Civil Procedure Prof Blog

More commentary on the Voluntary-Involuntary Rule

The next issue of the Baylor Law Review will contain a comment written by Jeff Fisher.  Jeff's comment clearly outlines and predicts the questions created and answered by the Morgan decision (see today's earlier post), though it went to press before the decision.  Click below to download the comment, which is titled Everybody Plays the Fool:  Sometimes There's No Exception to the Rule:  Procedural Misjoinder is Not An Exception to the Voluntary-Involuntary Rule. Download Fisher.Pdf  

Fradulent Joinder and the Voluntary-Involuntary Rule

In Morgan v. Chase Home Finance, the 5th Circuit issued an unpublished decision that will likely surprise many readers.  It requires practitioners (and my students) to be agile with the concept of fraudulent joinder and its interplay with the voluntary-involuntary rule. And it's conceptually wrong.

The voluntary-involuntary (V-I) rule is familiar:  if diversity is not present at the time the plaintiff files the state-court action, a change in parties that creates diversity does not authorize removal unless the change resulted from the voluntary act of a plaintiff.  Take the two textbook examples:  (1)If the plaintiff nonsuits the spoiler, the defendant can remove because the nonsuit is a voluntary act; (2) if the spoiler wins summary judgment, though, the other defendants cannot remove because diversity was created against the plaintiff's wishes. 

Fraudulent joinder allows a defendant to remove the case, despite a spoiler, when the defendant can prove that the spoiler was "fraudulently joined."  In the typical fraudulent-joinder case (indeed, in just about any reported case you can find), the defendant sees the state-court pleading or other document, realizes the spoiler has been fraudulently joined and removes NOW, arguing that the court should disregard the citizenship of the spoiler. The defendant does NOT wait for the spoiler to be dismissed ... because of the V-I rule.

Recently, in the Crockett case (cited below), the 5th circuit quoted without critical analysis an old not-often-cited headnote that fraudulent joinder is an exception to the voluntary-involuntary rule.  The Crockett case involved improper procedural joinder and contained several puzzling errors.  I didn't think the court would extend the principle to the situation in the Morgan case.  I was wrong.  In Morgan, the court stated and applied the "rule:"

Generally, "a case nonremovable on the initial pleadings [can] become removable only pursuant to a voluntary act of the plaintiff"; this is the "voluntary-involuntary" rule. Weems v. Louis Dreyfus Corp., 380 F.2d 545, 547 (1967). We have long recognized an exception to this rule, however, "where a claim against a nondiverse or in-state defendant is dismissed on account of fraudulent joinder. Fraudulent joinder can be established by demonstrating either '(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.' "Crockett v. R.J. Reynolds Tobacco Co., 436 F.3d 529, 532 (5th Cir.2006) (quoting Travis v. Irby, 326 F.3d 644, 646- 47 (5th Cir .2003)).

Morgan's suit did not become removable until the probate court dismissed Alexander. [FN4] Because her dismissal was not a voluntary act by the plaintiff, Morgan believes that the voluntary-involuntary rule should have barred removal. The district court, on the other hand, found that Alexander had been fraudulently joined, because Morgan could not establish a cause of action against her. We agree.

Morgan's complaint alleged a single cause of action against Alexander: breach of fiduciary duty. As the district court correctly noted, under Texas law "the trustee ... does not owe a fiduciary duty to the mortgagor." Stephenson v.LeBoeuf, 16 S.W.3d 829, 838 (Tex.App.-Houston [14th Dist.] 2000, pet. denied). The only cause of action alleged against Alexander was therefore invalid. . . . Accordingly, because Morgan failed to establish a cause of action against Alexander, we agree with the finding that she was fraudulently joined. [FN5]

There are several questions far too important to be glossed over in an unpublished opinion.

First, In both the Crockett case and the Morgan case, the court treated state-court dismissals as "tantamount to findings of fraudulent joinder."  I'm not sure why.  When a defendant removes arguing fraudulent joinder, the defendant must prove that there is no reasonable basis to predict the plaintiff might recover against the spoiler under state law.  State courts dismissing for misjoinder, or summary judgment, or on the pleadings, will not be applying this standard.  Indeed, those rulings may indeed all involve "close calls;" that is, just because there is no "genuine issue of material fact" does not mean a defendant can remove initially based on fraudulent joinder -- otherwise, fraudulent joinder would federalize summary judgment in a strange way in close cases.   Surely not every summary judgment or severance is "tantamount to a finding" by the state court of fraudulent joinder.  So which ones are?  Does the defendant, upon removal, have to argue that the misjoinder or merits were so obviously deficient as to make the obviously appropriate dismissal equivalent to fraudulent joinder? ..... 

If so, then what about the time limits?  It is clear that the defendant can remove NOW if fraudulent joinder is present.  If the joinder is so fraudulent that a state-court dismissal is tantamount to the conclusion that there is "no reasonable basis to predict that the plaintiff might recover ..." then why doesn't the 30-day clock for removal begin to run from the time the defendant receives the pleading? 

Before these two decisions, a defendant spotting a spoiler needed to remove BEFORE the spoiler was dismissed by the state court, because the spoiler's dismissal would be an involuntary act.  Now, it appears that the defendant need not, so long as the dismissal is "tantamount" to a finding of fraudulent joinder.   If all dismissals are "tantamount," then the vol-involuntary rule is dead.  If only some rulings are tantamount, which ones?  Is there that second layer of whether the dismissal also meets the no-reasonable-basis standard?   If so, if it's only the obvious dismissals, then why doesn't the 30-day clock start to tick before there is the state-court dismissal?   

I suspect the en banc court will eventually reverse course and clarify the conceptual distinction between the doctrines.  For defendants, this means heads up.  Don't rely upon being allowed to wait for an involuntary dismissal.   --RR

Rule 23 class action status denied to hurricane victims

As WSJ.com recently reported, District Judge Kurt Engelhardt denied class action status on December 29, 2008 to Hurricane Katrina & Rita victims in an action concerning those allegedly toxic trailers.  In a 50 page order, the judge concluded that the requirements for class certification under FRCP 23(a) and (b)(3) were not met. 

-Counseller/ps

Choice of Law in the American Courts in 2008: Twenty-Second Annual Survey

Dean Symeonides of Willamette University College of Law has posted his twenty-second annual survey of choice of law cases on SSRN.  You can download it here, but here's a preview from the abstract:

The following are among the cases discussed in this Survey: Two U.S. Supreme Court cases and several intermediate court cases delineating the extraterritorial reach of the Constitution and federal statutes, and one Supreme Court case on the domestic effect of a judgment of the International Court of Justice; A New Jersey Supreme Court case abandoning Currie's interest analysis in tort conflicts in favor of the Restatement (Second), and a New Mexico Supreme Court case abandoning the traditional approach in contract conflicts (but only in class actions) and adopting the "false conflict doctrine" of the Restatement (Second); Several cases applying (and one not applying) the law of the parties' common domicile to torts occurring in another state; Cases involving cross-border torts and applying the law of whichever of the two states (conduct or injury) favors the plaintiff; Product liability cases granting forum non conveniens dismissals in favor of alternative fora in foreign countries and those countries' responses by enacting "blocking" statutes; Cases refusing to enforce clauses precluding class-action or class-arbitration; Cases illustrating the race to the courthouse between insurers and their insureds; Cases recognizing Canadian or Massachusetts same-sex marriages, and a case refusing to recognize a Pakistani talaq (unilateral, non-judicial divorce); and a case refusing to recognize a foreign judgment that conflicted with a previous judgment from another country.

--Counseller/jtf

Federal Rulemaking Podcasts Update

Last month we posted links to the podcast related to the proposed changes to Federal Rules of Civil Procedure 26 and 56.  All federal rulemaking proceedings will now be available at the court's website.  Since our last post, there is a new podcast on Amendments to the Federal Rules of Bankruptcy, Civil, and Criminal Procedure that took effect December 1, 2008. 

-Counseller/ps

A Summary Judgment is Not a Dismissal!

Click here to download Prof. Bradley Scott Shannon's recent article A Summary Judgment is Not a Dismissal! (exclamation point in original.)  The article will appear in Vol. 56 of the Drake Law Review.  The abstract follows:

Many lawyers think that the granting of a motion for summary judgment results in the dismissal of the underlying claim or action. They are wrong. Though summary judgments and dismissals share some characteristics, they are distinct procedures. Accordingly, the failure to distinguish these concepts can lead to problems. In particular, the confusion of summary judgments with dismissals arguably has resulted in a widespread misapplication of the federal supplemental jurisdiction statute.

--RR

Chief Justice's 2008 Year-End Report

The Chief Justice's year-end report is now available at the Federal Judiciary website.

--Counseller/jtf

Avoiding CAFA

Recently, a split panel of the Sixth Circuit Court of Appeals reversed a district court's remand order in a nuisance suit brought by three-hundred landowners who own property downriver from a Blue Ridge paper mill in North Carolina.  In Freeman v. Blue Ridge Paper Products, Inc., the plaintiff's attorney attempted to avoid federal jurisdiction by dividing the suit into five separate suits covering six distinct time periods.  The plaintiffs limited total damages in each suit to just below the $5 million requirement contained in 1332(d)(2).  The complaint stated the following:

The amount in controversy as to the Plaintiff and each member of the Proposed Class does not exceed Seventy-four Thousand Dollars ($74,000.00) each, exclusive of interest and costs.  The Plaintiff, therefore, disclaims any compensatory damages, punitive damages, declaratory, injunctive, or equitable relief greater than seventy-four thousand dollars ($74,000.00) per individual Class member, and Plaintiff and the Proposed Class limit their individual compensatory damage claims to Seventy-four Thousand Dollars ($74,000.00) per Class member, and limit their total class wide claims to less than Four Million Nine Hundred Thousand Dollars ($4,900,000.00). 

The district court remanded the case to state court because the defendant "failed to show that it was 'more likely than not the plaintiff's claims meet the amount in controversy requirement for each suit."  The Court of Appeals held that the $5 million CAFA requirement was met because the $4.9 million sought in each suit requires aggregation.  The court explained that "the complaints are identical in all respects except for the artificially broken up time periods.  Plaintiffs put forth no colorable reason for breaking up the lawsuits in this fashion, other than to avoid federal jurisdiction."  The dissenting justice argued that multiple actions filed in state court with firm limits on the amount of damages in controversy should not be subject to removal under CAFA. 

Read the full opinion here.

-Counseller/ps

Sixth Circuit Joins Others in Holding 28 U.S.C. § 1332(a)(2) Limited to Suits with Aliens on One Side, State Citizens on the Other

The Sixth Circuit released an opinion in which it joined numerous other circuits in holding that 28 U.S.C. § 1332(a)(2) does not grant jurisdiction over a case in which there are foreign and domestic plaintiffs against a foreign defendant. 

We join our sister circuits that have held the presence of foreign parties on both sides of the dispute destroys the complete diversity required by § 1332(a)(2).

The whole opinion can be found here.

--Counseller/jtf

Fifth Circuit decides that 28 U.S.C. 1441(c) does not permit remand of removable federal questions

Last month the Fifth Circuit decided Poche v. Texas Air Corps, Inc., No. 07-20618, 2008 WL 4926740 (5th Cir. Nov. 19, 2008).  The question presented was "does 28 U.S.C. § 1441(c) permit a district court to remand federal claims conferring removal jurisdiction where those claims are part of a case 'predominated' by state law?"  Phrased as such, the statutory language seems clearly to demand the answer be "yes."

(c) Whenever a separate and independent claim or cause of action within the jurisdiction conferred by section 1331 of this title is joined with one or more otherwise non-removable claims or causes of action, the entire case may be removed and the district court may determine all issues therein, or, in its discretion, may remand all matters in which State law predominates.

28 U.S.C. § 1441.  However, the court took a narrow view of the word "matters" and, based on precedent, determined that a court "may not remand the component claims that are conclusively deemed to have arisen under federal law, absent a defect in the removal procedure or circumstances rendering the retention of jurisdiction 'inappropriate.'" (quoting Laurents v. Arcadian Corp., 69 F.3d 535 (5th Cir. 1995)).

Read the whole opinion here.

--Counseller/jtf

Offers of Judgment Under FRCP 68: A useful tool, but is this as good as it gets?

Professors Thomas Eaton and Harold S. Lewis, Jr. have posted a second report on the utility of offers of judgment under Federal Rule of Civil Procedure 68.  In this second report, the Professors discuss some ways in which the rule could be improved.

In very broad terms, we discuss (1) having a separately numbered subdivision of the Rule for cases arising under federal fee-shifting statutes; (2) modifying the terminology of Rule 68 to describe more explicitly the mechanics and sanctions of the Rule; (3) allowing plaintiffs, not just defendants, to initiate offers under a "two-way" rule; (4) devising a set of incentives and sanctions calculated to promote the timely and fair resolution of disputes without unduly threatening either party; and (5) incorporating time frames for making and responding to offers.

You can download the report here.

--Counseller/jtf

Another important venue decision

An article today on Law.com asks:  Will Famed Rocket Docket Fizzle Out in Wake of Federal Circuit's Ruling?  Texas court slapped down for holding onto case; ruling bolsters recent 5th Circuit order.  Click the case name to download the Federal Circuit's decision: In Re TS Tech USA Corporation. --RR

Whoops! My Computer Accidentally Deleted the Evidence!

Andrew Hebl, a law clerk for the Wisconsin Supreme Court, has posted a new article on SSRN discussing Federal Rule of Civil Procedure 37(e). The rule states that, generally, "a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system."  He takes the position that, since the Rules were amended in 2006, courts have been misapplying this "good faith" standard:

The Federal Rules of Civil Procedure were amended effective December 1, 2006 to address concerns about discovery of electronically stored information. One of these amendments, Rule 37(e), created a safe harbor for parties that destroy relevant information as a result of the good faith, routine operation of their electronic storage systems. The rule recognizes the enhanced difficulty of preserving relevant information in the electronic context due to the automatic operation of electronic storage systems and the necessary deletion and modification of such systems' contents from time to time due to storage constraints and other technological limitations. The rule's good faith requirement protects parties and addresses their concerns by precluding sanctions where conduct is not reckless or intentional, and applies after a duty to preserve relevant evidence has arisen. This Comment is the first to consider how courts have applied the rule since its adoption. In evaluating courts' performance, this Comment concludes that the rule has been misapplied and, in effect, rendered superfluous, in that courts have continued to impose sanctions for insufficiently culpable conduct, or alternatively, have essentially ignored the rule by holding parties to a strict liability standard. The end result is that problems created by electronically stored information in the destruction of evidence context have been left unaddressed. The article attempts to remedy this situation by proposing a framework for proper application of Rule 37(e).

Download the article here.

--Counseller/jtf

Rules Enabling Act

Anthony Vitarelli recently posted A Blueprint for Applying the Rules Enabling Act's Supersession Clause on SSRN.  Click the article title to download.  This abstract follows:

When Congress passed the Rules Enabling Act (REA), it deferred to the Supreme Court's institutional expertise to enact guidelines for judicial procedure. In the REA, Congress included a provision - now known as the supersession clause - that declared existing statutes in conflict with new rules to "be of no further force or effect." This Comment examines a divergence between 18 U.S.C. 3731 and Federal Rule of Appellate Procedure 4(b)(1)(B) that implicates the supersession clause. Three circuits have adjudicated this conflict and reached different conclusions. The substance of the conflict concerns the timeliness of government appeals of district court decisions and orders in criminal cases. At present, Rule 4(b) permits a longer appellate time limit than 3731, but a 2007 Supreme Court case, Bowles v. Russell, may invalidate any limit longer than that in 3731. This Comment asserts that irrespective of Bowles, applying the supersession clause favors the primacy of Rule 4(b). Employing the supersession clause provides a blueprint for future rule-statute disputes concerning timeliness. In making these determinations, this Comment argues that courts should evaluate the rule versus the statute according to three metrics: the relative recency of enactment, the institutional competence of the respective authors to decide the issue, and the degree to which the rule affects substantive rights.

-Counseller/ps

Venue Selection, State or Federal?

When a contract contains a forum-selection clause that requires "exclusive venue" in a particular county of a State, might venue be proper in a Federal District Court that happens to be located in that county?  The Fifth Circuit answered "yes" this week in Alliance Health Group, Inc. v. Bridging Health Options LLC.  En route, the court disagreed with a 10th Circuit case and distinguished provisions that require venue in the courts of a county from provisions that require venue in the courts in a county.  Federal district courts are courts in a county, but they are not courts of a county.  Although controversial, Judge Barksdale's opinion is concise, well-written, and accessible.  --RR

Service via Certified Poke?

The AP reports:  Australia OKs Facebook for serving lien notice.--RR

Foreign Defendants and Service of Process under State Law

The New York Court of Appeals recently handed down an interesting opinion regarding service of process upon foreign defendants in their home country.  The suit involved a forfeiture proceeding initiated by the New York attorney general seeking to obtain the proceeds from a money transfer operation based in Brazil.  The plaintiff served the Brazilian defendants in Brazil in accordance with the NY service of process statute.  The trial court held that the service of process was invalid because it failed to comply with the Inter-American Convention on Letters Rogatory as well as the service requirements of Brazil.  Brazil requires that a foreign plaintiff serve a Brazilian party using letters rogatory or a letter of request sent through diplomatic channels.  The intermediate appeals court affirmed, holding that the service procedures were improper because "they did not comply with Brazilian law and failed to defer to principles of international comity." 

Arguing before the NY Court of Appeals the plaintiff asserted that because service was proper under the NY statute, the defendants were properly served.  As to the comity argument, the plaintiff argued that "principles of comity do not warrant the importation of another country's service of process rules."  The high court first made clear that the plain text of the statute did not require a NY plaintiff to comply with any foreign locale's service of process requirements.  The court then quickly dispensed of the comity argument:  "Thus, comity is not an additional hurdle for a plaintiff to overcome in serving a party in a foreign country, and defendant's claim that plaintiff should have complied with Brazilian law, which requires that service of process by a foreign party upon a party domiciled in Brazil must be made by letters rogatory, is without merit."

Read the full opinion here.

-Counseller/ps

Remanding "matters" in which State Law Predominates under 1441(c)

The Fifth Circuit recently reversed a district court's finding that even though a suit involved a federal question, the entire case should be remanded to state court because most of the plaintiff's claims arose under state law.  The plaintiff in the case asserted state law claims involving misrepresentation, fraud, and breach of contract.  Additionally, the plaintiff asserted a violation under the federal Fair Labor Standards Act ("FLSA").  The district court found that under 1441(c) all claims, including the federal question, should be decided in state court.  As framed by the Fifth Circuit panel, the appeal presented the following question:  "[D]oes 28 U.S.C. § 1441(c) permit a district court to remand federal claims conferring removal jurisdiction where those claims are part of a case 'predominated' by state law?" 

The court first pointed out that although other courts have interpreted the word "matters" in 1441(c) to refer to an entire action, the court's precedent required a different result.  The plaintiff argued that several Fifth Circuit cases permitted the district court to remand the entire action, including the federal claims, if the state law claims predominate.  The court declared most of the statements in the cited cases dicta, and further dispensed with the argument by stating it was not necessary to "navigate the murky waters between alternate holding and dicta..."  The court then utilized an older case than those relied upon by the plaintiff to declare that the district court had no authority to remand the plaintiff's FLSA claim.

Read the full opinion here.

-Counseller/ps

Haywood v. Drown

The Supreme Court heard arguments on last Thursday in Haywood v Drown.  The bulk of the argument focused on the jurisdictional issue.  As SCOTUSblog pointed out, at one point Justice Alito asked whether there was some "Platonic ideal of jurisdiction versus non-jurisdiction.”  You can read the full argument transcript here.  Also of interest is the amicus brief filed by a group of constitutional law and civil procedure professors arguing for reversal of the New York Court of Appeals decision.  You can read that here.

-Counseller/ps

Forum Non Conveniens and the "American" Presumption

Judge Posner, writing for a panel of the Seventh Circuit Court of Appeals recently affirmed a district court's dismissal on forum non conveniens of a diversity suit brought under 28 U.S.C. § 1332(d)(2)(C).  The plaintiff was a wholly owned subsidiary of a Japanese company incorporated in Delaware that invested in a limited partnership which bought a building in Chicago.  The limited partnership was also incorporated in Delaware with a principal place of business in Japan, and all the partners had Japanese addresses.  The bulk of the opinion is dedicated to the plaintiff's argument that there is a strong presumption in favor of the plaintiff's choice of forum, "especially if the plaintiff is an American and the forum is an American court."  The court quickly dismissed that argument and seemed to scold the plaintiff's counsel declaring that "the plaintiff's lawyers refuse to acknowledge that their client is 'American' in only the most artificial sense."  Judge Posner then went on to explain that "Courts need to look behind an assertion that the plaintiff is 'American,' moreover, to determine whether the party has the sort of ties with the United States that make the American judicial forum convenient."  So there would be no confusion as to the relevance of the presumption following this opinion, the court declared "the presumption is fine, but it is not to be treated, as the plaintiff would have us do, as a nigh-insurmountable obstacle to dismissal."

Read the full opinion here.

-Counseller/ps