We have learned, through repeated harsh experience (e.g., Mallory, Wullschleger, Harrington) that while the current Supreme Court can be described as “conservative,” that hardly means that it is pro-business. Indeed, it appears that when the issue is p-side forum-shopping, the Notorious RBG (opponent of all things preemption) was far more “pro-business” than justices bearing the “ultra-conservative” label.
With that in mind, we turn to the Court’s latest certiorari grant in a plaintiff forum-shopping case − Palmquist v. Hain Celestial Group, Inc., 103 F.4th 294 (5th Cir. 2024). Palmquist is a food case, and the plaintiffs sued − in addition to the targeted manufacturer − a local grocery store in a transparent effort to destroy diversity and thereby keep the case in state court. The manufacturer removed, claiming that joinder of the intermediate seller was fraudulent under a state (Texas) statute that, with some exceptions, immunized such sellers from suit. After abandoning their initial complaint in favor of an amended complaint that attempted to plead around the statute, plaintiffs sought remand. They lost, and the district court retained jurisdiction. See Id. at 299-300 (describing procedural history). That was in 2021. The suit, now between completely diverse parties, was litigated in federal court over the next two years until, during a jury trial, the defendant successfully moved for judgment as a matter of law on grounds that the plaintiffs presented “no evidence of general causation” since they had no expert witness. Id. at 300.
On appeal the Fifth Circuit never reached the slam-dunk reason why the defense won on the merits. Instead, it found – under the extremely low pleading bar that plaintiffs enjoy when they engage in fraudulent joinder − that even the original complaint (which plaintiffs abandoned) had successfully evaded the Texas statute that the legislature enacted to stop precisely what the plaintiffs in Palmquist did:
The language in the as-removed complaint was broad enough to encompass both breach of express and implied warranties claims. The paragraph was entitled “Breach of Warranties,” which could include both express and implied claims. Although the language in the as-removed complaint generally discussed [the intermediate seller’s] implied warranties, it also discussed [its] express representations regarding [the manufacturer’s] products. We therefore hold that the district court erred in concluding that the [plaintiffs] added a new breach of express warranty claim in their second amended complaint.
103 F.4th at 302. Under the “no possibility of recovery” fraudulent joinder standard, the plaintiffs’ threadbare pleading sufficed. Id. at 304. “As the [plaintiffs] argue, the [intermediate seller’s] business model depends on [its] reputation and customers’ willingness to a pay a premium for products that [it] advertises as healthy and high quality.” Id. at 307.
Finding a non-waivable subject-matter-jurisdiction defect, the Fifth Circuit threw two years of litigation between the diverse parties out the window and let the plaintiffs have a do-over in state court. Standing in the way was a Supreme Court decision in a prior case involving improper removal, where the Supreme Court had refused to jettison the results of that litigation, holding:
[Plaintiffs’] arguments are hardly meritless, but they run up against an overriding consideration. Once a diversity case has been tried in federal court, with rules of decision supplied by state law. . ., considerations of finality, efficiency, and economy become overwhelming.
Caterpillar Inc. v. Lewis, 519 U.S. 61, 75 (1996) (citation omitted).
Palmquist, however, distinguished Caterpillar. According to Palmquist, the Caterpillar plaintiffs had surrendered their jurisdictional argument by “cur[ing]” it themselves. 103 F.4th at 307. Those plaintiffs had settled with the non-diverse defendant, thus eliminating any lack of jurisdiction, whereas in Palmquist the plaintiffs had not.
Unlike Caterpillar, complete diversity did not exist at the time judgment was entered because the [plaintiffs] alleged non-fraudulent claims against a non-diverse defendant. . . . Where a jurisdictional defect lingers (i.e., lack of subject matter jurisdiction) through judgment in the district court, the case must be remanded because the federal court lacked jurisdiction.
103 F.4th at 308 (citation omitted).
What this “conservative” Fifth Circuit panel did in Palmquist was to convert fraudulent joinder – or any other means of involuntarily eliminating a non-diverse defendant – into a free shot for plaintiffs.
If the plaintiff ultimately wins, or settles, in federal court, then the plaintiff would simply forget about jurisdiction – a winning or settling plaintiff would have no reason to appeal and to challenge subject-matter jurisdiction. For their part, defendants in such a situation would face judicial estoppel if they contested their loss by raising lack of subject matter jurisdiction, since they had initially removed the case to federal court. E.g., American Fire & Casualty Co. v. Finn, 341 U.S. 6, 17 (1951).
But now, under the Fifth Circuit’s Palmquist decision, whenever plaintiffs lose in a case removed to federal court, they get a free shot at a do-over if, on appeal, they can convince a federal court of appeals that the diversity-destroying defendant should not have been dismissed, and that the case should have been remanded to state court. This makes fraudulent joinder far more risky for defendants, because even if they win, they can still lose on appeal – with the penalty being that everything done in federal court was for naught, and that plaintiffs get a second bite at the apple (with the advantage everything they learned about a defendant’s case) back in state court.
To the Fifth Circuit in Palmquist, it was of no moment that the parties before it, who had actually litigated the case to a final judgment, were fully diverse, or that there was no other error aside from the jurisdictional defect. Nor was any mention made of the plaintiff taking any steps to pursue any claim in state court against the defendant dismissed as fraudulently joined.
Now, the Supreme Court granted certiorari on the following question:
Whether a district court’s final judgment as to completely diverse parties must be vacated when an appellate court later determines that it erred by dismissing a non-diverse party at the time of removal.
Hain Celestial Group, Inc. v. Palmquist, 2025 WL 1211787 (U.S. April 28, 2025); Petition for Certiorari, at i (filed March 25, 2025).
You wouldn’t know it from the Fifth Circuit’s opinion, but this is hardly the first time that plaintiffs have sought this kind of free shot. The petition cited Junk v. Terminix International Co., 628 F.3d 439 (8th Cir. 2010), so we checked out that decision, which turned out to be anything but eponymous. Junk held that the later dismissal of plaintiff’s claims against the non-diverse defendant cured the jurisdictional defect:
[Plaintiff] urges that the erroneous denial of remand should void the court’s subsequent rulings in favor of [the diverse defendants], but “a district court’s error in failing to remand a case improperly removed is not fatal to the ensuing adjudication if federal jurisdictional requirements are met at the time judgment is entered.” Upon [the non-diverse defendant’s] dismissal, the court’s diversity jurisdiction was perfected and the litigation could proceed as to [the diverse defendants].
Id. at 447 (quoting and following Caterpillar; other citation omitted).
The petition also relied on Gould v. Mutual Life Insurance Co., 790 F.2d 769, 774 (9th Cir. 1986), which held essentially the same thing prior to Caterpillar:
When final judgment was entered, only a diverse defendant remained because the nondiverse defendants had been dismissed by summary judgment. . . . Essentially, the rule requires an appellant to have a remand issue certified for interlocutory review. . . . Under the [Supreme Court’s] rule, the court below had subject matter jurisdiction. The nondiverse defendants had been dismissed by the state trial court and that dismissal had not yet been overturned on appeal. The only parties before the court were diverse. Although application of this rule puts an appellant to a choice, it promotes finality and judicial efficiency.
Id. at 774 (citations omitted).
The Fourth Circuit is also on the other side of the circuit split. Moffitt v. Residential Funding Co., LLC, 604 F.3d 156 (4th Cir. 2010), also rejected the sort of mandatory nullification rule that the Fifth Circuit adopted in Palmquist. “[E]xcus[ing] jurisdictional defects at the time of removal” “is grounded not only in the interest of ‘finality’ but also in larger considerations of ‘judicial economy.’” Id. at 160 (quoting Able v. Upjohn Co., 829 F.2d 1330, 1334 (4th Cir. 1987), overruled on other grounds in Caterpillar). “[I]t would be a waste of judicial resources to remand these cases on the basis of an antecedent violation of the removal statute now that jurisdiction has been established.” Id.
Here, judicial economy and finality require that the district court’s judgment be allowed to stand. Where a matter has proceeded to judgment on the merits and principles of federal jurisdiction and fairness to parties remain uncompromised, to disturb the judgment on the basis of a defect in the initial removal would be a waste of judicial resources.
Able, 829 F.2d at 1334 (citation omitted).
On the other hand, the petition concedes that the Eleventh Circuit has the same rule as the Fifth – that when a district court errs by dismissing a nondiverse party as fraudulently joined, any final judgment it later issues against the remaining completely diverse parties that remain must be overturned for lack of subject matter jurisdiction. Petition at 19 (citing and discussing Henderson v. Washington National Insurance Co., 454 F.3d 1278, 1284 (11th Cir. 2006)).
The plaintiffs’ opposing brief in Hain v. Palmquist, claimed that any circuit split was “stale and non-recurring.” Id. at 8. Anybody who regularly litigates in this space knows that this is not true. Plaintiffs appeal all the time trying to nullify adverse results due to claims of purported jurisdictional defects. Most of the time they lose on the jurisdictional issue, but the threat of nullification is always there. Otherwise, the plaintiff-respondents: (1) distinguished Caterpillar in the same way the Fifth Circuit did, id. at 7-8; (2) attacked the petitioning defendant’s reading of circuit split cases for a variety of reasons, id. at 10-19; (3) relied on a post-Caterpillar case, Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567 (2004), holding that a defendant could not cure a jurisdictional defect by changing its own citizenship in the middle of the litigation, id. at 19-21; and (4) relied on Royal Canin U.S.A., Inc. v. Wullschleger, 604 U.S. 22 (2025), id. at 22, which we discussed here. Royal Canin has no bearing on the nullification issue, as it allowed plaintiffs to amend their complaints to add diversity-destroying new defendants. Since such amendments must be made promptly, they implicate none of the “overwhelming” “considerations of finality, efficiency, and economy” that carried the day in Caterpillar. Grupo Dataflux seems distinguishable because the defendant, not the plaintiff, had sought to change jurisdictional facts after the fact.
In reply, the defendant-petitioner reiterated that the circuit split was real and “intractable.” Id. at 2-7. It pointed out that the main ground plaintiffs raised to minimize the circuit split was an issue that Caterpillar did decide – that failure to take an immediate interlocutory appeal following denial of remand did not constitute a waiver on the part of a plaintiff. Id. at 5-6. They argued that one of the arguments plaintiffs made further demonstrated the wrong-headedness of the Fifth Circuit’s rule of absolute nullification whenever a jurisdictional defect existed at the beginning of the case. Id. at 7-9 (it’s esoteric, but you can read it here). Finally, the reply reiterated both the common-place nature of the issue, and the judicial economy reasons that counsel against the Fifth Circuit’s nullification ruling. Id. at 9-10.
Now the Court has taken the case.
Will the defense prevail, or will the recent trend continue of this “conservative” Court now being more sympathetic to p-side forum shopping than when former Justice Ginsburg still sat? We don’t know, but we do know that the decision in Hain Celestial will be a big deal, given the frequency with which plaintiffs join non-diverse plaintiffs on fanciful claims that they never intend to pursue once defendants are trapped in state court following expiration of the 1-year period for diversity-based removals. We don’t think that every successful fraudulent joinder removal should create a looming background threat of everything that happens thereafter being for naught.
If that were to happen, we would be in favor of either universal application of the minimal diversity model currently found in the Class Action Fairness Act, a requirement that the plaintiff have diligently pursued a state-court claim against the dismissed non-diverse defendant, or failing either of those, giving plaintiffs an immediate and mandatory interlocutory appeal as of right from any denial of remand based on fraudulent joinder. It’s crazy to waste that much time and effort., both for the parties and of the courts. We hope that the Supreme Court agrees.