This just happened yesterday down in Texas. The defendant in this 77-plaintiff action raised fraudulent joinder/misjoinder and lack of personal jurisdiction in removing the case. Locke v. Ethicon, C.A. No. 4:14-CV-2648, slip op. (S.D. Tex. Nov. 10, 2014). The defendant won, as the out-of-state (and non-diverse) plaintiffs were dismissed due to lack of personal jurisdiction under Daimler AG v. Bauman, 134 S. Ct. 746 (2014). No other remand-related grounds (such as fraudulent (mis)joinder) had to be reached.
Of even greater importance is the “how to” aspect of Locke. Can a court determining a remand petition decide a question of personal jurisdiction (the Bauman issue) prior to a question of subject matter jurisdiction (fraudulent (mis)joinder)? The Locke court said “yes,” relying on Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 586-87 (1999). Slip op. at 3-4 & n.3. That’s critical, because unless a court can reach the Bauman issue first, it would have to find some basis to dismiss the non-diverse plaintiffs under fraudulent (mis)joinder standards – and those standards are much more difficult to satisfy. The Supreme Court, however, had resolved this issue in Ruhrgas.
[T]he Court notes that the two motions present the Court with a procedural dilemma. If the Court addresses the question of subject matter jurisdiction first, then [one of the plaintiffs’] New Jersey citizenship destroys diversity, thereby justifying remand for the Texas state court to resolve the personal jurisdiction issue. Alternatively, if the Court addresses the question of personal jurisdiction first and finds for the defendants, dismissal would simultaneously reduce the number of plaintiffs to one and permit the Court to retain jurisdiction over the case. It is well settled that a district court has discretion to dispose of jurisdictional questions in a manner that promotes judicial economy.
Locke, slip op. at 3 (citing Ruhrgas and other cases following it). This is the first time (we ran a search) that Ruhrgas has been invoked in a fraudulent (mis)joinder remand where the basis for fraudulent joinder is inability of nondiverse plaintiffs to obtain personal jurisdiction over the defendant under Bauman.
Once the court determined that it had the option of deciding the Bauman personal jurisdiction issue first, the removal was held to be proper. The only non-diverse plaintiff (there was only one) in the 77-plaintiff complaint was not a resident of the forum state (Texas). Since the defendants weren’t from the forum state either, that non-diverse plaintiff (and all the other non-Texans) couldn’t assert personal jurisdiction in the forum under Bauman. There could be no “specific” jurisdiction because neither the plaintiffs’ injuries nor the defendants’ supposed conduct took place in the forum state. Locke, slip op. at 2. Nor were the defendants “at home” in the forum state so as to support “general” personal jurisdiction under Bauman. The test for “general” jurisdiction is “incredibly difficult” where the forum is neither the defendant corporation principal place of business or state of incorporation. Locke, slip op. at 6. Rather:
A corporation is not “at home” in every state in which it engages in a substantial, continuous, and systematic course of business. Otherwise, “at home” would be synonymous with doing business tests implicating the exercise of specific jurisdiction. The test for determining general jurisdiction over a foreign corporation is whether that corporation’s affiliations with the forum State are so continuous and systematic as to render it essentially “at home” in the State. In other words, the test is not simply whether the corporation’s in-forum contacts can be said to be in some sense continuous and systematic.
Id. (Bauman citations and quotation marks omitted).
The defendants were not “at home” in Texas, the forum state. They were neither headquartered nor incorporated there. Slip op. at 7. None of the other purported “substantial” contacts mattered: that the defendants: (1) sold more of the product in the forum than in their home state (that just meant that Texas was a big state); (2) had sales representatives and other marketing employees in the forum state; (3) engaged a forum-state consultant to train forum state physicians to use the product; and (4) maintain websites accessible in the forum state (as in everywhere else in the world). Id. at 3, 9-11. Bauman “created no such exception[s]” to its rigorous standard for “general” personal jurisdiction. . Locke, slip op. at 10. Thus, “general” jurisdiction failed, and the court never had to reach fraudulent joinder:
On the record before the Court, Texas is simply not a forum in which it would be permissible to subject the defendants to general jurisdiction. The defendants’ operations in Texas are not so substantial and of such nature as to render them at home in the State. Because the out-of-state plaintiffs cannot meet their burden of establishing personal jurisdiction over these [out-of-state] defendants, dismissal of their claims is proper.
Id. at 12.
With all the non-Texas plaintiffs’ claims dismissed, the single remaining Texas plaintiff’s claim was diverse, justifying denial of the plaintiffs’ remand motion. Id. at 12-13.
So not only does Locke reach a favorable result, but it illustrates what may be the best available procedural vehicle for obtaining that result in case removed from state court. Deciding the personal jurisdiction question first − before the subject matter issues inherent in a fraudulent joinder analysis – “leads to a more efficient result without offending principles of federalism.” Slip op. at 4. Getting rid of scores of out-of-state plaintiffs under a simple post-Bauman personal jurisdiction analysis will almost always satisfy the Ruhrgas standard. This approach also avoids the nasty standard that prevails in fraudulent joinder cases, and the uncertainty whether fraudulent misjoinder exists at all.
Thus, a defendant faced with a fraudulently misjoined complaint with out-of-state, non-diverse plaintiffs has a choice of options. It can, of course, elect to resolve the personal jurisdiction issue in state court, as discussed in one of our prior posts on personal jurisdiction. If successful, then it can remove what’s left. Alternatively, as in Locke, it can decide not to take its chances in state court, remove the case to federal court first, and resolve the personal jurisdiction issues prior to any remand issues under Ruhrgas. Critically, neither of these approaches depends in any way on the “mass action” provisions of the Class Action Fairness Act. If initially unsuccessful on the Bauman issue in whichever (state or federal) court, a defendant is not procedurally disabled from trying again in the other.