Fraudulent Joinder Motion Wins Out in Eastern District of Pennsylvania

A recent decision by the Eastern District of Pennsylvania serves as a reminder that attempts to defeat federal diversity jurisdiction via questionable joinder of parties is likely to fail in the Third Circuit.

In Reith v. Teva Pharmaceuticals USA, Inc., et al., two women from California and Utah, respectively, alleged complications during removal of intrauterine contraceptive devices (IUDs). They filed suit in Pennsylvania state court against five defendants: Teva Pharmaceuticals USA, Inc. (Teva USA); Teva Women’s Health, Inc. (Teva Women’s Health); Teva Branded Pharmaceuticals Products R&C, Inc. (Teva Branded); The Cooper Companies, Inc. (Cooper Companies); and CooperSurgical, Inc. (CooperSurgical).

Defendants removed to the U.S. District Court for the Eastern District of Pennsylvania under 28 U.S.C. 1441 on the basis of diversity of citizenship between plaintiffs and Teva Women’s Health. Defendants asserted that the four remaining defendants were fraudulently joined as parties, and that Teva Women’s Health was the only proper defendant because it was the only one to manufacture and sell the IUDs. In response, plaintiffs sought remand to state court under 28 U.S.C. 1441(b)(2), arguing that Teva USA and Teva Branded were citizens of Pennsylvania thereby triggering the forum defendant exception to diversity jurisdiction.

Fraudulent Joinder Arguments

It is difficult to win a fraudulent joinder motion on the merits in order to keep a case in federal court. “Joinder is fraudulent where there is no reasonable basis in fact or colorable ground supporting the claim against the joined defendant, or no real intention in good faith to prosecute the action against the defendant.” The party asserting jurisdiction bears the burden of proving it, and this burden “is a heavy one” in part because “all contested factual issues are to be resolved in favor of the plaintiffs as are any uncertainties as to the relevant substantial state law.” In addition, “the standard for determining whether a party is fraudulently joined is higher than the standard for dismissal under Rule 12(b)(6). … To dismiss for fraudulent joinder, a claim must be wholly insubstantial and frivolous.”

Despite this high bar, defendants’ fraudulent joinder motion succeeded as to four of the purported defendants. Concerning the Teva defendants, the record demonstrated that Teva Women’s Health alone manufactured and sold the IUDs. Teva Branded did not exist until after plaintiffs’ IUDs were implanted. Teva USA simply had no involvement with the manufacture or sale of the product. Three adverse event documents submitted to the FDA by unidentified third persons that listed these entities as manufacturers were “unreliable hearsay.” Furthermore, plaintiffs’ allegations of “significant” parent company control were unsupported by the record and insufficient for veil-piercing purposes. In addition, under the substantive law of Pennsylvania, California, or Utah, the fact that Teva USA was engaged in pharmacovigilance for the IUDs was immaterial since the states do not allow claims for negligent pharmacovigilance. Accordingly, Teva Women’s Health was the only properly jointed Teva defendant.

As for the Cooper defendants, CooperSurgical is incorporated in Delaware with its principal place of business in Connecticut, rendering it diverse from both plaintiffs and supplying the court with subject-matter jurisdiction such that it did not reach the question of fraudulent joinder. Cooper Companies, on the other hand, is incorporated in Delaware with a principal place of business in California─the same citizenship as one plaintiff. However, the Cooper defendants acquired a business from Teva after plaintiffs’ alleged injuries and they never manufactured or sold IUDs. Accordingly, the court determined that the claims against the Cooper defendants were “wholly insubstantial and frivolous.”

Analysis

The decision in Reith is consistent with other recent decisions within the Third Circuit regarding fraudulent joinder. In June 2017, for example, in the In re: Zoloft (Sertraline Hydrochloride) Prods. Liab. Litig. multidistrict litigation, the Eastern District of Pennsylvania similarly granted a fraudulent joinder motion. There, plaintiffs lacked good faith intent to prosecute claims against a defendant but included the defendant to defeat diversity jurisdiction.

This pattern of cases suggests that forum shopping may be especially unwelcome in the Eastern District of Pennsylvania. On the other hand, both Reith and In re: Zoloft involved particularly egregious examples of fraudulent joinder by plaintiffs, reinforcing the reality that a high bar governs such motions. Although defendants may find success in keeping a case in federal court with a fraudulent joinder motion on facts like those in Reith and In re: Zoloft, they should remain mindful that defendants bear a heavy burden in support of such a motion generally.