By Sarah E. Harmon
This is Part 5 of an 8-part series which covers:
- Part 1 – Federal Question Jurisdiction;
- Part 2 – Supplemental Jurisdiction;
- Part 3 – Diversity Jurisdiction: Complete Diversity;
- Part 4 – Diversity Jurisdiction: Amount in Controversy;
- Part 5 – Diversity Jurisdiction: Resident Defendants;
- Part 6 – Timing of Removal;
- Part 7 – Checklist for Removal;
- Part 8 – Remand
Part 5 – Diversity Jurisdiction: Resident Defendants
In Part 1 and Part 2 of this Removal series, we discussed removal based on federal question jurisdiction and supplemental jurisdiction. A state court action can also be removed to federal court based on diversity jurisdiction. Diversity jurisdiction concerns three important factors: (1) complete diversity among the parties; (2) a sufficient amount in controversy; and (3) absence of resident defendants. Part 3 and Part 4 of this series discussed the requirements of complete diversity and a sufficient amount in controversy. This article explores the resident defendant requirement.
The General Rule
The third requirement that must be met for removal of a state court action based on diversity jurisdiction is that none of the defendants can be a resident of the forum. 28 U.S.C. § 1441(b)(2). This is because one of the primary purposes of allowing removal based on diversity jurisdiction is to protect non-resident defendants from any actual or perceived bias in state courts which might favor resident plaintiffs. If the defendant is a resident of the forum, then, theoretically, no such risk of bias exists. Lively v. Wild Oats Markets, Inc., 456 F.3d 933, 940 (9th Cir. 2006).
Sham Defendants
One way plaintiffs try to prevent removal is by naming forum residents as defendants in the complaint despite the fact that the plaintiffs can never state a claim against such defendants under Nevada law. In such circumstances, the defendants are referred to as “sham defendants” or “fraudulently-joined defendants.”
Typically removal statutes are narrowly-construed by the courts, and issues of fact are law are generally resolved in favor of remand. Burns v. Windsor Ins. Co., 31 F.3d 1092, 1095 (11th Cir. 1994). However, the inclusion of sham defendants will not defeat removal if the removing parties can prove fraudulent joinder by clear and convincing evidence. Hamilton Materials, Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1206 (9th Cir. 2007).
Example
Rob, a resident of Nevada, has smoked cigarettes made by Dangerous, Inc. for 60 years. Upon developing emphysema, he filed a products liability action against Dangerous, Inc., a Delaware corporation. Rob has also sued several retailers who sell Dangerous, Inc.’s cigarettes. Large Warehouse Co. #1 is an Arizona corporation and Large Warehouse Co. #2 is an Illinois corporation; while Gas Station A and Gas Station B are Nevada corporations.
Dangerous Inc., Large Warehouse Co. #1 and Large Warehouse Co. #2 want to remove the action. During their initial case investigation, they discovery that Gas Station A and Gas Station B have never sold Dangerous Inc.’s cigarettes. Can this action be removed?
Yes! Dangerous Inc., Large Warehouse Co. #1 and Large Warehouse Co. #2 can demonstrate that Rob cannot state a claim against Gas Station A and Gas Station B. Because neither retailer ever sold Dangerous Inc.’s cigarettes, Rob could not have purchased his cigarettes from these stores. Therefore, both retailers are sham defendants, and their inclusion in the complaint cannot prevent removal.
Stay tuned for Part 6 in this series, posted here, in which I will discuss the timing for removal.
Please email me if you would like a copy of this series.
About Sarah Harmon:
Sarah E. Harmon is a partner at Bailey Kennedy and has over 18 years of experience in the areas of appellate advocacy and civil/business litigation, including breach of contract, fraud, legal malpractice, products liability, complex civil litigation, and many other types of business disputes. Her experience with appellate advocacy includes appeals from adverse judgments and orders as well as petitions for extraordinary writ relief. Ms. Harmon can assist clients with obtaining settlements and judgments before going to trial, avoiding errors at trial, and properly preserving issues for an appeal.
If you have any questions about appeals or civil/business litigation, please call or email Sarah Harmon at 702-562-8820 or sharmon@baileykennedy.com. Additional resources can also be found at www.baileykennedy.com/category/articles/ or linkedin.com/in/sarahharmonbk/.
Disclaimer:
The information provided in this article does not, and is not intended to, constitute legal advice. All information, content, and materials available in this article are for general informational purposes only. The information in this article may not constitute the most up-to-date legal information. Any links to third-party websites included in this article are only made for the convenience of the reader, and the author of this article does not recommend or endorse the contents of the third-party sites.
Readers of this article should contact their attorney to obtain advice with respect to any particular legal matter. No reader of this article should act or refrain from acting on the basis of information in this article without first seeking legal advice from counsel in the relevant jurisdiction. Only your individual attorney can provide assurances that the information contained herein — and your interpretation of it — is applicable or appropriate to your particular situation. Use of, and access to, this article, or any of the links or resources contained herein do not create an attorney-client relationship between the reader and author.
All liability with respect to actions taken or not taken based on the contents of this article are hereby expressly disclaimed. The content of this article is provided “as is;” no representations are made that the content is error-free.