After pleadings were amended in a decade-old class action pending in Louisiana State Court, one of the defendants removed based on traditional diversity and CAFA. Declining to revisit CAFA jurisdiction under the Law of the Case Doctrine, the U.S. Fifth Circuit remanded the action to State Court, rejecting the notion of “fraudulent misjoinder”:
“The district court purported to apply our established improper joinder doctrine – namely, that a defendant is improperly joined if there is no possibility of recovery against it – but its reasoning and conclusions cannot be squared with this circuit’s improper joinder jurisprudence. Rather, the district court functionally applied the fraudulent misjoinder doctrine, which we have never adopted and do not adopt now…..
“First, and most importantly, §1441(b)(2) does not provide a textual basis for expanding federal jurisdiction to include fraudulent misjoinder, nor is there any other statutory authority (or case law interpreting statutory authority in this context) that does so…. Indeed, Homeland’s requested expansion would invite district courts to evaluate procedural questions regarding misjoinder that are better resolved in state courts prior to removal. Put another way, if there is a possibility of recovery against both defendants but one defendant believes the case should be severed, there is nothing to prevent seeking that severance in state court. If it is granted, then the removal would be straightforward; if not, then clearly not appropriate.
“Second, expanding this circuit’s improper joinder jurisprudence to include fraudulent misjoinder is foreclosed by precedent. Our court has gone en banc twice on precisely what is needed to remove a case from state to federal court on the basis of diversity jurisdiction notwithstanding a lack of complete diversity between the parties. As articulated above, our established approach is straightforward. Our case law emphasizes substantive viability – not procedural questions like party joinder. We have never held that a defendant can remove a case based on party joinder issues in state court. Indeed, we have directed that any viable cause of action against a diversity-destroying party requires the entire case to be remanded: ‘the existence of even a single valid cause of action against in-state defendants (despite the pleading of several unavailing claims) requires remand of the entire case to state court.’
“The severance mechanism for omitting a non-diverse defendant also upends our rules on removal. Our precedent makes clear that we look at jurisdiction at the time of removal, not after a federal court severance….
“Moreover, the fraudulent misjoinder doctrine poses a challenging question as to the correct source of misjoinder law – Federal or State.
“Declining to adopt the fraudulent misjoinder doctrine as a basis for exercising diversity jurisdiction and holding that misjoinder issues should be addressed in state court prior to removal also brings greater clarity to the line between removable and non-removable cases. A defendant would have a clear framework for determining the removability of a case involving plausible but potentially misjoined claims between non-diverse parties. The defendant would move to sever those claims on misjoinder grounds before removal, and either the state court grants the motion and the case becomes removable or it denies the motion and the case remains non-removable.”
Assigning additional reasons, Judge Ho calls into question the entire Fraudulent Joinder Doctrine: “these precedents are not based on statutory text – as both our circuit and our sister circuits have observed. A number of our colleagues have criticized the improper joinder doctrine for conflicting with statutory text – not to mention basic principles of federalism – calling it a legal rule fashioned entirely from judges’ imaginations, forcing federal courts to exercise jurisdiction where none exists over questions of state law that the state courts are better suited to address themselves. These critics have acknowledged, of course, that the doctrine is well-established. Like other well-established doctrines, though, fraudulent joinder suffers from a common problem – courts rarely stop and think about whether the doctrine makes sense. A closer look at fraudulent joinder reveals a doctrine resting on a rickety foundation, for it is unclear where federal courts get the authority to decide whether a defendant has been fraudulently joined. The better course is for the court to remand the case and allow the state court to dismiss the claims against the non-diverse defendants if those claims truly present no hope of success. Once the state court dismisses the non-diverse defendants from the case, the remaining diverse defendants would have thirty days to file a notice of removal under 28 U.S.C. §1446(b). As a panel, we are of course bound to follow our circuit precedent…. But our precedent has applied the improper joinder doctrine only in cases where a defendant was improperly joined as a matter of substantive law. None of our precedents involved a defendant who was improperly joined as a matter of procedure, as is the case here. I see no reason why we should be compelled to extend our erroneous precedents to fit this case. This is not a case, after all, in which logic demands that we extend an atextual body of precedent in order to preserve rationality or consistency in the law. Moreover, courts often distinguish between matters of substance and procedure. And there is good reason to draw such a distinction here: It is one thing to invoke improper joinder to dismiss claims that are destined to fail on the merits in any event – it is quite another to invoke improper joinder to dismiss claims that could very well be meritorious. We should decide every case by adhering to the governing legal text to the maximum extent permitted by a faithful reading of binding precedent. That is what the majority does today. I accordingly concur.”
Williams v. Homeland Insurance Company, No.20-30196, 2021 WL 5577020 (5th Cir. Nov. 30, 2021).