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Commercial Litigation and Arbitration

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Fraudulent Joinder Requires More Than Mere Failure to State a Claim — Clear Legal Bar Needed — Dismissal Should Be Without Prejudice — Requirements for Case-Ending Sanctions (Third Circuit)

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Hogan v. Raymond Corp., 2013 U.S. App. LEXIS 17282 (3d Cir. Aug. 20, 2013):

We begin with this issue because it implicates the District Court's jurisdiction. See Boyer v. Snap-On Tools Corp., 913 F.2d 108, 110 (3d Cir. 1990). The fraudulent joinder doctrine permits courts to ignore the citizenship of a non-diverse defendant for diversity purposes if the plaintiff's joinder of that defendant is "fraudulent." In re Briscoe, 448 F.3d 201, 216 (3d Cir. 2006). "'Joinder is fraudulent where there is no reasonable basis in fact or colorable ground supporting the claim against the joined defendant[.]'" Id. at 217 (citing Batoff v. State Farm Ins. Co., 977 F.2d 848, 851 (3d Cir. 1992)). The plaintiff's mere failure to state a claim does not satisfy this standard, and the plaintiff's claim must instead be so "wholly insubstantial and frivolous" as to fail to invoke the subject matter jurisdiction of the District Court. Batoff, 977 F.2d at 852 (quotation marks omitted). We review this legal and jurisdictional issue de novo. See Emerald Investors Trust v. Gaunt Parsippany Partners, 492 F.3d 192, 197 (3d Cir. 2007).

In this case, the District Court determined that Hogan's personal injury claims against Giant are barred by the exclusivity provision of Pennsylvania's Workers' Compensation Act, 77 P.S. § 481(a). Hogan does not challenge that conclusion on appeal, and we agree that his personal injury claims against Giant are barred beyond question under Pennsylvania law. See Winterberg v. Transp. Ins. Co., 72 F.3d 318, 322 (3d Cir. 1995) (citing, inter alia, Poyser v. Newman & Co., 514 Pa. 32, 522 A.2d 548, 550-51 (Pa. 1987)). This clear legal bar means that Hogan's claims against Giant are not colorable for purposes of fraudulent joinder. See In re Briscoe, 448 F.3d at 219 (addressing claims barred by statute of limitations); cf. Boyer, 913 F.2d at 111 ("[T]his is not a case where the action . . . is defective as a matter of law."). ***

Hogan's only other argument on this point is that the District Court should not have dismissed his claims against Giant with prejudice. We agree. The fraudulent joinder inquiry is a jurisdictional one and not a merits determination. See Batoff, 977 F.2d at 852. Thus, instead of dismissing Hogan's claims against Giant with prejudice under Rule 12(b)(6), the District Court should have dismissed them for lack of subject matter jurisdiction under Rule 12(b)(1). We will vacate the March 18, 2011 order to that limited extent and remand for the District Court to enter an appropriate order.***

Finally, Hogan challenges the District Court's order dismissing his case. Because dismissal is a drastic sanction, courts generally must first consider the six factors we enumerated in Poulis, which are set forth in the margin.

Footnote 5. The factors are: (1) the party's personal responsibility; (2) prejudice to the opposing party; (3) a history of dilatoriness; (4) the party's willfulness or bad faith; (5) the effectiveness of alternative sanctions; and (6) the merits. See Poulis, 747 F.2d at 868-70. The District Court did not specify whether its dismissal was under Rule 37(b) or Rule 41(b), but Poulis generally applies in either case. See Knoll v. City of Allentown, 707 F.3d 406, 409 (3d Cir. 2013).

The District Court did not expressly consider those factors. We have recognized situations, however, in which a District Court can dismiss an action without expressly considering the Poulis factors when confronted with a litigant's outright refusal to proceed as the District Court directs. See, e.g., Doe v. Megless, 654 F.3d 404, 411 (3d Cir. 2011); Spain v. Gallegos, 26 F.3d 439, 454-55 (3d Cir. 1994). We have also recognized that "Poulis did not provide a magic formula," that "not all of the Poulis factors need be satisfied in order to dismiss a complaint," and that the decision to dismiss ultimately "must be made in the context of the district court's extended contact with the litigant." Mindek v. Rigatti, 964 F.2d 1369, 1373 (3d Cir. 1992). For that reason, we give the District Court's decision "great deference" and review it only for abuse of discretion. Id. Having reviewed the entire record, we cannot say that the District Court abused its discretion in this case.

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New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.
New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.

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