Diversity Jurisdiction and Fraudulent Joinder
By Jill Mertz, a citizen of Tennessee, brought suit to recover damages resulting from the wrongful death of her mother Dorothy Collins. Ms. Collins was a resident at a nursing home operated by defendant Alterra Healthcare Corporation. Ms. Mertz filed her initial action against Alterra in the Circuit Court for Blount County, Tennessee. Defendant Alterra removed the case to the Federal Court for the Eastern District of Tennessee based upon diversity jurisdiction pursuant to 28 U.S.C. § 1332(a)(1). Subsequently, Ms. Mertz discovered the identity of previously unidentified parties who were involved in the conduct that formed the basis for the complaint, and she filed a motion to amend her complaint to add the new defendants. Defendant Alterra did not oppose plaintiff’s motion to amend, which was granted by the court. Ms. Mertz then filed her amended complaint adding two additional defendants, one a citizen of the State of Tennessee and the other a corporation organized and operating under the laws of the State of Tennessee.
Ms. Mertz then filed a motion to remand the case to state court on the grounds that the joinder of two non-diverse defendants destroyed diversity jurisdiction. Alterra claimed that the addition of the non-diverse defendants was for the sole purpose of destroying diversity jurisdiction and that this constituted “fraudulent joinder.”
The court held that, in order to find “fraudulent joinder,” there must be a showing of “outright fraud in plaintiff’s pleading of jurisdictional facts” or “no possibility that the plaintiff would be able to establish a cause of action against the in-state defendants in state court.” Here, plaintiff alleged a valid cause of action against the additional defendants, so diversity was destroyed and remand proper. See Mertz v. Alterra Healthcare Corp., 2010 WL 908930 (E.D. Tenn. Mar. 12, 2010).
Interestingly, at the time of the original removal, complete diversity existed between the named plaintiffs and all named defendants, and removal was proper. However, even if removal was proper in the first instance, “if at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.” 28 U.S.C. § 1447(c). Further, “if after removal, the plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to state court.” 28 U.S.C. § 1447(e). Here, where an amended complaint was filed to include the identity of a previous unidentified defendant, diversity was properly determined at the time of the filing of the amended complaint.
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