Mayes v. Rapoport

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

PATRICIA J. MAYES,
Plaintiff-Appellant,

v.
No. 98-2695
STANLEY RAPOPORT; JUDITH
RAPOPORT; DAVID KEY, d/b/a Key
Coffee Roasters, Incorporated,
Defendants-Appellees.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Catherine C. Blake, District Judge.
(CA-98-561-CCB)

Argued: September 23, 1999

Decided: December 2, 1999

Before WILKINSON, Chief Judge, KING, Circuit Judge, and
BUTZNER, Senior Circuit Judge.

_________________________________________________________________

Vacated in part, reversed in part, and remanded by published opinion.
Judge King wrote the opinion, in which Chief Judge Wilkinson and
Senior Judge Butzner joined.

_________________________________________________________________

COUNSEL

ARGUED: Janis Ruth Harvey, LAW OFFICE OF JANIS R. HAR-
VEY, P.A., Baltimore, Maryland, for Appellant. Charles Scott Hirsch,
Robert A. Scott, BALLARD, SPAHR, ANDREWS & INGERSOLL,
L.L.P., Baltimore, Maryland, for Appellees. ON BRIEF: Matthew S.
Sturtz, MILES & STOCKBRIDGE, P.C., Baltimore, Maryland, for
Appellee Key.

_________________________________________________________________

OPINION

KING, Circuit Judge:

Patricia J. Mayes appeals from the district court's dismissal of her
case pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure
to state a claim upon which relief can be granted. Mayes initially filed
suit in Maryland state court, but the original defendants, Stanley and
Judith Rapoport (collectively, "the Rapoports"), removed the case to
the District of Maryland. Mayes subsequently filed an amended com-
plaint naming David Key, a nondiverse party, as a defendant. The dis-
trict court dismissed Key from the case, relying upon decisions
applying the doctrine of fraudulent joinder, then dismissed the case
against the Rapoports.

Mayes claims that the district court erred both in holding that it
possessed jurisdiction and in dismissing the Rapoports under Rule
12(b)(6). We agree with Mayes that the Rapoports did not establish
that Mayes fraudulently joined Key as a defendant and that the district
court erred in its dismissal of Key. We therefore vacate the district
court's judgment, reverse its holding that it possessed jurisdiction,
and remand for further remand to state court.

I.

A.

Mayes filed this suit in Maryland state court to enforce her "right
of first refusal to match an offer to purchase" commercial property at
1720 and 1722 Thames Street in Baltimore, Maryland ("property").
Mayes had been leasing that property from the Rapoports, and a pro-
vision of the lease had guaranteed her a right-of-first-refusal. The
lease also provided that, "Should the tenant exercise her option to pur-
chase said property she will be credited with $400 per month of occu-

2
pancy toward the purchase price. This $400 rebate will be limited to
only the first year of tenancy."

In April 1997, the Rapoports received an offer to purchase the
property from Key. Key submitted a proposed contract to the Rapo-
ports that offered $400,000 for the property, with an $80,000 down
payment, and the $320,000 balance financed by the Rapoports at 9%
interest. Key's offer also provided for a "balloon payment" at the end
of 6 years and stipulated that Key would deposit $5,000 at the time
of the offer and an additional $10,000 within 5 days of acceptance of
the contract.

On June 13, 1997, before presenting it to Mayes under the right-of-
first-refusal, the Rapoports accepted Key's offer. However, the Rapo-
ports' signed contract with Key (the "Key contract") did not explicitly
condition the Rapoports' acceptance upon Mayes's right-of-first-
refusal.1

Fifteen days later, on June 28, 1997, Mayes received a copy of the
Key contract from the Rapoports. On July 1, 1997, Mayes finished
her first year of tenancy, thus completing her deposit of $4,800
toward purchase of the property. She then carried-over as a tenant,
which meant, under the lease, that Mayes was leasing the property
from the Rapoports month-to-month under the same terms and condi-
tions as in the original lease, including the right-of-first-refusal. Also
on July 1, 1997, Mayes submitted an offer to the Rapoports attempt-
ing to exercise her right-of-first-refusal.2 The Rapoports responded on
_________________________________________________________________
1 The Key contract did specify that failure to close on the sale by the
Rapoports was actionable only "in the event seller intentionally + will-
fully defaults." The Key contract also provided that "All tenants may
remain w/60 days notice" and "*1720 2nd flr has one year lease, *1722
2nd floor has one yr."
2 Mayes's offer included 2 options: (1) $410,000 purchase price, with
$82,000 down, a 20-year mortgage (to be provided by the Rapoports) for
$328,000 at 9% interest ballooning in 5 years and settlement on or before
July 28, 1997; or (2) $400,000 purchase price, with a mortgage (to be
provided by the Rapoports) for $320,000 "at the going rate," and settle-
ment within 60-90 days of signing the contract. Both of these proposals
were contingent upon Mayes being able to refinance her other properties.

3
July 11, 1997, rejecting Mayes's offer on the basis that it did not
match the Key contract of June 13, 1997. Despite the rejection, the
Rapoports continued to negotiate with Mayes for the next two months.3

On August 22, 1997, Mayes notified the Rapoports that Mayes was
"prepared to go to settlement under the same terms and conditions as
those offered to [Key]." The Rapoports replied that Mayes would
have to obtain financing on her own for the full purchase price and
would have to be prepared to close the sale of the property on August
25, 1997. Mayes did not agree, and on November 18, 1997, the Rapo-
ports closed their sale of the property to Key.

B.

Shortly after Mayes sued in state court, the Rapoports removed the
case to the District of Maryland on the basis of diversity.4 Thereafter,
but before the Rapoports filed their answer to Mayes's complaint,
Mayes amended her complaint to add Key as a defendant -- a signifi-
cant addition because Key is a resident of Maryland and his addition
as a defendant seemingly defeats diversity jurisdiction.

On June 3, 1998, a few months after Mayes filed her amended
complaint, the district court identified this issue and requested that the
parties brief the question of continued federal jurisdiction.5 Following
_________________________________________________________________
3 During that two-month period, Mayes modified her offer several
times, and the Rapoports notified Mayes, on July 14, 1997, that they
were "willing to give [Mayes] until 8/25/97, to secure financing and set-
tle the properties." Mayes then made several offers, but the Rapoports
rejected each of them. On August 8, 1997, the Rapoports sent Mayes a
letter stating that they would "agree to sell[the property] to [Mayes] pro-
vided that: 1) [Mayes] pays the entire purchase price in cash . . . ; and
2) that closing occurs on August 25, 1997."
4 Mayes is a resident of Maryland, the Rapoports are residents of the
District of Columbia, and Mayes claimed, inter alia, $4,800 in compen-
satory damages and $200,000 in lost profits.
5 By its letter to counsel, the district court stated: "It appears to me that
the addition of David Key, a Baltimore City resident, defeats diversity
jurisdiction. This would prevent me from reaching the merits of the
motion and presumably require dismissal or remand." J.A. 192.

4
briefing, by its ruling of October 13, 1998, the district court retained
jurisdiction over the case:

The court is aware that both plaintiff Mayes and defendant
Key are residents of Maryland, seemingly eliminating juris-
diction in this court on the basis of diversity of citizenship.
However, where the defendant demonstrates that the plain-
tiff "cannot establish a claim against the nondiverse defen-
dant even after resolving all issues of fact and law in the
plaintiff's favor," the joinder of such a party is deemed
fraudulent and does not defeat diversity for federal jurisdic-
tional purposes.

As the analysis in this Memorandum indicates, Mayes has
failed to establish a claim against Key. As a result, consider-
ation of the merits of the Rapoports' motion to dismiss is
appropriate.

J.A. 199-200 (citations omitted). The district court went on to hold
that Mayes could not state a claim against the Rapoports, and it dis-
missed the case against each of the defendants.

Mayes has appealed the dismissal of her case, and we possess juris-
diction pursuant to 28 U.S.C. § 1291.

II.

We review de novo questions of subject matter jurisdiction, includ-
ing those relating to the propriety of removal and"fraudulent joinder."
See Mansfield, Coldwater & Lake Michigan Ry. Co. v. Swan, 111
U.S. 379, 384 (1884). Similarly, we review de novo a district court's
Rule 12(b)(6) dismissal. Estate Constr. Co. v. Miller & Smith Holding
Co., Inc., 14 F.3d 213, 217 (4th Cir. 1994). In reviewing a 12(b)(6)
dismissal, we construe factual allegations in the nonmoving party's
favor, treating them as true, and "we will affirm a dismissal for failure
to state a claim only if it appears that `the plaintiffs would not be enti-
tled to relief under any facts which could be proved in support of their
claim.'" Id. at 218 (quoting Shatz v. Rosenberg, 943 F.2d 485, 489
(4th Cir. 1991)).

5
III.

A.

We begin, as we must in a diversity case, by examining the basis
for jurisdiction. The district court relied upon decisions applying the
doctrine of fraudulent joinder in order to retain jurisdiction in this
diversity case. J.A. 200 (citing Marshall v. Manville Sales Corp., 6
F.3d 229, 232-33 (4th Cir. 1993), and Kimmons v. IMC Fertilizer,
Inc., 844 F. Supp. 738, 739 (M.D. Fla. 1994)). However, there is
authority that, after a case has been removed, federal courts may not
rely upon that doctrine to justify jurisdiction. See Cobb v. Delta
Exports, Inc., 186 F.3d 675, 677 (5th Cir. 1999) ("The fraudulent
joinder doctrine does not apply to joinders that occur after an action
is removed.") (emphasis in original); see also Gum v. General Elec-
tric Co., 5 F. Supp. 2d 412, 415 n.8 (S.D. W. Va. 1998) (noting that
fraudulent joinder doctrine applies to defendants named before
removal); Harrell v. Pineland Plantation, Ltd. , 914 F. Supp. 119, 120
n.4 (D.S.C. 1996) (same). We therefore find it necessary, as a prelimi-
nary matter, to determine whether the fraudulent joinder doctrine is
applicable to post-removal joinder. To make this determination, we
analyze the legal framework relating to joinder of parties in removed
cases, beginning our review with pre-removal joinder and then ana-
lyzing the procedures applicable after the case has been properly
removed.

1.

Before a case has been removed to federal court, there are several
rules that govern the ability of defendants to consummate removal.
For example, the "complete diversity" rule clarifies that the statute
authorizing diversity jurisdiction over civil actions between a citizen
of a state where the suit is brought and a citizen of another state per-
mits jurisdiction only when no party shares common citizenship with
any party on the other side. Strawbridge v. Curtiss, 7 U.S. (3 Cranch)
267 (1806). This "complete diversity" rule, when coupled with other
rules,6 makes it difficult for a defendant to remove a case if a nondiverse7
defendant has been party to the suit prior to removal.
_________________________________________________________________
6 The "voluntary-involuntary" rule discussed in Higgins v. E.I. DuPont
de Nemours & Co., 863 F.2d 1162, 1166 (4th. Cir. 1988), is another such

6
The "fraudulent joinder" doctrine8 permits removal when a non-
diverse party is (or has been) a defendant in the case. See Poulos v.
Naas Foods, Inc., 959 F.2d 69 (7th Cir. 1992) (cited in Marshall, 6
F.3d at 233); Triggs v. John Crump Toyota, Inc. , 154 F.3d 1284, 1287
(11th Cir. 1998) (noting that "[f]raudulent joinder is a judicially cre-
ated doctrine that provides an exception to the requirement of com-
plete diversity"). Under this doctrine, a district court can assume
jurisdiction over a case even if, inter alia,9 there are nondiverse
named defendants at the time the case is removed. Marshall, 6 F.3d
at 232-33; Cobb, 186 F.3d at 677. This doctrine effectively permits
a district court to disregard, for jurisdictional purposes, the citizenship
of certain nondiverse defendants, assume jurisdiction over a case, dis-
miss the nondiverse defendants, and thereby retain jurisdiction. Cobb,
186 F.3d at 677-78. Since the fraudulent joinder doctrine justifies a
federal court's initial assumption of diversity jurisdiction, it has no
effect once the district court actually possesses jurisdiction -- includ-
ing after the case has been removed.
_________________________________________________________________

hurdle to a diverse defendant attempting to remove a case in which a
nondiverse defendant has been a party.

7 We use "nondiverse" here to mean that there are plaintiffs who are
citizens of the same state as one or more of the defendants.

8 The term "fraudulent joinder" is a bit misleading, inasmuch as the
doctrine requires neither a showing of fraud, see infra at 11 (noting that
while fraud will justify application of the doctrine, there are other
grounds for application), nor joinder. In fact, it is irrelevant whether the
defendants were "joined" to the case or originally included as defendants;
rather, the doctrine is potentially applicable to each defendant named by
the plaintiff either in the original complaint or anytime prior to removal.
See Cobb, 186 F.3d at 678.

9 The "fraudulent joinder" doctrine has also been applied in other cir-
cumstances, including as an exception to the "voluntary-involuntary" rule
referenced supra note 6. See Insinga v. LaBella, 845 F.2d 249, 254 (11th
Cir. 1988) ("Fraudulent joinder is a well established exception to the
voluntary-involuntary rule."). However, since no defendants were dis-
missed before this case was removed, that application of the doctrine is
not at issue here.

7
2.

When a plaintiff seeks to join a nondiverse defendant after the case
has been removed, the district court's analysis begins with 28 U.S.C.
§ 1447(e), which provides the district court with two options: "If after
removal the plaintiff seeks to join additional defendants whose join-
der would destroy subject matter jurisdiction, the court may deny
joinder, or permit joinder and remand the action to the State court."
These are the only two options for a district court faced with a post-
removal attempt to join a nondiverse defendant; 10 the statute does not
allow a district court to retain jurisdiction once it permits a nondiverse
defendant to be joined in the case.11
_________________________________________________________________
10 Legislative history reinforces that Congress intended district courts
to have only these two options. In fact, Congress considered and rejected
a proposal that would have permitted district courts to join the non-
diverse defendant and retain jurisdiction over the case. See David D. Sie-
gel, Commentary on 1988 Revision of Section 1447 , in 28 U.S.C.A.
§ 1447 (1994).
11 Our analysis is complicated by the fact that Mayes joined Key with-
out leave of court. Under certain circumstances,§ 1447(e) conflicts with
Rule 15(a), which permits a plaintiff to amend his complaint without
leave of court "before a responsive pleading is served." Fed. R. Civ. P.
15(a). There is a potential conflict because, if the plaintiff can add a non-
diverse defendant without the district court exercising its discretion over
whether the defendant should be joined, then, under§ 1447(e), the dis-
trict court would be forced to remand the case without determining the
propriety of joinder.

Reading Rule 15(a) in connection with Fed. R. Civ. P. 19 and 21, and
28 U.S.C. § 1447(e), resolves any doubts over whether the district court
has authority to pass upon any attempts -- even those for which the
plaintiff needs no leave of court -- to join a nondiverse defendant. See
28 U.S.C. § 1447(e) ("the court may deny joinder, or permit joinder");
see also Fed. R. Civ. P. 19(a) ("A person who is subject to service of pro-
cess and whose joinder will not deprive the court of jurisdiction over the
subject matter of the action shall be joined as a party . . .") (emphasis
added); Fed. R. Civ. P. 21 ("Parties may be dropped or added by order
of the court on motion of any party or of its own initiative at any stage
of the action and on such terms as are just."). Thus, a district court has
the authority to reject a post-removal joinder that implicates 28 U.S.C.
§ 1447(e), even if the joinder was without leave of court. See Ascension
Enters., Inc. v. Allied Signal, Inc., 969 F. Supp. 359, 360 (M.D. La.
1997) (holding that court has authority under § 1447(e) to reject Rule

8
Under Section 1447(e), the actual decision on whether or not to
permit joinder of a defendant under these circumstances is committed
to the sound discretion of the district court; thus, this decision is not
controlled by a Rule 19 analysis. See supra note 11; 14C Charles
Alan Wright, Arthur R. Miller, & Edward H. Cooper, Federal Practice
and Procedure § 3739, at 445 (3d ed. 1998) ("Section 1447(e) gives
the court more flexibility than a strict Rule 19 analysis"). In exercis-
ing its discretion under Section 1447(e), the district court was entitled
to consider all relevant factors, including: "the extent to which the
purpose of the amendment is to defeat federal jurisdiction, whether
the plaintiff has been dilatory in asking for amendment, whether the
plaintiff will be significantly injured if amendment is not allowed, and
any other factors bearing on the equities." See Gum, 5 F. Supp. 2d at
414 (quoting Coley v. Dragon Ltd., 138 F.R.D. 460, 465 (E.D. Va.
1990) (citing Hensgens, 833 F.2d at 1182)). The district court, with
input from the parties, should balance the equities in deciding whether
the plaintiff should be permitted to join a nondiverse defendant. Id.
_________________________________________________________________
15(a) amendment that, post-removal and without leave of court, seeks to
add nondiverse defendant); Whitworth v. TNT Bestway Transp. Inc., 914
F. Supp. 1434, 1435 (E.D. Tex. 1996) (same); cf. Pfeiffer v. Hartford
Fire Ins. Co., 929 F.2d 1484, 1488 (10th Cir. 1991) (rejecting assump-
tion that "a party may force remand of an action after its removal from
state court by amending the complaint to destroy the federal court's juris-
diction over the action.").

That is what happened here. On March 20, 1998 -- after the case had
been removed -- Mayes filed her amended complaint naming Key as a
defendant. Since the Rapoports had not answered Mayes's complaint,
Mayes was not required, under Rule 15(a), to seek leave of court for
amendment. Thereafter, no party raised the fact that Key was a non-
diverse party, and the district court retained jurisdiction. However, on
June 3, 1998, the district court noted that Key was not diverse and
requested briefing on jurisdiction. Since no party raised the fact that Key
was not diverse, and since the district court had no prior opportunity to
pass upon the propriety of Key's joinder, the district court properly could
have invoked its authority, under § 1447(e) and related authority, to
determine whether Key was an appropriate party. See Hensgens v. Deere
& Co., 833 F.2d 1179, 1182 (5th Cir. 1987) (vacating joinder order
because district court permitted post-removal joinder of nondiverse party
"as a routine matter," without actually exercising discretion over the join-
der).

9
As noted, some courts have held the doctrine of fraudulent joinder
inapplicable after the case has been removed. See supra at 6. Those
courts reason that, since the federal court already possesses jurisdic-
tion, it need not "ignore" the citizenship of"fraudulently joined"
defendants in order to dismiss them from the case; rather, it can sim-
ply decline to permit joinder of the nondiverse defendant in the first
place. See Cobb, 186 F.3d at 678.12 We agree that the doctrine does
not directly apply after removal because the district court already pos-
sesses jurisdiction. However, if the defendants can carry the heavy
burden of proving fraudulent joinder, that fact should be a factor --
and perhaps the dispositive factor -- that the court considers in decid-
ing whether a plaintiff may join a nondiverse defendant. Thus, the
fraudulent joinder doctrine can be yet another element of the district
court's "flexible, broad discretionary approach" to resolving a post
removal question of whether a nondiverse defendant should be joined
under Section 1447(e). Gum, 5 F. Supp. 2d at 414.

We previously applied this approach in AIDS Counseling and Test-
ing Centers v. Group W Television, Inc., 903 F.2d 1000 (4th Cir.
1990). There, the plaintiffs sought leave to amend their complaint in
order to join a nondiverse defendant after removal. Id. at 1003. The
district court denied the motion, believing that the plaintiffs "sought
to amend their complaint solely to defeat diversity and to deprive the
court of jurisdiction." Id. Based on the facts present there, we held
that it was not an abuse of discretion to decline permission to amend
to add the nondiverse defendant. Significantly, notwithstanding that
the plaintiff in that case sought to join the defendant after removal,
we relied, in part, upon the doctrine of fraudulent joinder in affirming
the district court's decision. Id. at 1003-04.
_________________________________________________________________
12 In Cobb, the Fifth Circuit also reasoned that the fraudulent joinder
doctrine "does not apply to defendants who are joined after an action is
removed, for in such cases, the defendants have a chance to argue against
joinder before the court grants leave to amend." Cobb, 186 F.3d at 678.
This rationale rises and falls on the presumption that a district court
always has the opportunity to review an attempt at post-removal joinder.
Although we agree that the fraudulent joinder doctrine does not directly
apply post-removal, we do not rely upon this Fifth Circuit rationale
because joinder could technically occur without leave of court. See Fed.
R. Civ. P. 15(a).

10
3.

We emphasize that the district court was correct to carefully scruti-
nize Mayes's attempt to add a nondiverse defendant after removal.
Especially where, as here, a plaintiff seeks to add a nondiverse defen-
dant immediately after removal but before any additional discovery
has taken place, district courts should be wary that the amendment
sought is for the specific purpose of avoiding federal jurisdiction. See
AIDS Counseling and Testing Centers, 903 F.2d at 1003 (noting fact
that "plaintiffs had filed their motion to amend shortly after the case
was removed to federal court and before they had undertaken any dis-
covery" supported denial of motion to amend); Gum, 5 F. Supp. 2d
at 415 (same). Careful scrutiny of attempts at post-removal, non-
diverse joinder protects the diverse defendant's"interest in keeping
the action in federal court." See Coley, 138 F.R.D. at 465 (citations
omitted).

There are, however, other interests at stake when such a joinder is
sought, including the "danger of parallel lawsuits in federal and state
court, which may spawn inconsistent results and inefficient use of
judicial resources." Id. In this instance, it is apparent that the district
court determined fraudulent joinder to be dispositive of the joinder
question, inasmuch as it articulated no other basis for its dismissal of
Key. Thus, having concluded that the district court could properly
consider whether Key had been fraudulently joined by Mayes, we
must turn to the application of the fraudulent joinder doctrine to this
case.

B.

The central inquiry for jurisdictional purposes is whether the Rapo-
ports, the removing parties, established that Mayes had fraudulently
joined Key as a defendant. We have previously made clear that:

In order to establish that a nondiverse defendant has been
fraudulently joined, the removing party must establish
either: [t]hat there is no possibility that the plaintiff would
be able to establish a cause of action against the in-state
defendant in state court; or [t]hat there has been outright
fraud in the plaintiff's pleading of jurisdictional facts.

11
Marshall, 6 F.3d at 232 (quoting B., Inc. v. Miller Brewing Co., 663
F.2d 545, 549 (5th Cir. 1981)) (alteration in original; quotation omit-
ted). "The burden on the defendant claiming fraudulent joinder is
heavy: the defendant must show that the plaintiff cannot establish a
claim against the nondiverse defendant even after resolving all issues
of fact and law in the plaintiff's favor." Marshall, 6 F.3d at 232-33
(citing Poulos, 959 F.2d at 73). We recently noted that "[t]his stan-
dard is even more favorable to the plaintiff than the standard for rul-
ing on a motion to dismiss under Fed. R. Civ. P. 12(b)(6)." Hartley
v. CSX Transp., Inc., 187 F.3d 422, 424 (4th Cir. 1999). Further, in
determining "whether an attempted joinder is fraudulent, the court is
not bound by the allegations of the pleadings, but may instead `con-
sider the entire record, and determine the basis of joinder by any
means available.'" AIDS Counseling and Testing Centers, 903 F.2d
at 1004 (quoting Dodd v. Fawcett Publications, Inc., 329 F.2d 82, 85
(10th Cir. 1964)).

Here, the Rapoports do not assert "outright fraud"; rather, they
argue that Key's joinder does not defeat diversity because there is no
possibility that Mayes can state a claim against Key. The district court
agreed, holding that Mayes had extinguished her right-of-first-refusal
by submitting a non-matching offer when she first attempted to exer-
cise that right. In the alternative, the district court held that even if the
right-of-first-refusal had not been extinguished by the initial non-
matching offer, it was extinguished when Mayes failed to exercise the
right in a timely manner. Based on these alternative conclusions that
the right-of-first-refusal had been extinguished, the court held that
Mayes could not state a claim against either the Rapoports or Key.
Consequently, the court concluded that Mayes fraudulently joined
Key as a defendant, dismissed Key, and retained jurisdiction.

To the contrary, we hold that Mayes in fact stated a claim against
Key that withstands challenge on the basis of fraudulent joinder. By
her amended complaint, Mayes claimed (1) that the Rapoports entered
into a binding contract with Key, thereby breaching Mayes's right-of-
first-refusal by making it "impossible" for Mayes to exercise that
right; (2) that Mayes would have matched Key's offer if she had been
given the opportunity to do so; (3) that the Rapoports thus improperly
sold the property to Key; and (4) that Mayes is entitled to specific
performance, i.e., to get the property itself from Key. Put simply,

12
Mayes's claim for specific performance against Key requires that she
prove (1) that Mayes's right-of-first-refusal was breached; and (2)
that she is entitled to the remedy of specific performance against Key.

1.

To determine whether the district court properly concluded that
Key was fraudulently joined, we must first evaluate-- resolving all
issues of fact and law in Mayes's favor -- her claim that her right-of-
first-refusal was breached. Under Mayes's version of the facts,13
Mayes possessed a "right of first refusal to match an offer to purchase
the property." J.A. 6 (emphasis added). Mayes alleges, and the Rapo-
ports acknowledge, that, prior to accepting Key's offer, they did not
present the offer to Mayes. Instead, the Rapoports signed and
accepted Key's offer, creating a contract with Key. They then pre-
sented the Key contract for Mayes to match. The Key contract was
not expressly conditional; in other words, it did not condition sale of
the property upon, or even mention, Mayes's right-of-first-refusal.
Since the plain language of the right-of-first-refusal provided that
Mayes had the right to match an offer, Mayes can and does state a
claim; i.e., that the Rapoports violated the plain terms of the right-of-
first-refusal when they presented Mayes with the signed, uncondi-
tional Key contract, instead of an offer for the sale of the property.

The Rapoports argue, however, that it is "irrelevant" whether they
presented Mayes with a contract or an "offer" because Mayes failed
to match Key's terms once they were presented. We disagree. There
are relevant substantive differences between an offer and a signed,
_________________________________________________________________

13 Mayes claims that when the Rapoports presented their contract with
Key to Mayes so that Mayes could exercise her right-of-first-refusal, it
was "impossible" for Mayes to exercise her right because the Rapoports
had already transferred the property to Key. Relying on the doctrine of
"equitable conversion," see infra note 14, Mayes argues that the Rapo-
ports no longer owned the property; thus, they could not offer Mayes the
right to match Key's offer. Mayes's argument is more complicated than
it needs to be. As discussed below, Mayes's argument is premised on the
fact that the Rapoports signed and accepted Key's offer before presenting
it for Mayes to match. It is that factual premise upon which we rest our
decision.

13
unconditional contract, and presenting Mayes with a signed contract,
rather than an offer, could have altered Mayes's responses in the exer-
cise of her right-of-first-refusal.

For example, by attempting to match the Key contract, Mayes
could have been buying herself a lawsuit. Among other things, even
if Mayes had sent a "matching" offer to the Rapoports, the Rapoports
had accepted the matching offer, and the sale to Mayes had closed,
Mayes still could have been forced to sue to obtain equitable title14
from Key. Further, when she received the Key contract, Mayes was
forced to guess whether the Rapoports would risk breaching it in
order to attempt to comply with her right-of-first-refusal. Thus, the
Rapoports' failure to send Mayes an offer not only violated the plain
terms of the right-of-first-refusal, but also could have had practical
consequences on the value of the property and how Mayes decided to
"match." Under these circumstances, the Rapoports cannot credibly
argue that presenting Mayes with the Key contract-- instead of an
offer -- was irrelevant or harmless.

The Rapoports also argue on appeal that the accepted practice in
Maryland is for a seller to accept an offer, creating a contract, and
thereafter present that signed contract to the holder of a right-of-first-
refusal. In substance, the Rapoports' argument is that, in Maryland,
there is no difference between presenting an offer or a signed contract
to an option holder (i.e., the person holding a right-of-first-refusal).
However, in determining whether Key was fraudulently joined, we
must resolve all issues of law in favor of Mayes, Hartley, 187 F.3d
at 424; Marshall, 6 F.3d at 232-33, and the law of Maryland distin-
guishes between an offer and a contract. See Lemlich v. Bd. of Trust-
ees of Harford Community College, 385 A.2d 1185, 1189 (Md. 1978)
("It is so basic a contract principle that minimal supporting authority
is needed to authorize the statement that there must exist an offer by
one party and an unconditional acceptance of that precise offer by the
_________________________________________________________________
14 The doctrine of equitable conversion under Maryland law provides
that once a seller signs a contract for the sale of property, then, in equity,
the seller no longer owns that property. Rather, after a seller has signed
a sales contract, the buyer owns equitable title and the seller retains "bare
legal title." See Wolf Org., Inc. v. Oles, 705 A.2d 40, 45-46 (Md. Ct.
Spec. App. 1998).

14
other, prior to withdrawal by the offeror, before a binding [contract]
is born.").

Further, the single decision that the Rapoports rely upon to support
their assertion that there is no difference in Maryland between presen-
tation, to an option holder, of a contract and an offer, Yorkridge Serv.
Corp. v. Boring, 382 A.2d 343 (Md. Ct. Spec. App. 1978), does not
support them. In that case, the seller notified the option holder that it
had received an offer and gave the option holder a chance to match
that offer. Yorkshire was not a case in which the seller presented a
signed contract to an option holder. Thus, under the liberal fraudulent
joinder standard, we are confident that Mayes has stated a claim for
relief as to the first part of her claim against Key: that the right-of-
first-refusal held by Mayes under the lease was breached.

2.

If the Rapoports breached Mayes's right-of-first-refusal, then there
is a possibility that she can obtain specific performance against Key.
"[W]here a contract for the sale of realty is fair, reasonable and cer-
tain, it is as much a matter of course for a court of equity to decree
specific performance as it is for a court of law to award damages for
its breach." Manning v. Potomac Elec. Power Co., 187 A.2d 468,
472-73 (Md. 1963). A Maryland state court could well order specific
performance, depending on, inter alia, Key's knowledge and involve-
ment in the breach. Although there may be a substantial burden on
Mayes to establish entitlement to specific performance, "there need be
only a slight possibility of a right to relief" to defeat a claim of fraud-
ulent joinder. Hartley, 187 F.3d at 426. We believe, at the very least,
there is, in the Hartley sense, a "glimmer of hope" for such relief in
this case.15 Id.
_________________________________________________________________
15 The Rapoports also argue that Mayes's claim against Key would not
survive a motion to dismiss because Mayes waited seven months after
she knew of the contract and five months after the actual sale to seek spe-
cific performance, and that this demonstrates that Mayes was not
"prompt and eager" in seeking specific performance. Br. for Appellee at
12 (quoting Clarke v. Brunk, 55 A.2d 919 (Md. 1947)). This argument
misses the point for several reasons. First, we review claims of fraudu-
lent joinder under a standard more lenient than that for a motion to dis-

15
IV.

This is a dispute involving Maryland contract and real property
legal principles, and we express no opinion as to any party's likeli-
hood of success on the merits. However, the Rapoports have not car-
ried the heavy burden required to establish that Mayes fraudulently
joined Key as a defendant. We therefore vacate the district court's
dismissal under Rule 12(b)(6), reverse its decision on jurisdiction, and
remand with instructions to further remand to the state court.

VACATED IN PART, REVERSED IN PART,
AND REMANDED WITH INSTRUCTIONS
_________________________________________________________________
miss. Second, the "prompt and eager" language from Clarke involved the
applicability of the defense of laches, a fact-specific defense that cer-
tainly cannot be the basis of finding fraudulent joinder if we resolve each
factual and legal issue in Mayes's favor. This "prompt and eager"
defense does not persuade us that Mayes fraudulently joined Key as a
defendant.

16