De-Frauding the System: Sham Plaintiffs and the Fraudulent Joinder Doctrine

Playing off the strict requirements of federal diversity jurisdiction, plaintiffs can structure their suits to prevent removal to federal court. A common way to preclude removability is to join a nondiverse party. Although plaintiffs have a great deal of flexibility, they may include only those parties that have a stake in the lawsuit. Put another way, a court will not permit a plaintiff to join a party to a lawsuit when that party is being joined solely to prevent removal. The most useful tool federal courts employ to prevent this form of jurisdictional manipulation is Federal Rule of Civil Procedure 21. Rule 21 permits a federal court to drop a joined party if that party fails the permissive joinder rules of Federal Rule of Civil Procedure 20. Federal courts have an additional tool to scrutinize joined defendants: the fraudulent joinder doctrine. The doctrine permits a federal court to look beyond the face of the complaint to determine whether the plaintiff has a colorable claim against the nondiverse defendant. If not, the court ignores this diversity-destroying defendant and the suit remains in federal court. Ultimately, federal courts use this robust tool only to scrutinize the joinder of defendants, leaving some plaintiff-based manipulation unchecked. This Note argues that federal courts should correct this deficiency and extend the fraudulent joinder doctrine to police sham plaintiffs. Extending the doctrine in this manner would prevent jurisdictional gamesmanship, provide defendants with a fair opportunity to remove to a neutral forum, and supply clear standards for courts to deploy in scrutinizing the joinder of sham plaintiffs.IntroductionA plaintiff is the master of her complaint.1 By initiating the lawsuit, the plaintiff shapes the scope of the litigation by selecting the forum, the venue, the timing of the litigation, and the parties involved.2 Choosing between federal and state court is among the most important decisions a plaintiff makes.3 Despite the deference that courts afford to a plaintiff's choice of forum,4 a defendant retains the right to remove the suit to federal court if it could have been brought there initially.5Conventional wisdom suggests that plaintiffs prefer to litigate in state court.6 Empirical studies, however, have not shown a clear pro-plaintiff bias in state courts. But they have shown that plaintiffs suffer a significant drop in win rates after removal.7 At the very least then, plaintiffs have an incentive to ensure that their state-court suits stay in state court.Because of the strict requirements of federal diversity jurisdiction, a plaintiff has a number of legitimate tools to prevent removal.8 A federal court may exercise diversity jurisdiction only when there is complete diversity between the parties and where there is an amount in controversy greater than $75,000.9 A common way to prevent removal is to join a nondiverse party. On the defendant side, a plaintiff can either sue a nondiverse defendant10 or file suit in a defendant's home state.11 On the plaintiff side, a plaintiff may also join with another plaintiff to sue a common defendant.12 When the other plaintiff shares a state of residency with the defendant, this nondiverse plaintiff destroys complete diversity and precludes the suit's removability. The flexibility to join with another plaintiff is subject to the same legitimate cause-of-action standard that applies to the joinder of defendants.Sometimes, plaintiffs go beyond their permitted discretion and join nondiverse parties who lack a stake in the suit. These parties, which I call sham parties, do not contribute to the adjudication of the case; rather, they are joined solely to prevent removal. Sham parties impermissibly manipulate jurisdiction by depriving defendants of their statutory right of removal.Courts use a number of tools to prevent this jurisdictional manipulation. By far, the strongest tool to scrutinize party joinder is Federal Rule of Civil Procedure 21. …