Practice Tip: Twombly and Iqbal Are Everywhere

The impact of Twombly and Iqbal on the pleading standard in federal motions to dismiss has been well documented during the last several years. This article examines the impact that these important cases have had when fraudulent joinder becomes an issue.

A Heightened Pleading Standard in Federal Courts

The general impact of Twombly and Iqbal is now well known, but the details of both cases are provided here for context as to how their holdings impact the issue of fraudulent joinder. In Bell Atlantic Corp v. Twombly, 550 U.S. 544 (2007), an antitrust case, the United States Supreme Court established a “plausibility” standard for pleading. It held that to survive a Rule 12(b)(6) motion, a complaint need not contain detailed factual allegations, but it must plead “enough facts to state a claim to relief that is plausible on its face.” Id. at 547. In re-characterizing the pleading standard, the Court held that “a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of a cause of action's elements.” Id. at 555. Further, the Court established that “[f]actual allegations must be enough to raise a right to relief above the speculative level on the assumption that all of the complaint's allegations are true.” Id. This new pleading standard “serves the practical purpose of preventing a plaintiff with 'a largely groundless claim' from 'tak[ing] up the time of a number of other people.'” Id. at 546.

More recently, in Ashcroft v. Iqbal' 129 S. Ct. 1937 (2009), a discrimination claim, the United States Supreme Court confirmed that this heightened standard applied to all civil suits, not just antitrust actions. The Court held that Iqbal's allegation that he had been “discriminated against” because of his “'religion, race, and/or national origin and for no legitimate penological interest'” was not sufficient to state a claim. Id. at 1944. In reaching that conclusion, the Court instructed the district courts to engage in a two-step process when ruling on a Rule 12(b)(6) motion.

First, the district court must separate conclusory allegations from ones based in actual fact, and it need not accept as true assertions of mere legal conclusions. Then, the court must assume the factual allegations are true and determine whether they “plausibly give rise to an entitlement to relief.” Id. at 1950. In order to survive a motion to dismiss, the complaint must state a plausible claim for relief based on the defendant's alleged misconduct, not just the mere possibility that a defendant's actions constituted misconduct. Under a “plausibility analysis,” facts that are simply consistent with liability fall short of the line between possibility and plausibility. Instead, in order for factual allegations to rise to the level of plausibility, the court must be able to “draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 1949.

Courts around the country now routinely dismiss plaintiff's allegations when they fail to meet the standard set forth in Twombly and Iqbal. What is less clear, however, is how a court should proceed when faced with evaluating a claim of fraudulent joinder.

Fraudulent Joinder

Fraudulent joinder occurs when a plaintiff joins an “indispensable party defendant with the same citizenship as the plaintiff [in an attempt to] destroy[] diversity jurisdiction under the applicable statute.” 32A Am. Jur. 2d Federal Courts ' 791. If a district court finds that a plaintiff has been fraudulently joined, “the court can disregard, for jurisdictional purposes, the citizenship of certain nondiverse defendants, assume jurisdiction over a case, dismiss the nondiverse defendants, and thereby retain jurisdiction.” Id.

Courts agree that if a plaintiff cannot state a claim against a resident defendant, then that defendant has been fraudulently joined. See, e.g., Whitaker v. Am. Telecasting, Inc., 261 F.3d 196, 207 (2nd Cir. 2001); McKee v. Kan. City S. R.R. Co., 358 F.3d 329, 333 (5th Cir. 2004); Tillman v. R.J. Reynolds Tobacco, 253 F.3d 1302, 1305 (11th Cir. 2001). A defendant who asserts that a resident defendant has been fraudulently joined must show by clear and convincing evidence that the plaintiff cannot state a claim against the resident defendant. See, e.g., Briarpatch Ltd., LP v. Phoenix Pictures, Inc., 373 F.3d 296, 302 (2nd Cir. 2004); Ward v. UOP LLC, No. 09-0683-CG-M, 2010 WL 891912, at *9 (S.D. Ala. Mar. 9, 2010). It traditionally has been difficult for diverse defendants to overcome this burden and to assert that a resident defendant has been fraudulently joined. See, e.g., Coots v. Allstate Life Ins. Co., 313 F. Supp. 2d 539, 542 (D. Md. 2004); Smallwood v. Ill. Cent. R.R. Co., 352 F.3d 220, 222 (5th Cir. 2003). However, if courts apply the heightened pleading standard of Twombly and Iqbal to claims of fraudulent joinder, then more resident defendants may be dismissed from cases, thereby permitting removal to federal court.

Applying Twombly and Iqbal To Fraudulent Joinder Claims

There is a split among federal courts regarding the application of Twombly and Iqbal to claims of fraudulent joinder. For example, district courts in the First and Eleventh Circuits analyze fraudulent joinder arguments using the heightened pleading standard of Twombly and Iqbal, whereas district courts within the Second, Third, Fourth, and Sixth Circuits have declined to adopt this analysis. Even more, within the Fifth and Ninth Circuits, some district courts have espoused the Twombly/Iqbal analysis, while others have not.

When determining whether a party has been fraudulently joined, some courts decide that a review pursuant to Twombly/Iqbal is appropriate. These courts cite the Twombly “plausibility test” to determine whether “[T]he facts alleged [are] sufficient to raise a claim for relief above the speculative level, assuming that all the facts alleged are true, even if those facts may be doubtful.” See, e.g., Zar v. State Farm Fire & Cas. Co., No. 1:07CV133, 2008 WL 596764, at *1 (S.D. Miss. Mar. 5, 2008); Bush v. Nationwide Mut. Fire Ins. Co., No. 1:08CV0038, 2008 U.S. Dist. LEXIS 61039, at *4 (S.D. Miss. Aug. 6, 2008); Positive Results Mktg., Inc. v. Buffalo-Lake Erie Wireless Sys. Co., 3:CV-08-0382, 2008 U.S. Dist. LEXIS 39924, at *5 (M.D. Pa. May 16, 2008). However, one First Circuit district court and one Ninth Circuit district court have expressly held that the Twombly/Iqbal standard applies to cases where fraudulent joinder has been alleged, rather than citing the reasoning in those opinions without referencing the opinions themselves.

In Pascale Service Corp. v. International Truck and Engine Corp., the court held that the Twombly standard was established in a Rule 12(b)(6) context, but that it is “equally applicable” to fraudulent joinder. Pascale Serv. Corp. v. Int'l Truck & Engine Corp., No. 07-0247-S, 2007 U.S. Dist. LEXIS 73339, at *3 (D.R.I. Sept. 28, 2007). Similarly, in McCoy v. Primary Residential Mortgage, the court noted that it “proceeds under Federal Rule of Civil Procedure 12(b)(6) to determine whether the plaintiff's complaint sufficiently alleges a cognizable claim against [the resident defendant].” McCoy v. Primary Residential Mortgage, No. 08-758, 2008 WL 4443758, at *2 (D. Or. Sept. 25, 2008). Even in these instances, however, the courts note that there is a significant difference between the application of the heightened pleading standard in the fraudulent joinder context and the Rule 12(b)(6) context. This distinction is significant because when analyzing a claim of fraudulent joinder, a court may consider facts outside the pleadings, e.g., affidavits, while in the Rule 12(b)(6) context the court should limit its analysis to the pleadings. See Id.; see also Pascale, 2007 U.S. Dist. LEXIS 73339, at * 3.

Courts declining to analyze fraudulent joinder claims under the Twombly/Iqbal standard typically apply a less stringent test. See, e.g., Doubletree Partners, L.P. v. Landamerica Am. Title Co., No. 4:08CV485, 2009 WL 2058907, at *2 (E.D. Tex. July 14, 2009); Lujan v. Girardi Keese, No. 09-00017, 2009 WL 5216906, at *6 (D. Guam Dec. 29, 2009); Crockett ex. rel. Carter v. Gen. Motors Corp., No. 3:08cv469, 2008 WL 5234702, at *5 (E.D. Va. Dec. 15, 2008). These courts suggest that a Twombly/Iqbal analysis is not appropriate because a court should not use the same standard when it examines a procedural issue as it does when it evaluates a substantive issue. Specifically, a recent California district court commented: “It is improper to turn a preliminary jurisdictional inquiry into a determination of the merits of the plaintiff's entire case.” Black Donuts, Inc. v. Sumitomo Corp. of Am., CV 10-0454 SVW, 2010 U.S. Dist. LEXIS 30859, at *18 (C.D. Cal. Mar. 3, 2010). Echoing this distinction, a New Jersey district court noted that “the substantive merits of [plaintiff's] claims are not at issue in the pending motion. Rather, the issue of whether this Court has jurisdiction pursuant to 28 U.S.C. ' 1332 is a preliminary determination that is wholly separate from an evaluation of the merits of the claims asserted.” Freichs v. Lifestar Response Corp., No. 09-4460, 2009 WL 3754190, at *2 (D.N.J. Nov. 5, 2009).

The Law of the State

Instead of focusing on the Rule 12(b)(6) standard, courts declining to examine fraudulent joinder under Twombly and Iqbal emphasize that whether a resident defendant was improperly joined hinges on the law of the state where the case is brought. In Gensler v. Sanolfi-Aventis, the court held that “[t]o show fraudulent joinder, 'the defendant must demonstrate by clear and convincing evidence ' that there is no possibility, based on the pleadings, that a plaintiff can state a cause of action against the non-diverse defendant in state court.'” Gensler v. Sanolfi-Aventis, No. CV-08-2255, 2009 WL 857991, at *2 (E.D.N.Y. Mar. 30, 2009) (emphasis added). Similarly, in Taylor v. Toys “R” Us, the court opined that “[t]he issue here is whether there is arguably a reasonable basis for predicting that state law might impose liability on [the resident defendant] given Plaintiff's allegations.” Taylor v. Toy “R” Us – Delaware Inc., 5:09-CV-280-KKC, 2010 WL 231683, at *4 (E.D. Ky. Jan. 13, 2010) (emphasis in original). See also Moorhouse v. Bayer Healthcare Pharms., Inc., No. 08-01831 SBA, 2008 WL 2477389, at *2 (N.D. Cal. June 18, 2008) ('”[t]o prove fraudulent joinder, a defendant must show that “the plaintiff fails to state a cause of action against a resident defendant, and the failure is obvious according to settled rules of the state.'”).

Conclusion

The application of Twombly and Iqbal to fraudulent joinder claims makes easier any challenges to the propriety of a defendant being named solely to defeat diversity. While this area of civil procedure continues to evolve, federal courts currently are split regarding Twombly's and Iqbal's application to claims of fraudulent joinder. Accordingly, practitioners considering whether to base a fraudulent joinder challenge on Twombly and Iqbal should be careful to consider the law in the court in which their case is pending.

Josh Becker and Jenny Mendelsohn are attorneys with Alston & Bird LLP. They both focus their practices on product liability and mass tort defense.

The impact of Twombly and Iqbal on the pleading standard in federal motions to dismiss has been well documented during the last several years. This article examines the impact that these important cases have had when fraudulent joinder becomes an issue.

A Heightened Pleading Standard in Federal Courts

The general impact of Twombly and Iqbal is now well known, but the details of both cases are provided here for context as to how their holdings impact the issue of fraudulent joinder. In Bell Atlantic Corp v. Twombly , 550 U.S. 544 (2007), an antitrust case, the United States Supreme Court established a “plausibility” standard for pleading. It held that to survive a Rule 12(b)(6) motion, a complaint need not contain detailed factual allegations, but it must plead “enough facts to state a claim to relief that is plausible on its face.” Id. at 547. In re-characterizing the pleading standard, the Court held that “a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of a cause of action's elements.” Id. at 555. Further, the Court established that “[f]actual allegations must be enough to raise a right to relief above the speculative level on the assumption that all of the complaint's allegations are true.” Id. This new pleading standard “serves the practical purpose of preventing a plaintiff with 'a largely groundless claim' from 'tak[ing] up the time of a number of other people.'” Id. at 546.

More recently, in Ashcroft v. Iqbal ' 129 S. Ct. 1937 (2009), a discrimination claim, the United States Supreme Court confirmed that this heightened standard applied to all civil suits, not just antitrust actions. The Court held that Iqbal's allegation that he had been “discriminated against” because of his “'religion, race, and/or national origin and for no legitimate penological interest'” was not sufficient to state a claim. Id. at 1944. In reaching that conclusion, the Court instructed the district courts to engage in a two-step process when ruling on a Rule 12(b)(6) motion.

First, the district court must separate conclusory allegations from ones based in actual fact, and it need not accept as true assertions of mere legal conclusions. Then, the court must assume the factual allegations are true and determine whether they “plausibly give rise to an entitlement to relief.” Id. at 1950. In order to survive a motion to dismiss, the complaint must state a plausible claim for relief based on the defendant's alleged misconduct, not just the mere possibility that a defendant's actions constituted misconduct. Under a “plausibility analysis,” facts that are simply consistent with liability fall short of the line between possibility and plausibility. Instead, in order for factual allegations to rise to the level of plausibility, the court must be able to “draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 1949.

Courts around the country now routinely dismiss plaintiff's allegations when they fail to meet the standard set forth in Twombly and Iqbal. What is less clear, however, is how a court should proceed when faced with evaluating a claim of fraudulent joinder.

Fraudulent Joinder

Fraudulent joinder occurs when a plaintiff joins an “indispensable party defendant with the same citizenship as the plaintiff [in an attempt to] destroy[] diversity jurisdiction under the applicable statute.” 32A Am. Jur. 2d Federal Courts ' 791. If a district court finds that a plaintiff has been fraudulently joined, “the court can disregard, for jurisdictional purposes, the citizenship of certain nondiverse defendants, assume jurisdiction over a case, dismiss the nondiverse defendants, and thereby retain jurisdiction.” Id.

Courts agree that if a plaintiff cannot state a claim against a resident defendant, then that defendant has been fraudulently joined. See, e.g., Whitaker v. Am. Telecasting, Inc. , 261 F.3d 196, 207 (2nd Cir. 2001); McKee v. Kan. City S. R.R. Co. , 358 F.3d 329, 333 (5th Cir. 2004); Tillman v. R.J. Reynolds Tobacco , 253 F.3d 1302, 1305 (11th Cir. 2001). A defendant who asserts that a resident defendant has been fraudulently joined must show by clear and convincing evidence that the plaintiff cannot state a claim against the resident defendant. See, e.g., Briarpatch Ltd., LP v. Phoenix Pictures, Inc. , 373 F.3d 296, 302 (2nd Cir. 2004); Ward v. UOP LLC, No. 09-0683-CG-M, 2010 WL 891912, at *9 (S.D. Ala. Mar. 9, 2010). It traditionally has been difficult for diverse defendants to overcome this burden and to assert that a resident defendant has been fraudulently joined. See, e.g., Coots v. Allstate Life Ins. Co. , 313 F. Supp. 2d 539, 542 (D. Md. 2004); Smallwood v. Ill. Cent. R.R. Co. , 352 F.3d 220, 222 (5th Cir. 2003). However, if courts apply the heightened pleading standard of Twombly and Iqbal to claims of fraudulent joinder, then more resident defendants may be dismissed from cases, thereby permitting removal to federal court.

Applying Twombly and Iqbal To Fraudulent Joinder Claims

There is a split among federal courts regarding the application of Twombly and Iqbal to claims of fraudulent joinder. For example, district courts in the First and Eleventh Circuits analyze fraudulent joinder arguments using the heightened pleading standard of Twombly and Iqbal, whereas district courts within the Second, Third, Fourth, and Sixth Circuits have declined to adopt this analysis. Even more, within the Fifth and Ninth Circuits, some district courts have espoused the Twombly/Iqbal analysis, while others have not.

When determining whether a party has been fraudulently joined, some courts decide that a review pursuant to Twombly/Iqbal is appropriate. These courts cite the Twombly “plausibility test” to determine whether “[T]he facts alleged [are] sufficient to raise a claim for relief above the speculative level, assuming that all the facts alleged are true, even if those facts may be doubtful.” See, e.g., Zar v. State Farm Fire & Cas. Co., No. 1:07CV133, 2008 WL 596764, at *1 (S.D. Miss. Mar. 5, 2008); Bush v. Nationwide Mut. Fire Ins. Co., No. 1:08CV0038, 2008 U.S. Dist. LEXIS 61039, at *4 (S.D. Miss. Aug. 6, 2008); Positive Results Mktg., Inc. v. Buffalo-Lake Erie Wireless Sys. Co., 3:CV-08-0382, 2008 U.S. Dist. LEXIS 39924, at *5 (M.D. Pa. May 16, 2008). However, one First Circuit district court and one Ninth Circuit district court have expressly held that the Twombly/Iqbal standard applies to cases where fraudulent joinder has been alleged, rather than citing the reasoning in those opinions without referencing the opinions themselves.

In Pascale Service Corp. v. International Truck and Engine Corp., the court held that the Twombly standard was established in a Rule 12(b)(6) context, but that it is “equally applicable” to fraudulent joinder. Pascale Serv. Corp. v. Int'l Truck & Engine Corp., No. 07-0247-S, 2007 U.S. Dist. LEXIS 73339, at *3 (D.R.I. Sept. 28, 2007). Similarly, in McCoy v. Primary Residential Mortgage, the court noted that it “proceeds under Federal Rule of Civil Procedure 12(b)(6) to determine whether the plaintiff's complaint sufficiently alleges a cognizable claim against [the resident defendant].” McCoy v. Primary Residential Mortgage, No. 08-758, 2008 WL 4443758, at *2 (D. Or. Sept. 25, 2008). Even in these instances, however, the courts note that there is a significant difference between the application of the heightened pleading standard in the fraudulent joinder context and the Rule 12(b)(6) context. This distinction is significant because when analyzing a claim of fraudulent joinder, a court may consider facts outside the pleadings, e.g., affidavits, while in the Rule 12(b)(6) context the court should limit its analysis to the pleadings. See Id.; see also Pascale, 2007 U.S. Dist. LEXIS 73339, at * 3.

Courts declining to analyze fraudulent joinder claims under the Twombly/Iqbal standard typically apply a less stringent test. See, e.g., Doubletree Partners, L.P. v. Landamerica Am. Title Co., No. 4:08CV485, 2009 WL 2058907, at *2 (E.D. Tex. July 14, 2009); Lujan v. Girardi Keese, No. 09-00017, 2009 WL 5216906, at *6 (D. Guam Dec. 29, 2009); Crockett ex. rel. Carter v. Gen. Motors Corp., No. 3:08cv469, 2008 WL 5234702, at *5 (E.D. Va. Dec. 15, 2008). These courts suggest that a Twombly/Iqbal analysis is not appropriate because a court should not use the same standard when it examines a procedural issue as it does when it evaluates a substantive issue. Specifically, a recent California district court commented: “It is improper to turn a preliminary jurisdictional inquiry into a determination of the merits of the plaintiff's entire case.” Black Donuts, Inc. v. Sumitomo Corp. of Am., CV 10-0454 SVW, 2010 U.S. Dist. LEXIS 30859, at *18 (C.D. Cal. Mar. 3, 2010). Echoing this distinction, a New Jersey district court noted that “the substantive merits of [plaintiff's] claims are not at issue in the pending motion. Rather, the issue of whether this Court has jurisdiction pursuant to 28 U.S.C. ' 1332 is a preliminary determination that is wholly separate from an evaluation of the merits of the claims asserted.” Freichs v. Lifestar Response Corp., No. 09-4460, 2009 WL 3754190, at *2 (D.N.J. Nov. 5, 2009).

The Law of the State

Instead of focusing on the Rule 12(b)(6) standard, courts declining to examine fraudulent joinder under Twombly and Iqbal emphasize that whether a resident defendant was improperly joined hinges on the law of the state where the case is brought. In Gensler v. Sanolfi-Aventis, the court held that “[t]o show fraudulent joinder, 'the defendant must demonstrate by clear and convincing evidence ' that there is no possibility, based on the pleadings, that a plaintiff can state a cause of action against the non-diverse defendant in state court.'” Gensler v. Sanolfi-Aventis, No. CV-08-2255, 2009 WL 857991, at *2 (E.D.N.Y. Mar. 30, 2009) (emphasis added). Similarly, in Taylor v. Toys “R” Us, the court opined that “[t]he issue here is whether there is arguably a reasonable basis for predicting that state law might impose liability on [the resident defendant] given Plaintiff's allegations.” Taylor v. Toy “R” Us – Delaware Inc., 5:09-CV-280-KKC, 2010 WL 231683, at *4 (E.D. Ky. Jan. 13, 2010) (emphasis in original). See also Moorhouse v. Bayer Healthcare Pharms., Inc., No. 08-01831 SBA, 2008 WL 2477389, at *2 (N.D. Cal. June 18, 2008) ('”[t]o prove fraudulent joinder, a defendant must show that “the plaintiff fails to state a cause of action against a resident defendant, and the failure is obvious according to settled rules of the state.'”).

Conclusion

The application of Twombly and Iqbal to fraudulent joinder claims makes easier any challenges to the propriety of a defendant being named solely to defeat diversity. While this area of civil procedure continues to evolve, federal courts currently are split regarding Twombly's and Iqbal's application to claims of fraudulent joinder. Accordingly, practitioners considering whether to base a fraudulent joinder challenge on Twombly and Iqbal should be careful to consider the law in the court in which their case is pending.

Josh Becker and Jenny Mendelsohn are attorneys with Alston & Bird LLP. They both focus their practices on product liability and mass tort defense.