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Less than a month ago we posted about a good no-remand decision out of the Southern District of New York, where the court found that a fraudulent joinder could not defeat diversity jurisdiction. We went out of our way to contrast that SDNY decision with the usual doings in the Southern District of Illinois, where too many decisions applied tests that allowed plaintiffs to join local defendants who could never-ever be found liable. The invariable result was that plaintiffs could maintain their mass tort actions in some of the most notorious judicial state court Hellholes in the country (Madison Co., St. Clair Co, etc). We expressed concern that the crazy remand decisions were simply inexplicable, unless the SD Ill. judges were engaged in extreme docket management; they don’t want their federal court swamped with cases fleeing the Hellholes.
Well, to quote early SNL character Emily Littella, “Never mind.” (At least for the moment.) In re Yasmin and Yaz, 2010 U.S. Dist. LEXIS 17567 (S.D. Ill. February 26, 2010) offers a ray of hope in S.D. Ill. Maybe a corner has been turned. Common sense and fairness have descended upon the heartland. We could keep throwing in happy metaphors and phrases all day, we’re so giddy.
Here’s what happened: Plaintiffs had sued the Bayer defendants for alleged injuries arising from oral contraceptive medicine. If they had sued only the Bayer defendants, the case would satisfy diversity jurisdiction. But plaintiffs usually don’t want to be in federal court, especially if the option is to be in an ultra-plaintiff friendly state court like Madison County, Illinois. So plaintiffs also sued Niemann Foods, the local pharmacy that sold the product. Now with Illinois residents on both sides of the “v,” there seemed to be no diversity jurisdiction.
But there is a well-established doctrine of “fraudulent joinder,” which provides that a nominally in-state defendant can be ignored for removal/diversity jurisdiction purposes when plaintiffs cannot possibly assert a valid claim. Despite the use of the word “fraudulent,” the courts don’t actually inquire into whether the plaintiff is somehow lying by joining the local defendant. The issue is whether the claim against the local defendant is objectively viable. It is therefore not surprising that the Bayer defendants removed the case to federal court and argued that Niemann Foods had been fraudulently joined. It is also not surprising that plaintiffs swiftly filed a motion to remand the case back to Madison County. What is surprising is that Chief Judge Herndon of S.D. Ill. found that plaintiffs had fraudulently joined Niemann Foods.
Plaintiffs argued that fraudulent joinder occurs only if there is “no possibility” that plaintiff could prevail against the nondiverse defendant. Now that’s a tough test. But the court agreed with Bayer that the true test is whether there is “any reasonable possibility” of success in state court against the nondiverse defendant. Still a tough test, but at least sane. And in this case, Bayer convinced the court that there was no no reasonable possibility of prevailing against the store on theories of strict liability, negligence, failure to warn, breach of implied warranty, and fraudulent misrepresentation. (The complaint simply hurled all these theories against all defendants, without distinction or much explanation.)
Fundamental to the court’s decision was that under the law of Illinois (as in most places), pharmacists have no duty to provide customers with a warning regarding a drug’s potential risks or side effects. Such a duty would be burdensome on pharmacists, would interfere with the patient-physician relationship, and would be inconsistent with the learned intermediary doctrine (it would be strange to impose a warning duty on pharmacists that is not imposed on the manufacturer).
So far so good. But now the court starts talking about the “common defense rule,” which provides that “where there are colorable claims or defenses asserted against or by diverse and non-diverse defendants alike, the court may not find that the non-diverse parties were fraudulently joined based on its view of the merits of those claims or defenses.” Huh? This is the type of bizarre obstacle that SD Ill. courts have employed in the past to remand tort cases. Basically, even if the claim against the in-state defendant is bogus, “fraudulent joinder” doesn’t work, and the case therefore cannot be kept in federal court, if the claim against the diverse defendant is similarly bogus. Is there anybody reading this post who does not think the “common defense rule” is uncommonly weird?
In any event, the court declined plaintiffs’ invitation to invoke the “common defense rule,” because there is a key distinction between the diverse manufacturer defendants and the non-diverse pharmacy defendant. Plaintiffs alleged that the manufacturers had concealed the dangers of the product. If that’s true, then there’s no reason to think that the pharmacy knew the dangers. And if the pharmacy didn’t know, it had no duty to warn. That’s a nice, elegant formulation. It gets rid of most of the claims against the pharmacy, including strict liability, negligence, failure to warn, and the Illinois Consumer Fraud Act claim. We like it. We also think it could have swooped in to rescue diversity jurisdiction in earlier SD Ill. cases, but, like Mark McGwire, we’d rather talk about the future than the past.
The implied breach of warranty claim also had no “reasonable possibility” of success against the pharmacy, because such a claim applies to a sale of goods, not services, and the court concluded that a pharmacist mostly transacts in services, not goods.
The last potential hurdle to federal diversity jurisdiction is whether the amount in controversy exceeds $75,000. Plaintiffs’ complaint cleverly sought damages “in excess of $50,000.” Why, it’s almost as if plaintiffs were deliberately trying to avoid federal jurisdiction. Would one be cynical to suspect that plaintiffs cheerfully planted a low number in their complaint, but were planning on arguing for a high, high number once trial commenced in the delightful confines of the Madison County courthouse?
As it should, the federal court looked past plaintiffs’ self-serving damages number. Plaintiffs claimed “severe and permanent injuries,” “past and future expenses for medical care, monitoring, and medications,” and “physical, emotional, and economic injuries.” The court had no problem concluding that “it is plausible and supported by the preponderance of the evidence that the amount in controversy has been established.”
And that’s it. To our amazement and delight, the SD Ill court reaches the right result and provides a handy precedent for future use when fraudulent joinder issues arise. To quote another Gilda Radner SNL character, “It’s always something.”