Cobb v. Delta Exports Inc.

• Decision Date: 07 September 1999
• Docket Number: No. 98-30539,PENN-AMERICAN,98-30539
• Citation: 186 F.3d 675
• Parties: (5th Cir. 1999) JOHNNY LEROY COBB and MARGARET C. COBB, Plaintiffs-Appellants, v. DELTA EXPORTS, INCORPORATED;INSURANCE COMPANY; and WASTE MANAGEMENT OF LOUISIANA, L.L.C., Defendants-Appellees
• Court: U.S. Court of Appeals — Fifth Circuit

Page 675

186 F.3d 675 (5th Cir. 1999)

JOHNNY LEROY COBB and MARGARET C. COBB, Plaintiffs-Appellants, v. DELTA EXPORTS, INCORPORATED; PENN-AMERICAN INSURANCE COMPANY; and WASTE MANAGEMENT OF LOUISIANA, L.L.C., Defendants-Appellees.

No. 98-30539

IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

September 7, 1999

Appeals from the United States District Court for the Western District of Louisiana

Before JOLLY and SMITH, Circuit Judges, and STAGG, District Judge.^*

JERRY E. SMITH, Circuit Judge:

Johnny and Margaret Cobb appeal the denial of their motion to remand to state court for want of subject matter jurisdiction. In the alternative, they appeal the summary judgment in favor of each defendant. We reverse the denial of remand and, accordingly, do not reach the merits of the summary judgment.

I.

Johnny Cobb ("Cobb") was operating his vehicle on a city street in Lake Charles, Louisiana, when a piece of heavy equipment, a "front end loader," backed into his vehicle, causing him serious personal injury. The equipment was operated by an employee of J&P Logging, Inc. ("J&P"), to remove broken limbs and residue from an ice storm. J&P was performing limb removal pursuant to an agreement with Delta Exports, Inc. ("Delta"), which had been hired by Waste Management of Louisiana, L.L.C. ("Waste Management"). The City of Lake Charles had entered into an agreement with Waste Management under which Waste Management would be responsible for cleaning up the debris resulting from the storm. Cobb claims that the lack of adequate warning of the work being done proximately caused the accident.

The Cobbs sued Delta and its insurer, Penn-American Insurance Co. ("Penn-American"), both foreign domiciliaries, in state court. Delta and Penn-American removed to federal court on the basis of diversity of citizenship. The federal court granted the Cobbs' unopposed¹ motion to amend their complaint to add claims against four other defendants, two of whichthe city and Waste Managementare Louisiana domiciliaries.

The Cobbs then filed a motion to remand to state court on the ground that there no longer was complete diversity of citizenship. The district court denied remand, reasoning that Waste Management and the city had been fraudulently joined, and their joinder would therefore not destroy federal jurisdiction. The court then granted summary judgment in favor of Delta and Penn-American, reasoning that there was no genuine issue of material fact as to whether Delta Exports was liable for the actions of J&P's employee, as J&P was an independent contractor. Finally, the court granted summary judgment in favor of Waste Management, concluding that the Cobbs could not establish Waste Management's liability for the actions of J&P's employee.

II.

The Cobbs contend that the district court did not have the option of joining the non-diverse defendants and then declining to remand; once the court permitted joinder, they assert, it was bound to remand. The defendants argue that Supreme Court precedent establishes that diversity, for jurisdictional purposes, is established at the time of removal, and the later joinder of dispensable, non-diverse defendants does not destroy federal jurisdiction. We agree with the Cobbs that post-removal joinder of non-diverse defendants pursuant to FED. R. CIV. P. 19 destroys diversity for jurisdictional purposes and requires remand, even when the newly joined defendants are not indispensable.

A.

The plain language of 28 U.S.C. 1447(e) requires a remand:

If after removal the plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to the State court.

By expressly giving a district court only two options, this section indicates that the court may not permit joinder of non-diverse defendants but then decline to remand, as the court did here.²

The legislative history supports this reading. In adopting the current version of 1447(e), Congress rejected a version that would have permitted district courts to join non-diverse defendants and, at their discretion, retain jurisdiction.³ This history indicates that Congress must not have intended to permit the course of action the district court chose.

Remand is also required by Hensgens v. Deere & Co., 833 F.2d 1179 (5th Cir. 1987), in which we held that the post-removal joinder of a non-diverse, dispensable party destroys diversity jurisdiction. Indeed, other courts have opined that 1447(e), adopted after we decided Hensgens, is a codification of Hensgens's holding.⁴

B.

The "fraudulent joinder" doctrine is inapplicable here. Under that doctrine, a federal court may assert diversity jurisdiction when a non-diverse defendant has been fraudulently joinedi.e., when "either . . . there is no possibility that the plaintiff would be able to establish a cause of action against the in-state defendant in state court; or . . . there has been outright fraud in the plaintiff's pleading of jurisdictional facts."⁵ Jernigan v. Ashland Oil, Inc., 989 F.2d 812, 815 (5th Cir. 1993) (citing B., Inc. v. Miller Brewing Co., 663 F.2d 545, 554 (Former 5th Cir. Dec. 1981)).

The fraudulent joinder doctrine does not apply to joinders that occur after an action is removed. This court's caselaw reflects that the doctrine has permitted courts to ignore (for jurisdictional purposes) only those non-diverse parties on the record in state court at the time of removal.⁶

This makes sense: A request to join a party against whom recovery is not really possible and whose joinder would destroy subject matter jurisdiction (i.e., a request fraudulently to join a party) would never be granted. Section 1447(e) authorizes a court to permit or prohibit joinder, and the defendant thus has an opportunity at the time joinder is considered to prevent joinder by arguing that there is no colorable claim against the party the plaintiff is seeking to join. There is no need, then, for a doctrine that ignores parties who are fraudulently joined after removal, for such parties would never be allowed to become defendants in the first place.

The district court's confusion likely resulted from the fact that the term fraudulent joinder is a bit of a misnomer; in the typical case, the fraudulently "joined" party is not joined later, but instead is named as a defendant in the original state court complaint to avoid removal. The doctrine simply does not apply to defendants who are joined after an action is removed, for in such cases, the defendants have a chance to argue against joinder before the court grants leave to amend.⁷

Accordingly, the district court erred in relying on the fraudulent joinder doctrine to justify its refusal to remand. Indeed, once it permitted joinder of the non-diverse defendants, the court lost subject matter jurisdiction and thus had no power even to consider whether fraudulent joinder applied.⁸

C.

Contrary to the defendants' assertion, this case is not controlled by Freeport-McMoRan, Inc. v. KN Energy, Inc., 498 U.S. 426 (1991) (per curiam). There, a gas seller and its parent sued a buyer for breach of contract, basing jurisdiction on diversity. Thereafter, one of the plaintiffs transferred its interest to a limited partnership that was not diverse from the defendant, and plaintiffs sought leave to amend to substitute the non-diverse party as a plaintiff under FED. R. CIV. P. 25(c).⁹ The district court permitted plaintiffs to add the party. After a verdict for plaintiffs, the court of appeals reversed, holding that the suit should have been dismissed because the addition of the non-diverse party after suit was filed destroyed diversity jurisdiction. See Freeport-McMoRan, Inc. v. KN Energy, Inc., 907 F.2d 1022 (10th Cir. 1990). The Supreme Court reversed and held that diversity jurisdiction is not defeated by the substitution of a non-diverse party. The Court limited its holding to dispensable parties, noting that if the party that was added had been indispensable when suit was filed, the addition of the non-diverse party would have defeated diversity jurisdiction.

The instant defendants rely on a passage in Freeport-McMoRan explaining that

if jurisdiction exists at the time an action is commenced, such jurisdiction may not be divested by subsequent events. . . . "Jurisdiction once acquired . . . is not divested by a subsequent change in the citizenship of the parties. Much less is such jurisdiction defeated by the intervention, by leave of court, of a party whose presence is not essential to a decision of the controversy between the original parties."

Freeport-McMoRan, 498 U.S. at 428 (quoting Wichita R.R. & Light Co. v. Public Util. Comm'n, 260 U.S. 48, 54 (1922)). Defendants also point to the Freeport-McMoRan Court's statement that "diversity jurisdiction, once established, is not defeated by the addition of a nondiverse party to the action." Id. These statements, defendants maintain, indicate that post-removal joinder of non-diverse, dispensable defendants does not destroy diversity jurisdiction, for diversity is established when an action is commenced. Defendants conclude that, as there was complete diversity when the lawsuit was filed, post-removal joinder of Waste Management and the city does not destroy diversity jurisdiction.

Defendants also note that dictum from Whalen v. Carter, 954 F.2d 1087 (5th Cir. 1991), supports their reading of Freeport-McMoRan. In Whalen, we held that the district court did not err in concluding that diversity jurisdiction was destroyed when a non-diverse, indispensable defendant was joined. See id. at 1096. We indicated, however, that had the defendant been a dispensable party, it would have been error for the court to conclude that addition of the party destroyed subject matter jurisdiction. See id.

Defendants maintain that the lesson of this dictum is that, while joinder of indispensable, non-diverse parties destroys...