It’s very hard to win a fraudulent joinder motion on the merits and thus keep a case in federal court. In fact, when we looked back at the topic on the blog, our last post on the issue was over one year ago. And the two posts before that were from the Third Circuit and the Eastern District of Pennsylvania. So maybe Reith v. Teva Pharmaceuticals USA, Inc., 2019 WL 1382624 (EDPA Mar. 27, 2019) shouldn’t be a surprise. Instead we’ll say that in a jurisdiction with a good track record Teva managed to pull off a decisive win – against four purported defendants.
The reason it is so difficult for defendants to substantively prove fraudulent joinder is because “the burden on the defendants is a heavy one.” Id. at *2. A party is fraudulently joined “where there is no reasonable basis in fact or colorable ground supporting the claim against the joined defendant.” Id. Also, the Third Circuit has held that that standard “is higher than the standard for dismissal under Rule 12(b)(6).” Id. But, while all contested factual issues and uncertainties in state law are resolved in favor of the plaintiff, the court can accept evidence beyond the pleadings. Id. The one aspect of the standard that more often favors the defense. Basically, to win on fraudulent joinder, you need to have an open and shut case. Fortunately, in Reith, the court allowed some limited discovery on the fraudulent joinder issue and then issued a very well-reasoned opinion.
Plaintiffs were two women, one from California and one from Utah, who had IUDs implanted in in 2006 and 2008, respectively. Plaintiffs suffered complications during removal of the devices years later that required further surgeries. Id. at *1. They filed suit in state court in Pennsylvania suing Teva Women’s Health, Inc. – the manufacturer and seller of the IUDs; Teva Pharmaceuticals USA, Inc. – the parent company; Teva Branded Pharmaceuticals Products R&D, Inc. – a research and development company; The Cooper Companies, Inc. and CooperSurgical, Inc. – successor companies. Teva USA and Teva Branded are both Pennsylvania citizens which triggers the forum defendant exception to diversity jurisdiction. Id. at *2.
But the court refused to “blindly” credit claims that were “wholly insubstantial and frivolous.” First, it was undisputed that Teva Women’s Health was the only defendant who manufactured and sold the IUDs. Teva Branded didn’t exist until 2009 – after plaintiffs’ IUDs were implanted. Id. at *3. Teva USA simply had nothing to do with IUDs at all — from manufacturing to selling to regulatory responsibility. Id. Plaintiffs tried to rely on a few adverse event reports that listed Teva Pharmaceuticals or Teva USA as the manufacturer, but adverse event reports filed by unidentified, third persons are “unreliable hearsay.” Id.
Similarly, vague allegations of “significant” parent company control came nowhere near the standard for piercing the corporate veil. First, Teva Women’s Health (formerly known as Duramed Pharmaceuticals, Inc.) wasn’t acquired by Teva USA until after both plaintiffs had their IUDs implanted. So, it wasn’t even the parent company at the relevant time. Moreover, plaintiffs’ complaints contained no allegations of “significant” control. Instead, plaintiffs alleged the companies were “separate and distinct corporations.” Id. So, “[t]he belated attempt by plaintiffs to blur the identities of these two defendants cannot be considered in deciding whether to grant a motion [to] remand.” Id. Looking beyond the complaint, the best plaintiffs could do was “imprecise language” that Teva USA was “involved” with the IUD. That wasn’t nearly enough.
Finally, the court looked to substantive state law. Under Pennsylvania law a product liability claim can only be asserted against the actual manufacturer or seller of the product. Id. at *4 (no law that a “non-manufacturer and non-seller of a product has a duty to a user of that product under any claim). That Teva USA was engaged in pharmacovigilance for the IUDs did not help plaintiff, since Pennsylvania law does not allow a claim for negligent pharmacovigilance. Id. The law of California and Utah, plaintiffs’ home states, is the same. Making the fully diverse Teva Women’s Health the only properly joined Teva defendant.
That left only the Cooper defendants. One of the Cooper defendants is a California citizen and would defeat diversity against the California plaintiff – if properly joined. Id. at *5. Cooper purchased the IUD business from Teva in November 2017. Cooper also never manufactured or sold IUDs. It purchased the IUD business long after plaintiffs’ injuries occurred, and it was undisputed that it did not assume any of the liabilities of the seller with respect to plaintiffs’ IUDs. Because the claims against Cooper were “wholly insubstantial and frivolous,” Cooper was fraudulently joined and dismissed from the California plaintiff’s complaint.
From what we can tell, the facts here were fairly clear and this was a blatant attempt by plaintiffs to defeat federal diversity jurisdiction and to be litigation tourists in Philadelphia County. Plaintiffs get neither result. Welcome to the Eastern District of Pennsylvania.