June 27, 2016
Weather events in recent years have led to a surge of lawsuits seeking coverage for property damage. Often, in an effort to defeat diversity jurisdiction, a Texas resident will sue both a foreign insurance company and a fellow Texas resident (usually a local insurance adjuster) in state court. By including the Texas resident as a defendant, a federal district court in Texas would presumably not have jurisdiction over the dispute due to the lack of complete diversity of citizenship between the parties.[1]
Nonetheless, defendants are responding by removing the lawsuit to federal court and contending that the nondiverse defendant was “improperly joined” solely to defeat the federal court’s jurisdiction. The defendants will argue that the plaintiff has not set forth a viable cause of action against the Texas defendant, meaning the Texas defendant’s citizenship should be disregarded for purposes of diversity jurisdiction. Removal is typically followed by the plaintiff’s motion for remand to state court, in which the plaintiff alleges that it has stated a valid cause of action against the Texas defendant.
Countervailing Views Previously Held by Federal District Courts
At the crux of the improper-joinder inquiry is the federal district court’s review of the plaintiff’s petition. The district court will analyze the factual pleadings set forth in the petition to determine whether the Texas plaintiff has demonstrated any possibility of recovery against the Texas defendant. If so, the Texas defendant is properly joined and there is not complete diversity of citizenship among the parties. Consequently, the federal court must send the lawsuit back to state court. To make this determination, the federal district court must ultimately “conduct a [Federal] Rule 12(b)(6)-type analysis.”[2]
In reviewing the pleadings, district courts must choose whether to apply the liberal “fair notice” Texas pleading standard or the more stringent federal pleading standard. The Texas pleading standard only requires that the petition contain sufficient allegations to allow the defendant(s) to ascertain the nature and basic issues of a dispute.[3] However, the federal pleading standard requires that the plaintiff state “enough facts to state a claim to relief that is plausible on its face.”[4] Thus, the federal standard requires more than bare legal conclusions or mere recitations of a cause of action’s elements.
In a prior guest article co-authored by my colleague Brad Brewer and myself, we discussed the inconsistent approaches taken by federal district courts in Texas regarding the applicable pleading standard used in the improper-joinder analysis.[5]
In that article, we noted some courts concluded that a petition should be evaluated under the fair notice pleading standard used in Texas. In part, these courts reasoned that “fundamental fairness” should not require plaintiffs in state court to anticipate that their lawsuits will be removed, and thereafter scrutinized under the more stringent pleading standard.[6] Conversely, other courts concluded that the federal pleading standard applied because the Texas legislature introduced Texas Rule of Civil Procedure 91a — a motion to dismiss...
