This is a frequently litigated issue in federal court – whether a defendant’s citizenship should be discounted for purposes of diversity jurisdiction.
Defendants often want to remove a case from the state court to the federal court. All defendants must join in the removal petition. Here the defendants alleged that there was complete diversity of citizenship, in that the plaintiff and defendants were citizens of different states.
Plaintiff moved to remand the case on the ground that one of the defendants had the same citizenship as the plaintiff. Defendants argued that that defendant was fraudulently joined to defeat diversity jurisdiction.
The court lays out the legal framework as follows:
“Unless Congress expressly provides otherwise, a defendant may remove a state court civil action to a federal district court if the district court has original jurisdiction over the action. 28 U.S.C. § 1441(a). A federal court has original jurisdiction over civil actions in which there is diversity of citizenship between the parties and the amount in controversy exceeds $75,000 exclusive of interest and costs. 28 U.S.C. § 1332(a). Otherwise stated, the statute requires complete diversity of citizenship; that is, a district court cannot exercise subject matter jurisdiction if any plaintiff shares the same citizenship as any defendant. See Corfield v. Dallas Glen Hills LP, 355 F.3d 853, 857 (5th Cir. 2003)(citing Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806)). In considering citizenship, however, the court considers only the citizenship of real and substantial parties to the litigation; it does not take into account nominal or formal parties that have no real interest in the litigation. Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 460-61 (1980). The citizenship of a party that is improperly joined must be disregarded in determining whether diversity of citizenship exists. Johnson v. Heublein, 227 F.3d 236, 240 (5th Cir. 2000).”
After careful analysis the court determined that the nondiverse defendant, Teresa Lugo, was improperly joined because the statute of limitations had run as to any claims against her. The court explained: “Defendants have convinced the court that Lugo would prevail on the statute of limitations defense; therefore, there is no reasonable basis for the court to predict that Plaintiffs might be able to recover against Lugo on their claim of negligent misrepresentation. Accordingly, the court holds that Lugo was improperly joined to defeat diversity jurisdiction.”
This is a classic case of fraudulent joinder of a defendant to defeat diversity jurisdiction.