Practice Tip

The conclusion of this article will suggest strategies to defeat fraudulent joinder.

Lori G. Cohen, a member of this newsletter's Board of Editors, is a shareholder with Greenberg Traurig, LLP. John B. Merchant, III is an associate.

Part One of a Two-Part Article

Over the past decade, plaintiffs have stepped up their assaults on federal diversity jurisdiction in pharmaceutical and medical device litigation. Along with their efforts to chip away at the learned intermediary doctrine, plaintiffs increasingly are attempting to join local sales representatives fraudulently in order to defeat diversity. Moreover, plaintiffs have not been shy about their intentions: “To avoid removal to federal court in cases where it is deemed advisable to do so, a wise strategy for a plaintiff in a personal injury case is to look for a valid claim against a local party in the forum in which the plaintiff seeks to file the claim.” See Michael L. Williams & John Waldman, Parties, in 1 ATLA's LITIGATING TORT CASES '5:33 (Roxanne Barton Conlin & Gregary S. Cusimano eds., 2003) and David S. Casey, Jr. & Jeremy Robinson, Removal to Federal Court, in 1 ATLA's LITIGATING TORT CASES '7:6 (Roxanne Barton Conlin & Gregary S. Cusimano eds., 2003). In recent years, many plaintiffs have not been so concerned with “valid” claims and, instead, have named local parties against whom they have no legitimate claims.

In mass tort and individual cases alike, plaintiffs often
allege that the sales representative is individually liable for fraudulent or negligent verbal representations to the patient's physician and/or the patient that supersede or interdict the manufacturer's written warning to the physician or other information contained in the product's labeling. Plaintiffs may also allege that the sales representative knew or should have known of the alleged harmful effects of the pharmaceutical or device, but failed to inform the physician and/or the patient of those effects. Depending on the applicable state law, plaintiffs may also allege such claims as infliction of emotional distress, fraudulent concealment, breach of warranty, unfair or deceptive acts or trade practices, loss of consortium, conversion, breach of contract, unjust enrichment, conspiracy, invasion of privacy, failure to warn, and strict liability against the sales representative.

Plaintiffs typically allege that under the local state's laws, the sales representative is not merely an agent of the company, but is individually liable as a joint-tortfeasor for his or her own alleged tortious conduct. In many instances, these allegations are nothing more than a sham at the expense of the foreign defendant, which unfairly and unnecessarily drag individual sales representatives into litigation.

With the growth of direct-to-consumer advertising and ever-increasing criticism from the national media as to the manner in which medical drugs and devices are developed, approved, and sold, the trend of naming as defendants individual sales representatives in pharmaceutical litigation is likely to continue and grow in the coming years. In fact, as courts continue to strike down plaintiffs' efforts to forum shop, plaintiffs will craft new theories of individual liability against the sales representatives.

This trend threatens to destroy one of the most important weapons in a foreign defendant's arsenal ' the right to have the case tried in federal court. In response to this trend, manufacturers of pharmaceuticals and medical devices throughout the country have been waging an intensifying battle over forum selection.

While the specific strategies employed in individual cases will vary, depending on the facts and circumstances of each case and the jurisdiction in which the case is pending, there are some fairly common approaches that may help arm the district court with the information it needs to retain jurisdiction.

General Principles

The concept of fraudulent joinder is not new. The United States Supreme Court first addressed the issue more than a century ago, and much has been written on the subject since. In the early 1900s, the Supreme Court first recognized that a plaintiff's fraudulent joinder of a non-diverse “jurisdictional spoiler” does not intrude on a defendant's right to remove the case to federal court. See Alabama Great S. Ry. Co v. Thompson , 200 U.S. 206, 217, 26 S. Ct. 161, 50 L. Ed 441 (1906). A defendant may show in its removal papers that joinder was used as a “fraudulent device to prevent a removal.” See Wilson v. Republic Iron & Steel Co. , 257 U.S. 92, 97, 42 S. Ct. 35, 66 L. Ed. 144 (1921). The Supreme Court originally described fraudulent joinder as occurring when the plaintiff has no reasonable basis for the claim against the jurisdictional spoiler. See Chesepeake & Ohio Ry. Co. v. Cocktrell , 232 U.S. 146, 153, 34 S. Ct. 278, 58 L. Ed. 544 (1914).

The defendant bears the burden (typically a heavy one) of demonstrating that the plaintiff fraudulently joined the resident defendant. See Wilson, 257 U.S. at 97-98. Fraudulent joinder can occur in the following ways: 1) the plaintiff pleads false jurisdictional facts; 2) the non-diverse defendant is joined solely to defeat removal; and 3) the plaintiff misjoins in one action unrelated claims against a non-diverse defendant. The most common form of fraudulent joinder, and the subject of this article is situation (2). Despite use of the term “fraudulent,” the plaintiff's subjective motive for joining the non-diverse defendant is not relevant. Such an inquiry by the district court would involve a difficult and unwieldy factual investigation that would not be appropriate in a jurisdictional inquiry.

Since 1938, the Supreme Court has not further defined its test for fraudulent joinder, and has left that task to the Circuit Courts. Predictably, a patchwork of conflicting definitions and procedures for analyzing fraudulent joinder has developed throughout the country. Nearly all of the Circuits, however, use one of the following tests:

Reasonable Basis for the Claim ' the removing defendant must prove there was no reasonable basis for the claim against the non-diverse defendant at the time it was filed.

No Possibility of Recovery ' the removing defendant must prove there is no possibility the plaintiff will recover from the non-diverse defendant.

No Reasonable Possibility of Recovery ' the removing defendant must prove there is no reasonable possibility of recovery from the non-diverse defendant.

Failure to State a Claim ' the removing defendant must show that the plaintiff has failed to state a claim, akin to a Rule 12(b)(6) analysis.

A defendant seeking to remove cases must be cognizant of the differences between these tests, some of which may be outcome-determinative. Knowing what test each
jurisdiction applies will help you evaluate your overall chances of keeping the case in federal court. It will also help you determine which evidence you will need (and be permitted) to offer in support of removal.

Regardless of the test employed by the district court, the doctrine of fraudulent joinder historically has been interpreted narrowly, and typically significant deference is given to the allegations in the plaintiff's Complaint and the plaintiff's chosen forum. As a result, when the district court reviews a claim of fraudulent joinder, in nearly all instances, the court must consider the factual allegations in the light most favorable to the plaintiff and resolve uncertainties about the substantive law in favor of the plaintiff. That does not mean that the district court is necessarily confined to the plaintiff's pleadings. Most jurisdictions do allow the district court, albeit in varying degrees, to pierce the pleadings and consider such things as affidavits and deposition transcripts submitted by the parties.