Commercial Litigation and Arbitration

Fraudulent Joinder — Standards — Fifth Circuit

From Gipson v. Wal-Mart Stores, Inc., 2008 U.S. Dist. LEXIS 88928 (S.D. Tex. Nov. 3, 2008):

[Footnote] 2 "Fraudulent joinder" does not require a showing that the plaintiff had an intent to deceive or knew that the facts alleged were false. [Citation omitted; end of footnote.]

The burden of persuasion on those who claim fraudulent joinder is a heavy one.... To establish that a nondiverse defendant has been improperly joined for the purpose of defeating diversity jurisdiction, the remaining party must prove either that there has been actual fraud in the pleading of jurisdictional facts or that there is no reasonable possibility that the plaintiff will be able to establish a cause of action against that party in state court. .... The second approach focuses on whether plaintiff has asserted a valid state-law cause of action against the nondiverse defendant.... The test is whether "there is no reasonable basis for the district court to predict that the plaintiff might be able to recover against an in-state defendant." ... In determining whether there is a reasonable basis for the plaintiff to recover against a defendant under state law, a court conducts "a Rule 12(b)(6)-type analysis, looking initially at the allegations of the complaint to determine whether the complaint states a claim under state law against the in-state defendant." [Citing Twombly in a footnote]... "If the plaintiff can survive a Rule 12(b)(6) challenge, there [generally] is no improper joinder." ... There are cases in which a summary inquiry is appropriate to "identify the presence of discrete and undisputed facts that would preclude plaintiff's recovery against the in-state defendant." ... Limited discovery may be appropriately used in determining improper joinder, particularly when the discovery forms the basis for the removal.... But ... "[a]ttempting to proceed beyond this summary process carries a heavy risk of moving the court beyond jurisdiction and into a resolution of the merits, as distinguished from an analysis of the court's diversity jurisdiction by a simple and quick exposure of the chances of the claim against the in-state defendant alleged to be improperly joined." In the present case, the pleadings provide the basis for determining the propriety of removal. If the record reveals a reasonable basis of recovery on one cause of action, the court must remand the entire suit to state court....

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