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Friday, May 28, 2021

Holes in Removal

Michael Avenatti's defamation suit against Fox News provided a fun illustration of many holes in the removal process and the interaction among several rules and statutes, as shown in this opinion issued Wednesday by Third Circuit Judge Bibas, sitting by designation on the District of Delaware.

Avenatti sued Fox and several Fox correspondents and hosts for defamation in Delaware state court. Avenatti is a California citizen; the individual defendants are citizens of several states, none Delaware or California; Fox is incorporated in Delaware and has its PPB in New York. Fox removed four days after the lawsuit was filed but before any defendant had been sued. Three days after removal (a week after filing the lawsuit), Avenatti amended his complaint to add Fox News correspondent Jonathan Hunt, a California citizen, as defendant, then moved to remand. Judge Bibas denied the motion.

First, we have  snap removal. Fox is a Delaware citizen and should not be able to remove a diversity action under the forum-defendant rule. But Fox had not been served and the Third Circuit is one of three circuit to expressly endorse the practice, plain congressional intent be damned. In addition, Fox could unilaterally remove because no other defendants had been served, so it was not required that they join or consent.

Second, we have the interaction among four provisions and doctrines to determine how and why to prevent a plaintiff from doing what Avenatti did here--adding a non-diverse defendant, someone the plaintiff had not previously desired to sue, post-removal to destroy complete diversity and deprive the court of jurisdiction.

Section 1447(e) exists to limit the practice, giving district courts discretion to deny or permit joinder when a plaintiff "seeks to join additional defendants" post-removal. Courts consider a number of factors, including whether the purpose of the amendment is to defeat diversity, whether the plaintiff would be prejudiced if he cannot proceed against the additional defendant (basically an FRCP 19 analysis), whether the plaintiff delayed in adding the new defendant, and other equities.

But Bibas said § 1447(e) did not apply. Avenatti had amended as a matter of course under FRCP 15(a)(1)(B), which he could do within 21 days after service of an answer or motion under 12(b), (e), or (f).* Because no defendant had responded to the original complaint, Avenatti did not need the court's permission to amend and add Hunt as defendant. Her therefore did not "seek" to add a defendant, he added a defendant because he had the right to do so. Although some courts read § 1447(e) to allow the court to deny amendments as a matter of course if they would destroy complete diversity, Bibas refused to "expand" the text.

[*] Bibas erroneously included 21 days of serving the complaint as a relevant time point, although is not included in the timing calculation under (a)(1)(B), only (a)(1)(A). A common mistake.

Avenatti offered the opposite extreme. Had Avenatti included Hunt in the original complaint, even with the purpose of keeping the case out of federal court, the case would not have been removable unless the joinder of Hunt was fraudulent, meaning there was "no colorable ground" for a claim against him. Avenatti argued that the court must remand unless Fox could show the joinder was fraudulent, just as the court would have to remand unless the joinder of Hunt in the original complaint had been fraudulent. But Bibas rejected that approac. Fraudulent joinder applies at the time of removal when the court determines jurisdiction in the first instance, not after a case has been properly removed and a change threatens established jurisdiction.

Bibas chose a middle way. FRCP 21 states a court "may at any time, on just terms, add or drop a party." In this situation, the court must decide whether it would be "just" to drop Hunt as a party. And justice would be determined by the ordinary § 1447(e) factors--plaintiff purpose, prejudice/necessary party, delay, and other equities. So get to the same analysis, but starting from a different textual point. A good illustration for students of the interactions between statutory text and judicial interpretation and elaboration.

Those factors favored dropping Hunt and keeping the case in federal court: Avenatti's purpose was obvious and Hunt was not a necessary party because Avenatti alleged Fox's liability for Hunt's statements. Although there was no delay in adding Hunt, the other two factors favored weighed against Avenatti.

Posted by Howard Wasserman on May 28, 2021 at 10:35 AM | Permalink


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