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As we noted yesterday, Halloween may be behind us, but the scary decisions just keep on coming.  Just about a month ago, we blogged about pending legislation (H.R. 3624), known as the “Fraudulent Joinder Prevention Act of 2015.”  Today we blog about a case that demonstrates why that legislation is needed.

The case is Rosbeck v. Corin Group, PLC, 2015 U.S. Dist. LEXIS 145621 (D. Mass. Oct. 26, 2015).  Plaintiff filed suit in state court in Massachusetts alleging he suffered injury as the result of the implantation of a hip resurfacing system.  Plaintiff sued the manufacturers of the implant for negligence, breach of warranty, and consumer fraud.  Plaintiff also sued the hospital at which the surgery was performed for breach of warranty.  Id. at *6.  The manufacturers, being diverse defendants, removed the case to federal court alleging that the non-diverse hospital was fraudulently joined.  Id. at *2.  Plaintiffs moved to remand.

Under First Circuit law, on a motion to remand, the manufacturing defendants had the burden of proving that plaintiff does not have a “reasonable possibility” of recovery against the non-diverse hospital.  Id.  at *7. Defendants asserted three reasons why they met that burden:  (1) Massachusetts doesn’t recognize a claim for breach of warranty against a hospital for supplying a medical device as part of treatment; (2) the claim against the hospital is preempted; and (3) the claim against the hospital is barred by the stature of limitations.  Id. at *10.

On the latter two, the court found that those same defenses applied to the claims against the manufacturers as well thereby making them subject to the “common defense rule.”  Id. at *22.  In a nutshell, under the common defense rule, 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.  What?  Fortunately, the common defense rule isn’t relatively uncommon, so we are going to dwell on it (maybe that’s a post for a slow news week).

But what about the warranty claim itself. Defendants argued, correctly, that there was no such claim under Massachusetts law.  They went one step further
and showed the court that if you looked beyond Massachusetts, there was a “uniformity of jurisprudence against holding hospitals strictly liable for warranty
breaches.”  Id. at *12.  The court agreed that “an overwhelming majority of jurisdictions refused to apply strict liability principles to claims against hospitals.”  Id. at *13.  So, if Massachusetts has never recognized the claim, and almost every court to have reached the issue has ruled against it, and the Erie
doctrine prohibits federal court expansion of state law, shouldn’t that mean that plaintiff does not have a reasonable possibility of recovery?

This court said no.  Apparently, overwhelming majority isn’t enough.  This court wanted unanimity.  Id. Because they found one Supreme Court of Alabama decision from 1984 that held that a hospital could be liable for breach of warranty, that was enough for the court to find that, while likely doubtful under Massachusetts law, the claim was not impossible. Stated another way, since state law did not “squarely preclude” the claim, the hospital was not fraudulent joined. Id. at *7.

But is that the standard?  Regardless of all other indications, if any state anywhere has allowed a similar claim, then there can’t be fraudulent joinder where the state in question has not spoken?  That brings us back to the proposed legislation, which would add the following to 28 U.S.C. §1448(c):  “The district court shall deny a motion to remand if it finds that the complaint does not state a plausible claim for relief against a nondiverse defendant under applicable State law.”  It brings the plausibility standard of TwIqbal into the fraudulent joinder analysis, rather than the absurd impossibility standard currently used by many courts.  Indeed, in Rosbeck, the court acknowledged that most courts review fraudulent joinder “under a standard more lenient than that for a motion to dismiss.”  Id. at *9.  Why should that be?  On a motion to dismiss, the federal court is still obligated to interpret and apply state court law.  And if the claim can’t pass the TwIqbal standard, it shouldn’t be considered for purposes of determining federal court jurisdiction.

The bill is a good idea.  This awful decision proves that point.