threat of inconsistent rulings and accelerated state court dockets. One tool defense counsel has available to it in this situation is the doctrine of fraudulent joinder.
A fraudulently joined party cannot defeat a court’s subject matter jurisdiction; thus, if the defendant can show that the doctrine of fraudulent joinder should apply, the case may be removed to federal court despite the presence of the nondiverse party. The test for whether a party has been fraudulently joined is difficult to meet (generally the burden is on the removing party to show fraudulent joinder by clear and convincing evidence). In order to establish fraudulent joinder, the removing party must show that there is no possibility that the plaintiff will be able to establish a cause of action against the nondiverse defendant in state court or that there has been outright fraud in the plaintiff’s pleadings of jurisdictional facts.
Recently, defendants have paired the doctrine of fraudulent joinder with motions to dismiss, asserting that the plaintiffs failed to meet the pleading requirements of Federal Rule of Civil Procedure 8(a). See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009). This article briefly examines one case that successfully argued fraudulent joinder by asserting that the plaintiffs failed to meet the pleading standard articulated in Twombly and Iqbal.
In Beavers v. DePuy Orthopaedics, Inc., 1:11 DP 20275, 2012 WL 1945603 (N.D. Ohio May 30, 2012), the plaintiffs filed a complaint in Kentucky state court naming DePuy Orthopaedics, Inc.; DePuy, Inc.; Johnson & Johnson, Inc.; Johnson & Johnson Services, Inc. (referred to as the DePuy defendants); and Orthopaedic Partners, LLC. The DePuy Defendants removed the case on the basis of fraudulent joinder to the Western District of Kentucky without the consent of defendant Orthopaedic Partners. Id. at *1. The DePuy Defendants moved to stay all state court proceedings pending transfer of the action to MDL 2197 (In re DePuy Orthopaedics Inc. ASR Hip Implant Products Liability Litigation) and the plaintiffs subsequently filed their motion to remand to state court. The JPML transferred the case from the Western District of Kentucky to the MDL pending in the Northern District of Ohio. Id.
The issue before the Northern District of Ohio was whether the case should be remanded back to state court. The plaintiffs argued that defendant Orthopaedic Partners is a Kentucky resident (like plaintiffs) and destroys diversity jurisdiction because the plaintiffs have asserted a colorable claim against that defendant. Id. at *2. Defendants argued that removal is appropriate because there is no viable claim against defendant Orthopaedic Partners (in other words, defendant Orthopaedic Partners had been fraudulently joined). Defendants also argued that the plaintiffs failed to meet the pleading standard articulated in Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) and adopted by the Sixth Circuit in Ass’n of Cleveland Fire Fighters v. City of Cleveland, Ohio, 502 F.3d 545, 548 (6th Cir. 2007).
The Northern District of Ohio looked to the characterization of and factual allegations against defendant Orthopaedic Partners, LLC that the plaintiffs’ asserted in their complaint. The court noted that the complaint referred to all defendants collectively and defendant Orthopaedic Partners was only mentioned twice throughout the 89-paragraph complaint. Id. at *4. The court found that “the allegations against Orthopaedic Partners, LLC  fall well below the threshold required to meet the plausibility standard required under Twombly . . . . Plaintiffs’ allegations fail to distinguish between the DePuy Defendants’ allegedly wrongful acts and those of Orthopaedic Partners, LLC.” Id. at *5. The court went on to find, “[a]ssuming the facts as alleged against Orthopaedic Partners, LLC to be true, without a modicum of additional facts, the plaintiff has failed to establish a colorable basis for liability.” Id. The court explained that “the lack of factual allegations regarding Orthopaedic Partners, LLC, provides no more than labels and conclusions insufficient to sustain viability of the legal claims.” Id. Thus, “the court finds Orthopaedic Partners, LLC to be fraudulently joined . . .” Id.
Beavers is an example of creative defense counsel successfully employing the doctrine of fraudulent joinder through the lens of a Rule 8 pleading challenge. While the standard for fraudulent joinder is stringent, it may prove to be more successful if it is able to be paired with a challenge to the pleading itself. This is good news for defendants facing multidistrict litigation and simultaneous state court suits. Defense counsel should be on the lookout for complaints that assert vague claims against nondiverse defendants and/or complaints that lump all the defendants together and merely assert collective claims without specifying the involvement of the nondiverse defendant. These cases may be the perfect opportunity for a successful fraudulent joinder/Rule 8 challenge.
Sara Deskins is an associate in Greenberg Traurig LLP’s Atlanta office. Her practice focuses on complex product liability litigation, with an emphasis on pharmaceutical and medical device litigation. Ms. Deskins can be reached at email@example.com or (678) 553-7377.