This post is from the Cozen side of the blog only.
The Third Circuit gets fraudulent joinder—as if the name of the doctrine isn’t enough to give it away. It refers to, quite simply, joining a defendant in a lawsuit for a purpose other than pursuing liability against that defendant. And so the Third Circuit, getting it, has established a standard for determining fraudulent joinder that considers more than simply whether the plaintiff’s complaint states a colorable basis for a claim against the defendant. It also considers whether the plaintiff has a good faith intent to actually pursue that claim. Earlier this month, we posted on a decision by a district court in the Third Circuit applying this standard to deny a plaintiffs’ remand motion.
Since then, in fact just last week, this standard once again played a pivotal role in a determination by a court in the Third Circuit—this time the Zoloft MDL court—that a plaintiff had fraudulently joined a defendant to defeat diversity jurisdiction. In Re: Zoloft (Sertraline Hydrochloride) Prods. Liab. Litig., 2017 U.S. Dist. LEXIS 94953 (E.D. Pa. June 20, 2017). In that case, California plaintiffs sued Pfizer entities, none of which were California citizens, in a California state court. That complaint would ordinarily have been removable to federal court based on diversity jurisdiction, but plaintiffs also sued a California defendant, the (possible) distributor McKesson. In theory, McKesson’s presence as a defendant would defeat diversity jurisdiction. But the defendants nonetheless removed the case to California federal court, from whence it was swiftly transferred to the Zoloft MDL in the Eastern District of Pennsylvania.
Plaintiffs filed their remand motion in that court, which sits quite snugly inside the Third Circuit. In considering plaintiffs’ motion, the court began by laying out the Third Circuit standard:
In order to establish fraudulent joinder, a defendant must prove that 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.
2017 U.S. Dist. LEXIS 94953, at *5-6 (emphasis added) (citing Boyer v. Snap-On Tools Corp., 913 F.2d 108, 111 (3d Cir. 1990)). The court focused on the second half of the standard: plaintiffs’ real intentions for suing McKesson. Importantly, the court had the history of the Zoloft litigation to consider. A large mass tort, maybe even a not-so-large one, inevitably creates a litigation history that will highlight litigation maneuvers and counsel that have used them.
Here, the litigation history was determinative. The same plaintiffs’ counsel, along with other plaintiffs’ counsel, had sued McKesson in other Zoloft cases and then not seriously pursued discovery from McKesson, at times even dropping it as a defendant:
[T]he Court has been made aware of no instance in which any of the numerous Zoloft plaintiffs have propounded meaningful discovery on McKesson in either state or federal court, even though some cases have gone to trial. This failure to seek discovery includes other cases brought by Plaintiffs’ counsel. The lack of discovery requests directed towards McKesson casts doubt on Plaintiffs’ intent to pursue claims against McKesson.
Even more significantly, the plaintiffs in numerous Zoloft cases have dismissed claims against McKesson both before and after the Court granted summary judgment in favor of Pfizer and another Defendant and the plaintiffs appealed to the Third Circuit. One of these cases had been filed by Plaintiffs’ counsel in this case.
2017 U.S. Dist. LEXIS 94953, at *9.
The court saw a pattern. It rejected plaintiffs’ arguments that the Federal Rules of Civil Procedure establish no discovery standard upon which to determine whether a party was properly joined, holding that, regardless, the court may consider relevant information from the history of the litigation to determine plaintiffs’ intent in suing McKesson. Id. at *10.
The court then coupled the historical failures of plaintiffs and counsel to pursue McKesson after naming it as a defendant with the lack of specific, particularized allegations against McKesson in the complaint to determine that McKesson had been fraudulently joined. With that, the court held that it, in fact, did have diversity jurisdiction over the case:
Plaintiffs here have asserted non-specific claims against McKesson, Plaintiffs’ counsel has in separate Zoloft actions failed to propound discovery on McKesson, and, most notably, Plaintiffs’ counsel has outright dismissed McKesson as a defendant in other state and federal Zoloft cases. The Court thus concludes that Plaintiffs lack good faith intent to prosecute their claims against McKesson. The Court finds McKesson to be fraudulently joined in this action, and therefore does not take McKesson into account during its diversity jurisdiction analysis. Without McKesson, there is complete diversity between Plaintiffs and Defendants, and no dispute that the amount in controversy exceeds $75,000. The Court thus has jurisdiction over this case.
Id. at *10-11.
Obviously, this standard, along with the growing list of decisions applying it to reject remand motions, is a useful tool available to defense lawyers involved in mass torts, particularly in the Third Circuit. Allegations that are sufficient to state a colorable claim against a non-diverse defendant may not be enough to save a case from removal. The litigation history matters. Did plaintiffs actually pursue discovery against the non-diverse defendant? Did plaintiffs dismiss the non-diverse defendant late in the litigation? Did plaintiffs’ counsel ever depose the non-diverse defendant or subject it to the lengthy stream of depositions that they no doubt took of the employees and executives of the defendant that was the real target? Did plaintiffs pursue summary judgment against the non-diverse defendant when they pursued it against the real target? Has plaintiffs’ counsel used this tactic in other mass torts and a court called them out on it? And so on. We like the Third Circuit’s standard because it takes account of reality, and we expect to see more decisions adopting and applying it.