United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
December 1, 2003
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 02-60782
KELLI SMALLWOOD,
Plaintiff-Appellant,
versus
ILLINOIS CENTRAL RAILROAD COMPANY;
MISSISSIPPI DEPARTMENT OF TRANSPORTATION,
Defendants-Appellees.
Appeal from the United States District Court
for the Southern District of Mississippi
ON PETITION FOR REHEARING
Before KING, Chief Judge, HIGGINBOTHAM and STEWART, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
Appellees Illinois Central and Mississippi Department of
Transportation have moved for rehearing following our decision
ordering remand of this case to state court.1 Appellees contend
that our decision conflated the removal rules applicable to federal
question jurisdiction with those governing diversity removal.
1
See Smallwood v. Ill. Cent. R.R. Co., 342 F.3d 400 (5th
Cir. 2003).
Treating appellees’ petitions for en banc rehearing as petitions
for panel rehearing, the petitions for panel rehearing are denied.
In this case, we rejected Illinois Central’s attempts to
remove to federal court based on a preemption defense that barred
suit against all defendants. In so doing, we insisted that the
joinder of the local defendant be shown to be improper. We applied
the common defense rule first enunciated by the Supreme Court in
Chesapeake & O. R. Co. v. Cockrell.2 In Cockrell, the Supreme
Court reviewed an effort by a diverse railroad to remove a case to
federal court on fraudulent joinder grounds. To justify the
finding of fraudulent joinder, the railway claimed that the
plaintiff’s negligence charges against the defendants were “each
and all ‘false and untrue’” and that the local defendants were
added simply to defeat diversity.3 The Supreme Court rejected the
railway’s argument, noting:
So, when in such a case a resident defendant
is joined with the nonresident, the joinder,
even although fair upon its face, may be shown
by a petition for removal to be only a
fraudulent device to prevent a removal; but
the showing must consist of a statement of
facts rightly engendering that conclusion.
Merely to traverse the allegations upon which
the liability of the resident defendant is
rested, or to apply the epithet ‘fraudulent’
to the joinder, will not suffice: the showing
must be such as compels the conclusion that
2
232 U.S. 146 (1914).
3
Id. at 151.
2
the joinder is without right and made in bad
faith . . . .
. . . And while the plaintiff's statement
was not conclusive upon the railway company,
it did operate to lay upon the latter, as a
condition to a removal, the duty of showing
that the joinder of the engineer and fireman
was merely a fraudulent device to prevent a
removal. Of course, it was not such unless it
was without any reasonable basis.
Putting out of view, as must be done, the
epithets and mere legal conclusions in the
petition for removal, it may have disclosed an
absence of good faith on the part of the
plaintiff in bringing the action at all, but
it did not show a fraudulent joinder of the
engineer and fireman. . . . As no negligent
act or omission personal to the railway
company was charged, and its liability, like
that of the two employees, was, in effect,
predicated upon the alleged negligence of the
latter, the showing manifestly went to the
merits of the action as an entirety, and not
to the joinder; that is to say, it indicated
that the plaintiff's case was ill founded as
to all the defendants. Plainly, this was not
such a showing as to engender or compel the
conclusion that the two employees were
wrongfully brought into a controversy which
did not concern them.4
The Supreme Court thus made clear that the burden on the removing
party is to prove that the joinder of the local parties was
fraudulent; a showing that the plaintiff’s case is barred as to all
defendants is not sufficient. When the only proffered justification
for fraudulent joinder is that there is no reasonable basis for
predicting recovery against the local defendant and that showing is
4
Id. at 152-53 (emphasis added) (internal citations omitted).
3
a fortiori applicable to all defendants, rather than to the local
defendants alone, the requisite showing has not been made.
The common defense rule reminds us that the proper focus of a
fraudulent joinder claim is whether the joinder of the local
parties was fraudulent, a simple concept that is too easily
obscured. The fraudulent joinder doctrine is a narrow exception to
the rule that diversity jurisdiction requires complete diversity.
As such, “the burden of demonstrating fraudulent joinder is a heavy
one.”5 To establish fraudulent joinder, the party seeking removal
to the federal forum must either show “(1) actual fraud in the
pleading of jurisdictional facts, or (2) inability of the plaintiff
to establish a cause of action against the non-diverse party in
state court.”6 Under this second prong, we examine “[i]f there is
‘arguably a reasonable basis for predicting that the state law
might impose liability on the facts involved.’”7 If not, then we
conclude that the plaintiff’s decision to join the local defendant
was fraudulent unless that showing a fortiori compels dismissal of
all defendants.8 Stated another way, when on a motion to remand a
5
See, e.g., Griggs v. State Farm Lloyds, 181 F.3d 694, 701 (5th
Cir. 1999).
6
Smallwood, 342 F.3d at 402 (citing Travis v. Irby, 326 F.3d
644, 647 (5th Cir. 2003)).
7
Jernigan v. Ashland Oil Inc., 989 F.2d 812, 816 (5th Cir.
1993) (quoting Bobby Jones Garden Apts. v. Suleski, 391 F.2d 172,
177 (5th Cir.1968)).
8
In conducting this analysis, a district court may “pierce the
pleadings” and consider evidence outside of the pleadings. Travis
4
defendant’s showing that there is no possibility of recovery
against the local defendant equally discharges the non-resident
defendant, there is no fraudulent joinder, only a lawsuit lacking
in merit. In such cases, it makes little sense to single out the
local defendants as “sham” defendants and call their joinder
fraudulent. In such circumstances, the allegation of fraudulent
joinder is more properly an attack on the plaintiff’s case as such
– an allegation that “the plaintiff’s case [is] ill founded as to
all the defendants.”9
Despite Appellees’ contention to the contrary, the common
defense rule does not impair a foreign defendant’s right to remove.
In every case where a diverse defendant proves that the plaintiff’s
decision to join a local party is fraudulent, the diverse defendant
gains access to the federal courts. If the foreign defendant fails
to prove the joinder fraudulent, then diversity is incomplete and
the diverse defendant is not entitled to remove.
v. Irby, 326 F.3d 644, 648-49 (5th Cir. 2003). Nonetheless, the
fraudulent joinder inquiry is a summary inquiry conducted in order
to determine whether the court has jurisdiction over the matter.
A court may thus not use fraudulent joinder as an excuse to pre-try
the merits of the case. Keating v. Shell Chemical Co., 610 F.2d
328, 331-32(5th Cir. 1980).
9
Cockrell, 232 U.S. at 153.
5
Appellees have raised three general arguments in support of
rehearing. Their primary contention is that we have misread
Cockrell, which in their view stands only for the proposition that
a court may not prematurely try the factual merits of a case in a
fraudulent joinder inquiry. We disagree. In Cockrell, the Supreme
Court rejected a defendant’s effort to prove that a non-diverse
defendant was fraudulently joined when the only grounds proffered
applied equally to all defendants. Nothing in Cockrell limits the
application of this rule to factual defenses or to defenses
exogenous to the plaintiff’s cause of action. Appellees in this
case brought no evidence that the joinder of the non-diverse
defendant was fraudulent, only an allegation that the case, as to
all defendants, was ill-founded. Such a showing cannot support an
inference that the joinder of the local defendants was fraudulent.10
10
Appellee Illinois Central also argues that Cockrell’s common
defense holding must be understood in light of the then-extant
separable controversies doctrine, a removal principle that allowed
a diverse defendant to remove separable portions of an otherwise
non-removable suit unless the defendants were jointly liable.
Illinois Central claims that Cockrell’s common defense theory did
not survive amendments to the removal statutes that eliminated
separable controversies as a basis for removal. We disagree.
Illinois Central errs by conflating the separable controversies
doctrine with the separate and distinct fraudulent joinder inquiry.
See Wecker v. Nat’l Enameling & Stamping Co., 204 U.S. 176 (1907).
The Cockrell Court did not rest its decision to remand on the
asserted joint liability of the defendants, as it would have if the
separable controversies doctrine was the focus of its opinion.
Indeed, the Court neither mentioned nor discussed the separable
controversies doctrine or its joint liability exception. Rather,
the Court directly addressed whether the diverse defendant’s
showing demonstrated fraudulent joinder, and the Court clearly held
that the defendant’s showing – a defense common to all defendants
6
Appellees further contend that our decision to apply the
common defense rule contradicts prior holdings of this circuit
which have allowed a finding of fraudulent joinder based on a
common defense. This circuit, however, has never before addressed
the common defense rule. The mere fact that prior cases failed to
discuss the issue does not grant us license to continue to ignore
Supreme Court precedent. Since Cockrell is applicable to this
case, we cannot fail to apply the common defense rule simply
because it has not been urged in the past.
Appellees’ final contention is that our decision somehow
confuses the application of federal question and diversity removal,
pointing to the reference in our opinion to the well-pleaded
complaint rule. This misconstrues our statements. In the opinion,
we noted that Appellees could not remove on the basis of federal
question jurisdiction because the only federal question appeared as
a defense. Nonetheless, Appellees did just that: they removed on
the basis of their federal conflict preemption defense, but
attempted to portray it as an issue of fraudulent joinder. This
use of fraudulent joinder would only undermine the well-pleaded
complaint rule. We emphasize, however, that the common defense
rule is not limited to cases that seek to avoid the well-pleaded
complaint rule.
– did not “compel[] the conclusion that the joinder [wa]s without
right and made in bad faith.” Cockrell, 232 U.S. at 152.
7
Amici have also raised policy-based arguments which, they
assert, justify reconsideration of our decision. They contend,
first, that the common defense rule undermines the purpose of
diversity jurisdiction, which is to protect out-of-state defendants
from local bias, the proverbial “home cooking.” We disagree. As
a preliminary matter, we noted in our opinion that the common
defense rule applies only in that limited range of cases where the
allegation of fraudulent joinder rests only on a showing that there
is no possibility of recovery against the local defendant and that
showing is a fortiori common to all defendants. But more
significantly, Amici misstate the effect of our insisting that
wrongful joinder be shown. We only require that the removing
defendant show that the joinder was fraudulent. The common defense
rule thus does not in any way upset the purpose of diversity
jurisdiction: it reinforces the bedrock principle that a defendant
is not entitled to a federal forum unless there is complete
diversity of citizenship, something that a defendant crying
fraudulent joinder must prove in order to justify disregarding the
absence of complete diversity.
Amici’s immediate concern is understandably not to protect the
abstract rationale underlying diversity jurisdiction. Rather, it
is to allow defendants to flee the state courts. Amici argue that
on remand, a state court reviewing a case like this one might
somehow “improperly breathe life” into claims that are barred by
federal law or some other legal defense. Given this “state court
8
legal climate,” Amici urge us to be vigilant in protecting a
diverse defendant’s removal right. The argument is that the state
court cannot be trusted to recognize the absence of merit in this
genre of wholly-meritless cases. We remind that diversity
jurisdiction is itself a response to such distrust, and the
doctrine of fraudulent joinder is a judicially-created exception to
the complete diversity rule. We are not persuaded that we can or
should further expand this exception, as we are now urged to do –
to hold that Strawbridge v. Curtis11 does not apply to suits wholly
lacking merit. That is not a rule of joinder, but a recrafting of
Strawbridge. Until Congress changes our jurisdiction and allows us
to hear cases based on something less than complete diversity, we
cannot act. And make no mistake, whether to confer diversity
jurisdiction in the absence of complete diversity is a
quintessential political decision belonging to the Congress, as
recent congressional efforts to respond to abuses in state court
class action litigation by allowing their removal on minimal
diversity has so recently reminded us.
It is no accident that the first Congress conferred removal
jurisdiction, accommodating competing political interests. Removal
remains a centerpiece of our federalism. The cry of out-of-state
interests seeking to escape local courts is in fact an old and
recurring song. To the point, our insistence that diversity
11
Strawbridge v. Curtiss, 7 U.S. (3 Cranch.) 267 (1806).
9
removal, powerful as it is, remain within its congressionally
marked traces is demanded by principles of federalism – that a
state court is to be trusted to handle the suit unless the suit
satisfies the removal requirements.
Amici’s final claim is that the common defense rule undermines
judicial economy by forcing a federal district court to remand a
meritless case to state court rather than dismiss it outright.
This argument, however, fundamentally misconstrues the inquiry on
removal. When a defendant removes a case to federal court on a
claim of fraudulent joinder, the district court’s only inquiry is
whether the joinder was fraudulent. Indeed, until the removing
party proves that the local defendant has been fraudulently joined,
the court does not have the authority to do more; there is no
jurisdiction to evaluate the merits of the suit or dismiss the
case. Viewed properly, then, it is not the remand to state court
that wastes judicial resources; it is the misguided effort by the
diverse party to gain access to the federal forum.
Appellees understandably seek broader license to escape from
state court, but we are not authorized to grant such a request, as
compelling as it may be. It is the province of Congress to modify
the complete diversity rule by allowing properly joined local
defendants to be disregarded.
The petitions for panel rehearing are DENIED.
10