United States: Fraudulent Joinder & Bad Faith – Explaining Another Removal Muddle

Last Updated: July 21 2016
Article by James Beck

Here's some more inside baseball on grounds for removing cases from state to federal court.  In brief, the issue is this: does the "bad faith" standard added to the removal statute (28 U.S.C. §1446(c)(1)) in 2011 approximate the fraudulent joinder standard so that fraudulent joinder becomes a form of "bad faith" not subject to the one-year limit otherwise imposed on removals by reason of diversity of citizenship?  Fraudulent joinder is also an exception the "voluntary/involuntary" rule.  E.g., Crockett v. R.J. Reynolds Tobacco Co., 436 F.3d 529, 532 (5th Cir. 2006); Mayes v. Rapoport, 198 F.3d 457, 461 n.8 (4th Cir. 1999); Insinga v. LaBella, 845 F.2d 249, 254 (11th Cir. 1988).

We wish to acknowledge the assistance of Emily Kimmelman, a Reed Smith 2016 summer associate, in compiling the research for this post.

In 2011 (effective January 6, 2012), Congress passed the Federal Courts Jurisdiction & Venue Clarification Act (the "JVCA").  The JVCA did a number of things, which we discussed here (back then (in 2011), we were most interested in Congress having left intact the statutory language that allows removal before service).  What we're discussing today is the JVCA's creation of a "bad faith" exception in 28 U.S.C. §1446(c)(1).  Specifically, §1446(c)(1) provides for diversity jurisdiction removal, even after one year if "the district court finds that the plaintiff has acted in bad faith in order to prevent a defendant from removing the action."

Nothing is certain, except the controversy over how the bad faith exception interacts with the fraudulent joinder exception to the voluntary-involuntary rule.  Everybody knows the standard for fraudulent joinder.  It exists where "there is no reasonable basis in fact or colorable ground supporting the claim against the joined defendant, or no real intention in good faith to prosecute the action against the defendants or seek a joint judgment."  In re Briscoe, 448 F.3d 201, 217 (3d Cir. 2006).

The "voluntary-involuntary" rule is somewhat less well-known, so we'll explain it.  Basically, whenever a plaintiff does something (most obviously, a voluntary dismissal) that eliminates the non-diverse defendant(s), the resulting voluntary creation of complete diversity means that the remaining diverse defendant(s) can remove.  E.g., Self v. General Motors Corp., 588 F.2d 655, 657 (9th Cir. 1978). Conversely, if a plaintiff is forced to dismiss a non-diverse defendant (most obviously, by grant of a defense motion to dismiss), that's "involuntary" as to that plaintiff, and the remaining defendants – even though all diverse – still can't remove. Id.

Combining these aspects, under prior law plaintiffs who wanted to avoid removal (basically, all of them) would wait and not voluntarily dismiss non-diverse defendants until more than one year had passed after the action first commenced.  Before the JVCA, and the bad faith exception, that one-year mark was essentially all she wrote, as defendants had no further opportunity to seek diversity-based removal.  But the 2011 bad faith exception means defendants might now be able to invoke the fraudulent joinder defense to the voluntary-involuntary rule and obtain removal after more than a year.

That's because the "no intention" language used by most courts to define fraudulent concealment overlaps extensively with what is normally considered bad faith. Indeed, the Supreme Court, when it first recognized the concept of fraudulent joinder over a century ago, invoked "bad faith" explicitly:

So, when in such a case a resident defendant is joined with the nonresident, the joinder, even although fair upon its face, may be shown by a petition for removal to be only a fraudulent device to prevent a removal; but the showing must consist of a statement of facts rightly engendering that conclusion.  Merely to traverse the allegations upon which the liability of the resident defendant is rested, or to apply the epithet 'fraudulent' to the joinder, will not suffice: the showing must be such as compels the conclusion that the joinder is without right and made in bad faith.

Chesapeake & Ohio Railroad Co. v. Cockrell, 232 U.S. 146, 152 (1914).  Since "bad faith" can be any "intentional conduct to deny the defendant the chance to remove," Hiser v. Seay, 2014 WL 6885433, at *4 (W.D. Ky. Dec. 5, 2014), it can be (and has been) argued that fraudulent joinder (given the "no real intention" standard) is now also a subset of "bad faith" under §1446(c)(1).

And so some courts have held − equating the substantive standard of bad faith with the fraudulent joinder standard.

The defendants with the diverse citizenship, who want to remove, may not be entirely helpless.  If they can produce evidence to convince the court that the nondiverse defendant can in no way be liable under the applicable substantive law as applied to the facts as pleaded, they might convince the court to apply the so-called "fraudulent joinder" doctrine.  Under that doctrine, the citizenship of a person against whom the plaintiff has no genuine claim-a person whom the plaintiff has joined in what in effect is bad faith-can be ignored.

Taylor v. King, 2012 WL 3257528, at *4 (W.D. Ky. Aug. 8, 2012) (quoting and following Comments to 28 U.S.C.A. § 1446).

The Court concludes that the addition of the bad-faith exception to the one-year limitation clarifies that the one-year limitation is procedural, rather than jurisdictional, and, thus, extends the applicability of fraudulent joinder doctrine past the one-year mark. Thus, defendants may remove a case on fraudulent joinder grounds even after it has been pending in state court for more than one year.

De La Rosa v. Reliable, Inc., 113 F. Supp.3d 1135, 1164 (D.N.M. 2015) (quoting Aguayo v. AMCO Insurance Co., 59 F. Supp.3d 1225, 1256 (D.N.M. 2014)); McDaniel v. Loya, 304 F.R.D. 617, 631 (D.N.M. 2015) (same quotation).  Thus, in jurisdictions that equate bad faith and fraudulent joinder, the 2011 amendment effectively extended the availability of the fraudulent joinder defense past defendants' one year time limit to file for removal – allowing use of plaintiffs' litigation conduct to support a finding of fraudulent joinder/bad faith.  See Nele v. TJX Cos., 2013 WL 3305269, at *3 (E.D. Pa. July 1, 2013) (under §1446(c), "'bad faith' can take the form of fraudulent joinder of a defendant to defeat diversity"); Forth v. Diversey Corp., 2013 WL 6096528, at *2 (W.D.N.Y. Nov. 20, 2013) (utilizing fraudulent joinder standard to evaluate an bad faith allegation); Noyes v. Universal Underwriters Insurance Co., 3 F. Supp.3d 1356, 1363 (M.D. Fla. 2014) ("fraudulent joinder was meant to manipulate the state court’s jurisdiction and constitutes bad faith"); Escalante v. Burlington National Indemnity, Ltd., 2014 WL 6670002, at *3 (C.D. Cal. Nov. 24, 2014) ("examples of bad faith include removal-defeating strategies such as fraudulently joining parties to destroy diversity"); Sequeira v. Lincoln National Life Insurance Co., 2012 WL 260030, at *2 (E.D. Cal. Jan. 27, 2012) ("In removing a case based upon fraudulent joinder, the defendant must make a showing [that] compels the conclusion that the joinder is without right and made in bad faith.") (citation and quotation marks omitted).

However, "it is far from clear that the 'bad faith' and 'fraudulent joinder' standards are one and the same."  Ehrenreich v. Black, 994 F. Supp.2d 284, 288 (E.D.N.Y. 2014).  Other jurisdictions take the opposite approach − holding that the bad faith exception is separate and apart from fraudulent joinder.  See Heller v. American States Insurance Co., 2016 WL 1170891, at *2 (C.D. Cal. March 25, 2016) (noting that the "bad faith exception, as distinct from the doctrine of fraudulent joinder, applies to 'plaintiffs who joined – and then, after one year, dismissed – defendants [whom] they could keep in the suit, but that they did not want to keep in the suit except as removal spoilers"); In re Boston Scientific Corp., 2015 WL 6456528, at *6 (C.D. Cal. Oct. 26, 2015) ("a finding of misjoinder is not the same as a finding of bad faith"); Ramirez v. Johnson & Johnson, 2015 WL 4665809, at *4 n.3 (S.D.W. Va. Aug. 6, 2015) ("the bad faith standard under section 1446(c)(1) differs from the standard for proving fraudulent joinder").

In jurisdictions distinguishing between fraudulent joinder and the 2011 bad faith exception, we are still left wondering how the JVCA amendment could impact the voluntary-involuntary rule.  Perhaps the answer is simply that it hasn't.  The relatively sparse case law indicates that those courts resist blending their analyses of bad faith and the voluntary-involuntary rule.  Rather, they compartmentalize the two concepts and come to separate, unrelated conclusions for each.  See Heller, 2016 WL 1170891, at *1-3 (holding:  (1) plaintiff's action causing dismissal was voluntary, and (2) defendant was entitled to removal pursuant to the §1446(c) bad faith exception because there was sufficient evidence to show that plaintiff engaged in "strategic gamesmanship"); Skelton v. Johnson & Johnson, 2015 U.S. Dist. Lexis 141959, at *3-5 (C.D. Cal. Oct. 16, 2015) (holding (1) plaintiff failed to establish a violation of the voluntary-involuntary rule and (2) the removal did not violate §1446(c)(1)); Loelke v. Moore, 2012 U.S. Dist. Lexis 2709, at *10–11 (S.D. Ill. Jan. 10, 2012) (removal did not "run afoul of the voluntary-involuntary rule," but was untimely under one-year rule, evidence did not establish the plaintiff's bad faith).

Judicial interpretation of the JVCA's §1446(c)(1) bad faith exception is still very much evolving, and some jurisdictions view the bad faith exception as simply extending the availability of the fraudulent joinder defense past the one-year mark, while others don't.  Still, the statute now provides a basis for asserting fraudulent joinder as "bad faith" even after the one-year deadline has passed. In appropriate cases, defendants may want to raise this argument.

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
James Beck
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.