We have learned, through repeated harsh experience (e.g., Mallory, Wullschleger, Harrington) that while the current Supreme Court can be described as “conservative,” that hardly means that it is pro-business. Indeed, it appears that when the issue is p-side forum-shopping, the Notorious RBG (opponent of all things preemption) was far more “pro-business” than justices bearing the “ultra-conservative” label.
With that in mind, we turn to the Court’s latest certiorari grant in a plaintiff forum-shopping case − Palmquist v. Hain Celestial Group, Inc., 103 F.4th 294 (5th Cir. 2024). Palmquist is a food case, and the plaintiffs sued − in addition to the targeted manufacturer − a local grocery store in a transparent effort to destroy diversity and thereby keep the case in state court. The manufacturer removed, claiming that joinder of the intermediate seller was fraudulent under a state (Texas) statute that, with some exceptions, immunized such sellers from suit. After abandoning their initial complaint in favor of an amended complaint that attempted to plead around the statute, plaintiffs sought remand. They lost, and the district court retained jurisdiction. See Id. at 299-300 (describing procedural history). That was in 2021. The suit, now between completely diverse parties, was litigated in federal court over the next two years until, during a jury trial, the defendant successfully moved for judgment as a matter of law on grounds that the plaintiffs presented “no evidence of general causation” since they had no expert witness. Id. at 300.
On appeal the Fifth Circuit never reached the slam-dunk reason why the defense won on the merits. Instead, it found – under the extremely low pleading bar that plaintiffs enjoy when they engage in fraudulent joinder − that even the original complaint (which plaintiffs abandoned) had successfully evaded the Texas statute that the legislature enacted to stop precisely what the plaintiffs in Palmquist did:
The language in the as-removed complaint was broad enough to encompass both breach of express and implied warranties claims. The paragraph was entitled “Breach of Warranties,” which could include both express and implied claims. Although the language in the as-removed complaint generally discussed [the intermediate seller’s] implied warranties, it also discussed [its] express representations regarding [the manufacturer’s] products. We therefore hold that the district court erred in concluding that the [plaintiffs] added a new breach of express warranty claim in their second amended complaint.
103 F.4th at 302. Under the “no possibility of recovery” fraudulent joinder standard, the plaintiffs’ threadbare pleading sufficed. Id. at 304. “As the [plaintiffs] argue, the [intermediate seller’s] business model depends on [its] reputation and customers’ willingness to a pay a premium for products that [it] advertises as healthy and high quality.” Id. at 307.
Finding a non-waivable subject-matter-jurisdiction defect, the Fifth Circuit threw two years of litigation between the diverse parties out the window and let the plaintiffs have a do-over in state court. Standing in the way was a Supreme Court decision in a prior case involving improper removal, where the Supreme Court had refused to jettison the results of that litigation, holding:
[Plaintiffs’] arguments are hardly meritless, but they run up against an overriding consideration. Once a diversity case has been tried in federal court, with rules of decision supplied by state law. . ., considerations of finality, efficiency, and economy become overwhelming.
Caterpillar Inc. v. Lewis, 519 U.S. 61, 75 (1996) (citation omitted).
Palmquist, however, distinguished Caterpillar. According to Palmquist, the Caterpillar plaintiffs had surrendered their jurisdictional argument by “cur[ing]” it themselves. 103 F.4th at 307. Those plaintiffs had settled with the non-diverse defendant, thus eliminating any lack of jurisdiction, whereas in Palmquist the plaintiffs had not.
Unlike Caterpillar, complete diversity did not exist at the time judgment was entered because the [plaintiffs] alleged non-fraudulent claims against a non-diverse defendant. . . . Where a jurisdictional defect lingers (i.e., lack of subject matter jurisdiction) through judgment in the district court, the case must be remanded because the federal court lacked jurisdiction.
103 F.4th at 308 (citation omitted).
What this “conservative” Fifth Circuit panel did in Palmquist was to convert fraudulent joinder – or any other means of involuntarily eliminating a non-diverse defendant – into a free shot for plaintiffs.
If the plaintiff ultimately wins, or settles, in federal court, then the plaintiff would simply forget about jurisdiction – a winning or settling plaintiff would have no reason to appeal and to challenge subject-matter jurisdiction. For their part, defendants in such a situation would face judicial estoppel if they contested their loss by raising lack of subject matter jurisdiction, since they had initially removed the case to federal court. E.g., American Fire & Casualty Co. v. Finn, 341 U.S. 6, 17 (1951).
But now, under the Fifth Circuit’s Palmquist decision, whenever plaintiffs lose in a case removed to federal court, they get a free shot at a do-over if, on appeal, they can convince a federal court of appeals that the diversity-destroying defendant should not have been dismissed, and that the case should have been remanded to state court. This makes fraudulent joinder far...
