Kelli Smallwood v. Illinois Central Railroad Company Mississippi Department of Transportation

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Today we decide a narrow but not unimportant question regarding diversity jurisdiction in federal courts and the application of the doctrine of “improper joinder.”1 This is the first time this Court en banc has addressed the issue of improper join-der, although a number of panels of this Court have previously addressed it. We hold that, when a nonresident defendant’s showing that there is no reasonable basis for predicting that state law would allow recovery against an in-state defendant equally disposes of all defendants, there is no improper joinder of the in-state defendant. In such a situation, the entire suit must be remanded to state court. In this case, it is undisputed that the district court’s decision that Smallwood’s claims against the in-state' defendant were preempted effectively decided the entire case. On these facts, we conclude that the district court érred in deciding the merits of the proffered defense of preemption and in not remanding the case to the state court from which it was removed.

I

Kelli Smallwood is a Mississippi resident who was injured when a train struck her car at a railroad crossing in Florence, Mississippi'. The train was operated by Illinois Central, an Illinois corporation, and the railroad crossing was controlled by an agency of the Mississippi state government, the Mississippi Department of Transportation (“MDOT”). At the time of the accident, the crossing did not have automatic gates; it was equipped only with warning lights, which had been installed using federal funds. After the accident, Smallwood filed suit in Mississippi state *572court against both Illinois Central and MDOT, raising claims of negligence. She alleged, in particular, that MDOT negligently failed to install gates at the crossing despite its knowledge that the crossing was unreasonably dangerous and extraordinarily hazardous.

Illinois Central removed the case to federal court. Illinois Central maintained that Smallwood’s claims against MDOT were preempted by the Federal Railroad Safety Act (“FRSA”).2 Reasoning that the preemption defense barred Smallwood’s claims against MDOT, Illinois Central argued that Smallwood had improperly joined MDOT because, under the FRSA, there was no reasonable possibility of recovery against MDOT.

The district court accepted Illinois Central’s argument, dismissed MDOT from the case, and denied Smallwood’s motion to remand. Applying the “law of the case,” the district court then granted summary judgment for Illinois Central on the basis that Smallwood’s claim against the railroad was equally preempted. The railroad won its case when it persuaded the district court that the claims against the in-state defendant, MDOT, were preempted.3

A panel of this court concluded that Illinois Central had not carried its burden of demonstrating that the joinder of MDOT was fraudulent, reversed the district court’s dismissal of the case on its merits, and ordered the case remanded to state court. We voted to rehear the case en banc.

II

The starting point for analyzing claims of improper joinder must be the statutes authorizing removal to federal court of eases filed in state court. The federal removal statute, 28 U.S.C. § 1441(a), allows for the removal of “any civil action brought in a State court of which the district courts of the United States have original jurisdiction.” Subsection (b) specifies that suits arising under federal law are removable without regard to the citizenship of the parties; all other suits are removable “only if none of the parties in interest properly joined. and served as defendants is a citizen of the State in which such action is brought.”4 To remove a case based on diversity, the diverse defendant must demonstrate that all of the prerequisites of diversity jurisdiction contained in 28 U.S.C. § 1332 are satisfied. Relatedly, a district court is prohibited by statute from exercising jurisdiction over a suit in which any party, by assignment or otherwise, has been improperly or collusively joined to manufacture federal diversity jurisdiction.5 As Professor Wright has noted:

*573“[T]he Federal courts should not sanction devices intended to prevent the removal to a Federal court where one has that right, and should be equally vigilant to protect the right to proceed in the Federal court as to permit the state courts, in proper cases, to retain their own jurisdiction.”6

The doctrine of improper joinder rests on these statutory underpinnings, which entitle a defendant to remove to a federal forum unless an in-state defendant has been “properly joined.” Since the purpose of the improper joinder inquiry is to determine whether or not the in-state defendant was properly joined, the focus of the inquiry must be on the joinder, not the merits of the plaintiffs case.

Given this focus, we have recognized two ways to establish improper join-der: “(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.”7 Only the second way is before us today, and we explained in Travis v. Irby8 that the test for fraudulent joinder is whether the defendant has demonstrated that there is no possibility of recovery by the plaintiff against an in-state defendant, which stated differently means that there is no reasonable basis for the district court to predict that the plaintiff might be able to recover against an in-state defendant. To reduce possible confusion, we adopt this phrasing of the required proof and reject all others, whether the others appear to describe the same standard or not.9

There has also been some uncertainty over the proper means for predicting whether a plaintiff has a reasonable basis of recovery under state law. A court may resolve the issue in one of two ways. The court may conduct a Rule 12(b)(6)-type analysis, looking initially at the allegations of the complaint to determine whether the complaint states a claim under state law against the in-state defendant.10 Ordinarily, if a plaintiff can survive a Rule 12(b)(6) challenge, there is no improper joinder. That said, there are cases, hopefully few in number, in which a plaintiff has stated a claim, but has misstated or omitted discrete facts that would determine the propriety of joinder. In such cases, the district court may, in its discretion, pierce the pleadings and conduct a summary inquiry.11

While the decision regarding the procedure necessary in a given case must lie within the discretion of the trial court, we caution that a summary inquiry is appropriate only to identify the presence of discrete and undisputed facts that would preclude plaintiffs recovery against the in*574state defendant.12 In this inquiry the motive or purpose of the joinder of in-state defendants is not relevant. We emphasize that any piercing of the pleadings should not entail substantial hearings. Discovery by the parties should not be allowed except on a tight judicial tether, sharply tailored to the question at hand, and only after a showing of its necessity. Attempting to proceed beyond this summary process carries a heavy risk of moving the court beyond jurisdiction and into a resolution of the merits, as distinguished from an analysis of the court’s diversity jurisdiction by a simple and quick exposure of the chances of the claim against the in-state defendant alleged to be improperly joined. Indeed, the inability to make the requisite decision in a summary manner itself points to an inability of the removing party to carry its burden.

III

Illinois Central argues that the district court’s finding of improper joinder was appropriate because Smallwood’s claims against MDOT were preempted by federal law. Illinois Central urges, moreover, that it is irrelevant that the FRSA equally bars claims against it.

Facing the question for the first time in an en bane proceeding, we reject the railroad’s contention. To justify removal on improper joinder grounds, Illinois Central was required to prove that the joinder of MDOT was improper. Illinois Central, however, brought no contention going to the propriety of the joinder. Rather, the basis of its contention that Smallwood could not recover went, in fact, to the entire case, although it was first directed to Smallwood’s claims against MDOT. Then, with jurisdiction secured, and with all the force of the “law of the case,” this same preemption was directed to the merits of Smallwood’s claims against the railroad.

A claim of improper joinder by definition is directed toward the joinder of the in-state party, a simple but easily obscured concept. The party seeking removal bears a heavy burden of proving that the joinder of the in-state party was improper.13 Nevertheless, when, on a motion to remand, a showing that compels a holding that there is no reasonable basis for predicting that state law would allow the plaintiff to recover against the in-state defendant necessarily compels the same result for the nonresident defendant, there is no improper joinder; there is only a lawsuit lacking in merit. In such cases, it makes little sense to single out the in-state defendants as “sham” defendants and call their joinder improper. In such circumstances, the allegation of improper joinder is actually an attack on the merits of plaintiffs case as such — an allegation that, as phrased by the Supreme Court in Chesapeake & O.R. Co. v. Cockrell, “the plaintiffs case [is] ill founded as to all the defendants.”14 In reaching this conclusion, we are applying our traditional improper joinder analysis.

In Cockrell, the Supreme Court reviewed an effort by a railroad to remove a case to federal court on improper joinder grounds. The railroad argued that the plaintiffs negligence charges against the *575defendants were “each and all ‘false and untrue’ ” and that the in-state defendants were added simply to defeat diversity.15 Emphasizing that “the showing must be such as compels the conclusion that the joinder is without right and made in bad faith,” the Court rejected the railroad’s argument.16 The Court reasoned that although the plaintiffs petition “may have disclosed an absence of good faith on the part of the plaintiff in bringing the action at all, ... it did not show a fraudulent joinder of the engineer and fireman.’”17 Since “no negligent act or omission personal to the railway company was charged,” the improper joinder allegations directed at the employees “manifestly went to the merits of the action as an entirety, and not to the joinder; that is to say, it indicated that the plaintiffs case was ill founded as to all the defendants.”18

The Supreme Court thus made clear that the burden on the removing party is to prove that the joinder of the instate parties was improper—that is, to show that sham defendants were added to defeat jurisdiction. A showing that the plaintiffs case is barred as to all defendants is not sufficient. When the only proffered justification for improper joinder is that there is no reasonable basis for predicting recovery against the in-state defendant, and that showing is equally dis-positive of all defendants rather than to the in-state defendants alone, the requisite showing has not been made.

Our insistence that a removing defendant demonstrate that the joinder was improper does not impair a foreign defendant’s right to remove. “[T]he Federal courts may and should take such action as will defeat attempts to wrongfully deprive parties entitled to sue in the Federal courts of the protection of their rights in those tribunals.”19 In every case where a diverse defendant proves that the plaintiffs decision to join an in-state party is improper, the diverse defendant gains access to the federal courts. If, however, the foreign defendant fails to prove the joinder improper, then diversity is not complete, the diverse defendant is not entitled to remove, and remand is mandated.

Illinois Central contends, nonetheless, that our decision contradicts prior holdings of this circuit which have allowed a finding of improper joinder based on defenses going to the merits of the plaintiffs case, rather than to the joinder.20 Yet we are not pointed to any decision of this Court where the assertion was made and rejected. It was asserted here, and our decision today fits squarely. within our improper joinder doctrine and finds strong support in the Supreme Court’s decision in Cock-rell and the decision of the Third Circuit in Boyer v. Snap-On Tools Corp.21

While we need not deploy the well-pleaded complaint rule, it is not unimportant that our application of the improper joinder doctrine here disallows circumvention of the well-pleaded complaint rule. The railroad could not remove on the basis *576of federal question jurisdiction because the only federal question appeared as a defense. Nonetheless, Illinois Central did just that: it removed on the basis of a defense of federal conflict preemption, urged as the bar to a reasonable basis for predicting recovery against MDOT, the instate defendant. The appropriate application of the doctrine of improper joinder to this extent leaves intact the well-pleaded complaint doctrine with all its intended reach.

IV

It is urged that this application of the improper joinder doctrine undermines the purpose of diversity jurisdiction, which is to protect out-of-state defendants from local bias, the proverbial “home cooking.” But our holding today is narrow. It applies only in that limited range of cases where the allegation of improper joinder rests only on a showing that there is no reasonable basis for predicting that state law would allow recovery against the instate defendant and that showing is equally dispositive of all defendants.

The doctrine of improper joinder implements our duty to not allow manipulation of our jurisdiction. We are not persuaded that we can or should—as we are now urged to do—hold that Strawbridge v. Curtiss22 does not apply to suits wholly lacking “merit,” at least as seen by a federal court. 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 Congress, as congressional efforts to respond to abuses in state court class action litigation by allowing their removal on minimal diversity have 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 and local plaintiffs seeking to avoid more distant justice is in fact an old and recurring song. It is a living dynamic, not an historic relic. To the point, our insistence that diversity removal, powerful as it is, remain within its eongressionally marked traces is demanded by principles of comity and federalism—that a state court is to be trusted to handle the suit unless the suit satisfies the removal requirements.

It is argued that our holding 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, misconstrues the inquiry on removal. When a defendant removes a case to federal court on a claim of improper joinder, the district court’s first inquiry is whether the removing party has carried its heavy burden of proving that the joinder was improper. Indeed, until the removing party does so, the court does not have the authority to do more; it lacks the jurisdiction to dismiss the case on its merits. It must remand to the state court.

Illinois Central seeks 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 diversity jurisdiction.

V

The judgment of the district court is VACATED and the case is REMANDED *577to the district court with instructions to remand for want of jurisdiction to the state court from which it was removed.

. We adopt the term “improper joinder” as being more consistent with the statutory language than the term "fraudulent joinder,” which has been used in the past. Although there is no substantive difference between the two terms, "improper joinder” is preferred.

. The Federal Railroad Safety Act prohibits states from enforcing state laws when the Secretary of Transportation has adopted regulations covering the same subject. See 49 U.S.C.§§ 20101-20153.

. Smallwood raised two closely related claims against MDOT: that MDOT negligently failed to install gates and that its delay in installing gates was negligent. The district court rejected both of these claims on the basis of preemption, concluding that the FRSA preempted all of Smallwood's claims against MDOT. See Smallwood v. Illinois Central RR Co., No. 3:01-cv-561BN (S.D.Miss. Aug. 14, 2002) (Opinion and Order); see also Smallwood v. Illinois Central R.R. Co., 203 F.Supp.2d 686 (S.D.Miss.2002). At oral argument, Illinois Central conceded that resolution of its preemption defense required dismissal of Small-wood’s case in its entirety.

. 28 U.S.C. § 1441(b) (emphasis added).

. 28 U.S.C. § 1359. Section 1359 reads in full: "A district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court.”

. 14 Charles Alan Wright et al., Federal Practice and Procedure § 3641, at 173 (3d ed.1998) (alteration in original) (quoting Wecker v. Nat’l Enameling & Stamping Co., 204 U.S. 176, 186, 27 S.Ct. 184, 51 L.Ed. 430 (1907)).

. Travis v. Irby, 326 F.3d 644, 646-47 (5th Cir.2003).

. Id. at 648.

. A "mere theoretical possibility of recovery under local law” will not preclude a finding of improper joinder. Badon v. RJR Nabisco, Inc., 236 F.3d 282, 286 n. 4. (5th Cir.2000).

. See McKee v. Kansas City S. Ry. Co., 358 F.3d 329, 334 (5th Cir.2004); see also Parles v. New York Times, Co., 308 F.2d 474, 478 (5th Cir.1962) (explaining that "there can be no fraudulent joinder unless it be clear that there can be no recovery under the law of the state on the cause alleged, or on the facts in view of the law as they exist when the petition to remand is heard”).

. Badon, 224 F.3d at 389 n. 10.

. For example, the in-state doctor defendant did not treat the plaintiff patient, the in-state pharmacist defendant did not fill a prescription for the plaintiff patient, a party's residence was not as alleged, or any other fact that easily can be disproved if not true. See Irby, 326 F.3d at 648-49.

. See, e.g., Griggs v. State Farm Lloyds, 181 F.3d 694, 701 (5th Cir.1999).

. 232 U.S. 146, 153, 34 S.Ct. 278, 58 L.Ed. 544 (1914).

. Id. at 151, 34 S.Ct. 278.

. Id. at 152, 34 S.Ct. 278.

. Id. at 153, 34 S.Ct. 278.

. Id.

. Alabama Great S. Ry. Co. v. Thompson, 200 U.S. 206, 218, 26 S.Ct. 161, 50 L.Ed. 441 (1906).

. This argument was not presented to the able district judge. Going as it does to our subject-matter jurisdiction, we must decide it.

. 913 F.2d 108 (3d Cir.1990); see also In re New England Mutual Life Ins. Co. Sales Practices Litig., 324 F.Supp.2d 288 (D.Mass.2004). But cf. Ritchey v. Upjohn Drug Co., 139 F.3d 1313, 1320 (9th Cir.1998).

. 7 U.S. (3 Cranch.) 267, 2 L.Ed. 435 (1806).