What follows is a guest post from some of our friends over at Reed Smith – specifically Lisa Baird, Tracy Weiss and Mike King. Needless to say, it’s their own work, so they deserve all the credit. As usual, we’ll end up with the blame.
They point out ways that those of us on the defense side can use the Supreme Court’s decision in Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1969 (2007), to defeat fraudulent joinders committed by plaintiffs seeking to defeat federal diversity jurisdiction.
For our own prior posts on Twombly see here, and here.
And so, without further ado:
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Practitioners in the pharmaceutical litigation field unfortunately are quite familiar with state court complaints that include additional defendants named for the sole purpose of defeating diversity jurisdiction and removal to federal court. Motion practice attacking these “fraudulently joined” defendants is common and, all too often, fruitless. However, the United States Supreme Court’s recent decision in Bell Atlantic Corp. v. Twombly offers defendants a higher caliber of ammunition to use in their eternal guerilla war against fraudulent joinder of bogus defendants.
Courts have long interpreted pleading standards under Rule 8 liberally, allowing claims to proceed to discovery unless the plaintiff could “prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 46-47 (1957). This familiar “no set of facts” language recently (and expressly) met its demise, however. See Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1969 (2007). In Twombly, a class action antitrust case brought under Section 1 of the Sherman Act, the United States Supreme Court held that “[w]hile a complaint attacked by Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id. at 1963-65. Twombly’s pleading standard focused on the “plausibility” of the plaintiff’s claims (rather than mere possibilities), and required the complaint to set forth “enough facts to state a claim to relief that is plausible on its face.” Id. at 1974.
There has been considerable debate as to the breadth of Twombly’s holding. While the Court cautioned that it was not adopting a heightened pleading standard, see id. at 1973, n. 14, it noted that it was applying “general standards to a § 1 claim” in reaching its holding. Id. at 1965. Rigorous application of a pre-existing standard that had only been laxly enforced, however, is practically indistinguishable from a heightened standard. Suffice to say, numerous courts have applied Twombly outside the context of Sherman Act litigation. That includes, as has already been pointed out in this blog, drug and medical device product liability litigation. See Heck v. American Medical Systems, Inc., No CCB-07-2101, 2008 WL 1990710 (D. Md. April 30, 2008); cf. In re Bausch & Lomb Inc. Products Liab. Litig., MDL No. 1785, 2007 U.S. Dist. LEXIS 76657 (D. S.C. October 11, 2007) (applying Twombly to economic loss claims related to discarded contact lens solution).
So what does Twombly mean in the context of fraudulent joinder? Generally, fraudulent joinder involves the assertion of claims against a non-diverse defendant in an effort to defeat diversity jurisdiction. In evaluating whether a party has been fraudulently joined, many courts have employed a Rule 12(b)(6) standard, and more recently, the standard set forth in Twombly. See, e.g., Pascale Service Corp. v. Int’l Truck and Engine Corp., No. 07-0247-S, 2007 WL 2905622, *3 (D.R.I. Oct. 1, 2007); Taylor v. Shelter Lincoln Mercury, Ltd., No. 2:07-CV-0097, 2007 WL 3244701, *1 (W.D. La. Nov. 2, 2007); Tippen v. Republic Fire & Casualty Ins. Co., No. 06-7701, 2007 U.S. Dist. LEXIS 87351 (E.D. La. November 28, 2007); Results Marketing, Inc. v. Buffalo-Lake Erie Wireless Systems Co., LLC, No. 3:CV-08-0382, 2008 U.S. Dist. LEXIS 39924 (M.D. Pa. May 16, 2008).
The true impact of Twombly on fraudulent joinder analysis remains to be seen, however. One court has addressed the issue in the context of multiple insurance coverage claims following Hurricane Katrina, and its decisions shed some light on the issue. In some cases, the court dismissed claims against the non-diverse insurance agent, citing Twombly, due to the plaintiffs’ failure to allege sufficient facts. See, e.g., Soroe v. State Farm Fire and Casualty Co., No. 1:07CV134, 2008 U.S. Dist. LEXIS 22340, (S.D. Miss. 2008); Chester v. State Farm Fire & Casualty Co., No. 1:07CV132, 2008 U.S. Dist. LEXIS 22356 (S.D. Miss. March 6, 2008); Remel v. State Farm Fire & Casualty Co., No. 1:07CV126, 2008 U.S. Dist. LEXIS 22361 (S.D. Miss. March 6, 2008); Zar v. State Farm Fire & Casualty Co., No. 1:07CV133, 2008 U.S. Dist. LEXIS 17357 (S.D. Miss. March 5, 2008). However, when plaintiffs supplemented the record with an affidavit setting forth some factual allegations concerning the non-diverse defendant, that coupled with the extensive deference owed to plaintiffs at the 12(b)(6) stage, led the same court to find that there was no diversity and thus to remand. See LaFrance v. State Farm Fire & Casualty Co., No. 1:07CV125, 2008 U.S. Dist. LEXIS 22362 (S.D. Miss. March 10, 2008); LaFleur v. State Farm Fire & Casualty Co., No. 1:07CV527, 2008 U.S. Dist. LEXIS 25727 (S.D. Miss. March 26, 2008).
The point is that Twombly is out there, and defendants should take remember to take advantage it in the fraudulent joinder context. Because Twombly requires plaintiffs to assert plausible factual allegations against all defendants, defendants who hope to show that a non-diverse defendant was fraudulently joined to defeat removal to federal court have a new, powerful argument to make. Where the complaint simply alleges the non-diverse defendant’s name and residence with factually bare legal claims, it is no longer enough for plaintiff to rely on the argument that discovery might lead to facts supporting it, and a fraudulent joinder challenge now stands a better chance of success. This may be particularly true in the case of mass torts, where the economic burdens of allowing implausible claims to proceed to discovery fall most heavily. At minimum, Twombly has been forcing plaintiffs to supplement their allegations to set forth facts sufficient to survive dismissal in order to avoid charges of fraudulent joinder.