Commercial Litigation and Arbitration

Fraudulent Joinder Standard Is More Deferential to Plaintiff than 12(b)(6) Standard — “Any Reasonable Possibility” vs. “Any Possibility”

From Sanders v. DJO, LLC, 2010 U.S. Dist. LEXIS 89652 (D.N.M. July 7, 2010):

Defendants claiming that fraudulent joinder has occurred bear the burden of establishing that fact. This burden is a heavy one. See, e.g., Schur v. L.A. Weight Loss Centers, Inc., 577 F.3d 752, 764 (7th Cir. 2009); Montano v. Allstate Indemnity, 2000 WL 525592 (10th Cir. unpublished). If there is any reasonable possibility the plaintiff could prevail on any claim against the non-diverse defendant, the joinder is not fraudulent and the case must be remanded. *** In examining the fraudulent-joinder issue, the Court is not limited to the pleadings filed by the parties but may pierce those pleadings and consider the entire record of the case as well as any evidence the parties may choose to submit. See Smoot v. Chicago, R.I. & P.R. Co., 378 F.2d 879, 882 (10th Cir. 1967); see also Badon v. R J R Nabisco Inc., 224 F.3d 382, 393 (5th Cir. 2000) (relying on affidavits to determine fraudulent-joinder issue, and discussing similarity to summary-judgment process).

[Footnote 1] Many courts state the standard not as a "reasonable possibility" but as "any possibility," declaring that remand is required if there is any possibility the plaintiff could prevail against the non-diverse defendant under the facts of the case. See, e.g., Florence v. Crescent Res., LLC, 484 F.3d 1293, 1299 (11th Cir. 2007). Having reviewed a number of cases, the Court finds no meaningful differences in the application of the two standards, merely a difference in phraseology, and the Court believes the slightly more conservative "reasonable possibility" standard more accurately reflects the analysis applied in the cases. It should also be noted this standard applies to claims that the joinder is fraudulent on the merits. Defendants have also raised a different type of fraudulent joinder argument, maintaining the joinder of Lovelace as a Defendant is fraudulent as a matter of fact. Defendants contend Plaintiff has included Lovelace as a Defendant for ulterior motives that have nothing to do with the merits of any claim Plaintiff may have against Lovelace. This type of joinder is not analyzed under the "reasonable possibility" standard because the actual merits of the claims brought are essentially irrelevant to the issue to be decided. ***

It must be noted that the "reasonable possibility" standard is not the same as the failure-to-state-a-claim standard that is applicable under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Instead, the Court must look at the facts present in the case, not simply those alleged in the complaint, and determine whether there is a reasonable possibility that those facts, construed in the light most favorable to the plaintiff, could result in a viable claim against the non-diverse defendant. This standard is more deferential to the plaintiff's alleged claim than is the Rule 12(b)(6) standard. See Schur, supra, 577 F.3d at 764 (citing several cases stating that burden for plaintiff is even more favorable than the motion-to-dismiss standard applied under Rule 12(b)(6)); Hartley v. CSX Transp., Inc., 187 F.3d 422, 424 (4th Cir. 1999); Batoff v. State Farm Ins. Co., 977 F.2d 848, 852 (3d Cir. 1992). Under this standard, it is entirely possible a case should be remanded even though the claims brought against the non-diverse defendant will ultimately be subject to dismissal. See Spataro v. Depuy Orthopaedics, Inc., 2009 WL 382617 (D. N.M. unpublished) (where federal court would have to decide issue of first impression under state law to decide whether plaintiff's claim against non-diverse defendant was viable, court remanded case despite possibility that plaintiff's strict-liability claim might be rejected by the state courts); see also Reeser v. NGK Metals Corp., 247 F.Supp.2d 626, 629 (E.D. Pa. 2003) (fact that claim against party may ultimately be dismissed does not necessarily mean the party was fraudulently joined); cf. Crowe v. Coleman, 113 F.3d 1536, 1541 (11th Cir. 1997) (plaintiff need not show he could defeat summary judgment to gain remand).

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