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From today's opinion by Third Circuit Judge Stephanos Bibas, sitting by designation in Avenatti v. Fox News Network, LLC (D. Del.):
Michael Avenatti believes that Fox News and its media personalities defamed him. He sued them in Delaware state court, but Fox News removed the case to this Court. Avenatti immediately added a nondiverse defendant and moved to remand to state court. But he cannot maneuver his way out of diversity jurisdiction. So I will drop the new defendant and deny his motion to remand….
In 2018, Avenatti was arrested. Because he was a celebrity lawyer, many news outlets covered his arrest. He says that one of them, the Fox News Network, lied about the details of the arrest.
In 2020, Avenatti sued Fox News and many of its hosts and correspondents for defamation in Delaware Superior Court. Four days later, Fox News removed to federal court based on complete diversity of citizenship…. As a Delaware resident, Fox News ordinarily would not have been able to remove from Delaware state court to federal court. 28 U.S.C. § 1441(b)(2). But here it could do so because, when it removed, it had not yet been properly served. And because none of the employees had been served yet, they did not have to join in the removal. Avenatti does not challenge the removal on these grounds.
Instead, a week after he first sued, Avenatti filed an amended complaint adding a new defendant, Fox News correspondent Jonathan Hunt. Because he filed this amendment within twenty-one days of the initial complaint, he did not need leave of the court or the opposing parties. Hunt resides in California[, as does Avenatti]. So Avenatti now moves to remand because there is no longer complete diversity of citizenship, depriving this Court of diversity jurisdiction. His motion does not explain why he did not name Hunt as a defendant at first, even though the original complaint mentioned him….
When a case is removed from state to federal court, a plaintiff cannot defeat subject-matter jurisdiction simply by joining more defendants. Instead, if a plaintiff "seeks" to do so, he must first get the district court's approval. The court has the power to either deny joinder or allow it and remand the case to state court. Defendants argue that this statute gives me discretion to refuse to let Avenatti join Hunt. Avenatti, however, counters that he does not "seek" to join Hunt—he has already done so as of right under Rule 15(a)(1). So he says that unless Hunt's joinder was fraudulent, I must remand.
Defendants are largely right. True, 26 U.S.C. § 1447(e) does not empower me to deny a joinder that has already happened as of right. But Avenatti cannot use this gap in the statute to destroy federal jurisdiction. District courts may cure jurisdictional defects by dropping a party at any time "on just terms." Avenatti created the defect after removal by adding a jurisdiction-destroying defendant. The fraudulent-joinder doctrine does not apply after a proper removal to federal court. So this situation is not governed by that doctrine, but by the factors courts consider under § 1447(e). Those factors favor dropping Hunt and denying Avenatti's motion to remand….
Often, a plaintiff must seek the district court's leave to amend his complaint. If the plaintiff proposes a joinder that would destroy diversity jurisdiction, and the case has already been removed to federal court, the court has discretion to grant or deny the amendment. But that process seems to have a gap: when a plaintiff amends a complaint within twenty-one days of serving the complaint, answer, or motion to dismiss, he does not need the court's permission. He can amend as of right. And if that amendment adds a new, nondiverse defendant, the court seems stuck: it cannot review the propriety of that joinder but must instead remand for lack of jurisdiction.
Most courts prevent this trick from tying the court's hands. If district courts could not police these joinders, plaintiffs could routinely destroy diversity jurisdiction soon after removal. So most courts recognize a district court's power to reject such post-removal joinders, even those made as of right. [Citations omitted. -EV]
Some courts read § 1447(e) as letting them deny even amendments as of right that would destroy diversity. But the statute's text addresses situations where "the plaintiff seeks to join additional defendants." We need not expand the text. The rules already give district courts another way to police joinders, even those as of right. The court, "on motion or on its own," can "at any time, on just terms, add or drop a party." Fed. R. Civ. P. 21. So it can use Rule 21 "to dismiss dispensable parties to the suit in order to preserve diversity."
Even though § 1447(e) does not govern amendments as of right, its factors are not irrelevant; courts can look to them by analogy. After removal, courts should consider under Rule 21 the same factors that they consider under § 1447(e) in deciding whether to drop a party to maintain diversity. Whether the joinder is proposed or has already happened, the inquiry is the same: should the federal court remand because of a new nondiverse party, or not?
True, not all courts agree on this point. Some have held that § 1447(e) does not apply because plaintiffs who amend as of right do not "seek[ ]" to join a nondiverse defendant. They will not disregard the joinder and retain jurisdiction unless they find that the new defendant was fraudulently joined. For a joinder to be fraudulent, there must be no "colorable ground" supporting the claim against it
Though Avenatti asks me to apply the fraudulent-joinder test, I will not. Fraudulent joinder is "an exception to the requirement that removal be predicated solely upon complete diversity." The doctrine applies only at the moment of removal—when the district court assures itself of its jurisdiction—not after a case has been legitimately removed. Instead, I find that under Rule 21, it would be "just" to drop a nondiverse defendant added later if the factors under § 1447(e) would counsel against granting a discretionary joinder….
To decide whether to allow joinder under § 1447(e), many district courts apply the factors set out in Hensgens v. Deere & Co., 833 F.2d 1179, 1182 (5th Cir. 1987). I will too. So I consider:
- whether the amendment's purpose is to defeat diversity jurisdiction;
- whether denying amendment will prejudice the plaintiff;
- whether the plaintiff has delayed in seeking to amend; and
- any other equities.
Plus, I cannot drop Hunt under Rule 21 if he is an indispensable party according to Rule 19(b).
[1.] Purpose. First, I find that Avenatti's purpose in amending was to defeat diversity jurisdiction. He joined Hunt just three days after removal and moved to remand just five days later. When a plaintiff adds a nondiverse defendant right after removal but before any discovery, the court will suspect that he is trying to defeat federal jurisdiction.
The minor substantive differences between the two complaints confirm Avenatti's purpose. The original complaint mentions Hunt, noting that he said on the air that Avenatti "left court last night" after the arrest (which Avenatti says is false). All the amended complaint adds is the label "Defendant" right before "Hunt." The amended complaint also includes one more substantive allegation, charging Hunt and Fox News with publishing an internet article stating that Avenatti was "out on bail after domestic violence charge[s]" and that he "was formally charged last week with felony domestic violence." But Avenatti had already charged Fox News and the other employees with making nearly identical statements on the air and on the web. The extra article adds little.
Plus, Avenatti knew about Hunt's potential liability at the outset. He mentioned Hunt in the original complaint. Yet his motion to remand never explains why he did not name Hunt as a defendant from the get-go. All he does say, in his reply brief and without elaboration, is that he did not know of the additional article until after he filed in state court. That claim is suspicious: no discovery had occurred yet, so he had no occasion to learn anything new. In short, Avenatti's evident purpose was to destroy diversity jurisdiction. Under Hensgens, that factor favors remand.
[2.] Prejudice. Second, the slight changes also suggest that dropping Hunt will not prejudice Avenatti, so this Hensgens factor favors remand. In a sea of similar allegations, Avenatti charges Hunt with only two defamatory statements. And he asserts each charge against Hunt equally against his employer, Fox News. That means that Avenatti can recover fully against Fox News, without Hunt. That also means that Hunt is dispensable. Rule 19 does not require joining joint tortfeasors or both principal and agent.
In response, Avenatti argues that he cannot now sue Hunt separately because his claims will be time-barred. I need not remand just because the statute of limitations may bar these claims, especially because Avenatti can recover fully without Hunt….
[3.] Delay. Avenatti amended quickly, so he was not dilatory under another Hensgens factor. But that does not overcome my conclusion that he added Hunt to defeat diversity jurisdiction and will not suffer if I drop him….
Though § 1447(e) by its terms does not limit amendments as of right after removal, I still apply the factors under § 1447(e) in deciding whether to drop a party under Rule 21. Because Avenatti probably added Hunt only to defeat federal diversity jurisdiction, I am dropping Hunt from the case. I thus deny Avenatti's motion to remand.
Questions about procedure, we turn into questions about questions about procedure.