1 See Smallwood v. Ill. Cent. R.R. Co. , 342 F.3d 400 (5th

Cir. 2003). United States Court of Appeals

Fifth Circuit



## FILED

December 1, 2003

Charles R. Fulbruge III

Clerk IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 02-60782

KELLI SMALLWOOD,

Plaintiff-Appellant,

versus

ILLINOIS CENTRAL RAILROAD COMPANY;

MISSISSIPPI DEPARTMENT OF TRANSPORTATION,

Defendants-Appellees.

Appeal from the United States District Court

for the Southern District of Mississippi

ON PETITION FOR REHEARING

Before KING, Chief Judge, HIGGINBOTHAM and STEWART, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Appellees Illinois Central and Mississippi Department of

Transportation have moved for rehearing following our decision

orderin g remand of this case to state court. 1 Appellees contend

that our decision conflated the removal rules applicable to federal

question jurisdiction with those governing diversity removal.2 232 U.S. 146 (1914).

3 Id. at 151.

2 Treating appellees’ petitions for en banc rehearing as petitions

for panel rehearing, the petitions for panel rehearing are denied.

In this case, we rejected Illinois Central’s attempts to

remove to federal court based on a preemption defense that barred

suit against all defendants. In so doing, we insisted that the

joinder of the local defendant be shown to be improper. We applied

the common defense rule first enunciated by the Supreme Court in

Chesapeake & O. R. C o. v. Cockrell

. 2 In C ockrell

, the Supreme

Court reviewed an effort by a diverse railroad to remove a case to

federal court on fraudulent joinder gro unds. To justify the

finding of fraudulent joinder, the railway claimed th at the

plaintiff’s neglige nce charges against the defendants were “each

and all ‘false and untrue’” and that the local defendants were

added simply to defeat diversity. 3 The Supreme Court rejected the

railway’s argument, noting:

So, when in such a case a resident defendant

is joined with the nonresident, the joinder,

even although fair upon its face, may be shown

by a petition for removal to be on ly a

fraudulent device to prevent a removal; but

the showing must consist of a statement of

facts rightly engendering that conclusi on.

Merely to traverse the allegations upon which

the liability of the resident defendant is

rested, or to apply the epithet ‘fraudulent’

to the joinder, will not suffice: the showing

must be such as compels the conclusion that4 Id. at 152-53 (emphasis added) (internal citations omitted).

3 the joinder is wit hout right and made in bad

faith

. . . .

. . . And while the plaintiff's statement

was not conclusive upon the railway company,

it did operate to lay upon the latter, as a

condit ion to a removal, the duty of showing

that the joinder of the enginee r and fireman

was merely a fraudulent de vice to prevent a

removal. Of course, it was not such unless it

was without any reasonable basis.

Putting out of view, as must be done, the

epithets and mere legal conclusions in the

petition for removal, it may have disclosed an

a bsence of good faith on the part of the

plaintiff in br inging the action at all, but

it did not show a fr audulent joinder of the

engineer and fireman.

. . . As no negligent

act or omission personal to the railway

company was charged, and its liability, like

that of the two empl oyees, was, in effect,

predicated upon the alleged negligence of the

latter, the showing manifestly went to the

merits of the action as an entirety, and not

to the join der; t hat is to say, it indicated

that the plaintiff's ca se was ill founded as

to all the defendants. Plainly, thi s was not

such a sho wing as to engender or compel the

conclusion that the two employees were

wrongfully brought into a controversy which

did not concern them. 4

The Supreme Court thus made clear that the burden on the removing

party is to prove that the joinder of the l ocal parties was

fraudulent; a showing that the plaintiff’s case is barred as to all

defendants is not sufficient. When the only proffered justification

for fraudulent joinder is that there is no reasonable basis for

predicting recovery against the local defendant and that showing is5 See, e.g., Griggs v. State Farm Lloyds

, 181 F.3d 694, 701 (5th

Cir. 1999).

6 S mallwood

, 342 F.3d at 402 ( citing Travis v. Irby

, 326 F.3d

644, 647 (5th Cir. 2003)).

7 Jernigan v. As hland Oil Inc. , 989 F.2d 812, 816 (5th Cir.

1993) (quoting Bobby Jones Garden Apts. v. Suleski , 391 F.2d 172,

177 (5th Cir.1968)).

8 In conducting this analysis, a district court may “pierce the

pleadings” and consider evidence outside of the pleadings. T ravis

4 a fortiori applicable to all defendants, rather than to the local

defendants alone, the requisite showing has not been made.

The common defense rule reminds us that the proper focus of a

fraudulent joinder claim is whether the joinder of the local

parties was fraudulent, a simple concept that is too easily

obscured. The fraudulent joinder doctrine is a narrow exception to

the rule that diversity jurisdiction requires complete diversity.

As such, “the burden of demonstrating fraudulent joinder is a heavy

one.” 5 To establish fraudulent joinder, the party seeking removal

to the federal forum must either show “(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.” 6 Under this second prong, we examine “[i]f there is

‘arguably a reasonable basis for predicting that the state law

might impose liability on the facts involve d .’” 7 If not, then we

conclude that the plaintiff’s decision to join the local defendant

was fraudulent unless that showing a fortiori compels dismissal of

all defendants. 8 Stated another way, when on a motion to remand av. Irby , 326 F.3d 644, 648-49 (5th Cir. 2003). Nonetheless, the

fraudulent joinder inquiry is a summary inquiry conducted in order

to determine whether the court has jurisdiction over the matter.

A court may thus not use fraudulent joinder as an excuse to pre-try

the merits of th e case. K eating v. Shell Chemical Co.

, 610 F.2d

328, 331-32(5th Cir. 1980).

9 Cockrell , 232 U.S. at 153.

5 defendant’s showing that there is no po ssibility of recovery

against the local defendant equally discharges the n on-resident

defendant, there is no fraudulent joinder, only a lawsuit lacking

in merit. In such cases, it makes little sense to single out the

local defendants as “sham” defendants and c all their joinder

fraudulent. In such circumstances, the allegation of fraudulent

joinder is more properly an attack on the plaintiff’s case as such

– an allegation that “the plaintiff’s case [is] ill founded as to

all the defendants.” 9

Despite Appellees’ contention to the contrary, the common

defense rule does not impair a foreign defendant’s right to remove.

In every case where a diverse defendant proves that the plaintiff’s

decision to join a local party is fraudulent, the diverse defendant

gains access to the federal courts. If the foreign defendant fails

to prove the joinder fraudulent, then diversity is incomplete and

the diverse defendant is not entitled to remove.10 Appellee Illinois Central also argues that Cockrell ’s common

defense holding must be understood in light of the then-extant

separable controversies doctrine, a removal principle that allowed

a diverse d efendant to remove separable portions of an otherwise

non-removable suit unless the defendants were jointly liable.

Illinois Central claims that Cockrell ’s common defense theory did

n ot survive amendments to the removal statutes that eliminate d

separable controversies as a bas is for removal. We disagree.

I llinois Central errs by conflating the separable controversies

doctrine with the separate and distinct fraudulent joinder inquiry.

See Wecker v. Nat’l Enameling & Stamping Co. , 204 U.S. 176 (1907).

The Cockrell Court di d not rest its decision to remand on the

asserted joint liability of the defendants, as it would have if the

sepa rable controversies doctrine was the focus of its opinion.

Indeed, th e Court neither mentioned nor discussed the separable

controversies doctrine or its joint liability exception. Rather,

the Court directl y addressed whether the diverse defendant’s

showing demonstrated fraudulent joinder, and the Court clearly held

that the defendant’s showing – a defense common to all defendants

6 Appellees have raised three general arguments in support of

rehearing. Their primary contention i s that we have misread

Cockrell

, which in their view stands only for the proposition that

a court may not prematurely try the factual merits of a case in a

fraudulent joinder inquiry. We disagree. In Cockrell , the Supreme

Court rejected a defendant’s effort to prove th at a non-diverse

defendant was fraudulently joined when the only grounds proffered

applied equally to all defendants. Nothing in Cockrell limits the

application of this rule to factual defenses or to defenses

exogenous to the plaintiff’s cause o f action. Appellees in this

case brought no evidence that the joi nder of the non-diverse

defendant was fraudulent, only an allegation that the case, as to

all defendants, was ill-founded. Such a showing cannot support an

inference that the joinder of the local defendants was fraudulent. 10– did not “compel[] the conclusion that the joinder [wa]s without

right and made in bad faith.” Cockrell , 232 U.S. at 152.

7 Appellees further contend that our decision to apply the

c ommon defense rule contradicts prior holdings of this circuit

which have allowed a finding of fraudulent joinder based on a

common defense. This circuit, however, has never before addressed

the common defense rule. The mere fact that prior cases failed to

discuss the issue does not grant us license to continue to ignore

Supreme Court precedent. Since C ockrell is applicable to this

case, we cannot fail to apply the common defense rule simply

because it has not been urged in the past.

Appellees’ final contention is that our decision somehow

confuses the application of federal question and diversity removal,

pointing to the reference in our opinion to the well-pleaded

complaint rule. This misconstrues our statements. In the opinion,

we noted that Appellees could not remov e on the basis of federal

question jurisdiction because the only federal question appeared as

a defense. Nonetheless, Appellees did just that: they removed on

the basis of their federal conflict pree mption defense, but

attempted to po rtray it as an issue of fraudulent joinder. This

use of fraudulent joinder would o nly undermine the well-pleaded

complaint rul e. We emphasize, however, that the common defense

rule is not l imited to cases that seek to avoid the well-pleaded

complaint rule.8

Amici have a lso raised policy-based arguments which, they

assert, justify reconsideration of our decision. They contend,

f irst, that the common defense rule undermines the purpose of

diversity jurisdiction, which is to protect out-of-state defendants

from local bias, the proverbial “home cooking.” We disagree. As

a preliminary matter, we noted in our opinion that the common

defense rule applies only in that limited range of cases where the

allegation of fraudulent joinder rests only on a showing that there

is no possibility of recovery against the local defendant and that

showing is a fortiori common to all defendants. But more

significantly, Amici miss tate the effect of our insisting that

wrongful joinder be shown. We only require that the removing

defendant show that the joinder was fraudulent. The common defense

rule thus does not in any way upset t he purpose of diversity

jurisdiction: it reinforces the bedrock principle that a defendant

is not entitled to a federal forum unless there is complete

diversity of citizenship, somethin g that a defendant crying

fraudulent joinder must prove in order to justify disregarding the

absence of complete diversity.

Amici’s immediate concern is understandably not to protect the

abstract rationale underlying diversity jurisdiction. Rather, it

is to allow defendants to flee the state courts. Amici argue that

on remand, a state court reviewing a case l ike this one might

someh ow “improperly breathe life” into claims that are barred by

federal law or some other legal defense. Given this “state court11 Strawbridge v. Curtiss , 7 U.S. (3 Cranch.) 267 (1806).

9 legal climate,” Amici urge us to be vigilant in protecting a

diverse defendant’s removal right. The argument is that the state

court cannot be trusted to recognize the absence of merit in this

genre of wholly-meritless cas es. We remind that diversity

jurisdiction is itself a response to such distrust, and the

doctrine of fraudulent joinder is a judicially-created exception to

the complete diversity rule. We are not persuaded that we can or

should further expand this exception, as we are now urged to do –

to hold that Strawbridge v. Curtis 11 does not apply to suits wholly

lacking merit. That is not a rule of joinder, but a recrafting of

Strawbridge

. Until Congress changes our jurisdiction and allows us

to hear cases based on something less than complete diversity, we

cannot act. And make no mistake, whether to confer diversity

jurisdiction in the absence of complete diversity is a

quintessential political decision belonging to the Congr ess, as

r ecent congressional efforts to respond to abuses in state court

class a ction litigation by allowing their removal on minimal

diversity has so recently reminded us.

It is no accident that the first Congress conferred removal

jurisdiction, accommodating competing political interests. Removal

remains a centerpiece of our federalism. The cry of out-of-state

interests seeking to esca pe local courts is in fact an old and

recurring song. To the point, our insistence that diversity10

removal, powerful as it is, remain within its congressionally

marked traces is demanded by principles of federalism

– that a

state court is to be trusted to handle the suit unless the suit

satisfies the removal requirements.

Amici’s final claim is that the common defense rule undermines

judicial economy by forcing a federal district court to remand a

meritless case to state court rather than dismiss it outright.

This argument, however, fundamentally misconstrues the inquiry on

removal. When a defendant removes a case to federal court on a

claim of fraudulent joinder, the district court’s only inquiry is

whether the joinder was fraudulent. Indeed, until the removing

party proves that the local defendant has been fraudulently joined,

the court does not have the authority to do more; there is no

jurisdiction to evaluate the merits of the suit or dismiss the

case. Viewed properly, then, it is not the remand to state court

that wastes judicial resources; it is the misguided effort by the

diverse party to gain access to the federal forum.

Appellees understandably seek broader license to escape from

state court, but we are not authorized to grant such a request, as

compelling as it may be. It is the province of Congress to modify

the complete diversity rule by allowing properly joined local

defendants to be disregarded.

The petitions for panel rehearing are DENIED.