Tommy Morris v. Salvatore Nuzzo , 718 F.3d 660 ( 2013 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 12-3220
T OMMY L. M ORRIS, Personal Representative of
the Estate of Thomas Lynn Morris,
Plaintiff-Appellant,
v.
S ALVATORE N UZZO ,
Defendant-Appellee.
Appeal from the United States District Court
for the Southern District of Indiana, Indianapolis Division.
No. 1:12-cv-00578-SEB-DML—Sarah Evans Barker, Judge.
A RGUED F EBRUARY 14, 2013—D ECIDED M AY 23, 2013
Before K ANNE and W ILLIAMS, Circuit Judges, and
Z AGEL District Judge.Œ
Z AGEL, District Judge. The United States District Court
for the Southern District of Indiana (the “district court”)
Œ
The Honorable James Zagel, United States District Court for
the Northern District of Illinois, Eastern Division, sitting by
designation.
2 No. 12-3220
dismissed the claims of Tommy L. Morris, personal
representative of the Estate of Thomas Lynn Morris
(the “Estate”) against Salvatore Nuzzo (“Nuzzo”). The
lawsuit, originally filed in the Trumbull County Common
Pleas Court of the State of Ohio, was removed to the
United States District Court for the Northern District
of Ohio, and finally was transferred to the district court
in Indianapolis. Because we find that that the district
court erred in its determination that Nuzzo was fraudu-
lently joined, we will vacate the judgment of dismissal
and remand to the district court with instructions that
the case be further remanded to the Trumbull County
Common Pleas Court of Ohio.
Background
This matter arises out of an automobile accident and
a subsequent insurance dispute. On December 2, 2004,
Daemon Sampson (“Sampson”) was operating a vehicle
involved in a collision in Brown County, Indiana. One
of the passengers in Sampson’s vehicle, Thomas Lynn
Morris, died as a result of injuries sustained in the ac-
cident. At the time of the collision, Sampson was
insured under a Mid-Century auto insurance policy
issued to his mother. Shortly after the accident, the
Estate made a claim under the policy for $50,000, the
highest allowable amount. Nuzzo, a citizen of Ohio, was
the claims adjustor assigned to handle the Estate’s claim.
The Estate was unable to settle its claim under the Mid-
Century policy. As a result, it filed a wrongful death suit
No. 12-3220 3
in Indiana state court against Sampson, which Mid-Cen-
tury defended. The case went to trial and the jury
returned a verdict for the Estate and against Sampson
of about $1.2 million. Following the verdict, Sampson
executed an assignment of his rights against Mid-
Century to the Estate in exchange for an agreement that
the Estate would not pursue collection of the verdict
against Sampson personally.
In or around February 2011, the Estate filed a claim
in California state court against Mid-Century, alleging
that its bad faith failure to pay out the Estate’s insur-
ance claim resulted in the excess jury verdict against
Sampson. In May 2011, the California court dismissed
the case on forum non conveniens grounds. Although Mid-
Century is incorporated and has its principal place of
business in California, the California state court found
that the suit belonged in Indiana given that the Estate
and Sampson were citizens of Indiana, the insurance
policy was issued and performed in Indiana, and the
underlying death trial was conducted in Indiana.
Rather than file suit in Indiana, the Estate brought
claims against Mid-Century and Nuzzo in Ohio state
court, alleging tortious bad faith failure to pay an insur-
ance claim and breach of contract. Mid-Century and
Nuzzo removed the case to the federal district court for
the Northern District of Ohio, and the Estate immedi-
ately moved to remand under the “forum defendant
rule” based on Nuzzo’s Ohio citizenship. See 28 U.S.C.
§ 1441(b)(2). Mid-Century and Nuzzo opposed remand
on the grounds that Nuzzo had been fraudulently joined
4 No. 12-3220
to the lawsuit and his citizenship could therefore
be disregarded in determining the propriety of removal.
Mid-Century and Nuzzo also moved to dismiss the
claim against Nuzzo or, alternatively, to transfer the
case to the Southern District of Indiana pursuant to
28 U.S.C. § 1404. The district court for the Northern
District of Ohio granted the motion to transfer the
case to the district court in Indiana and denied all
other pending motions, including the Estate’s motion to
remand to the Ohio state court, as moot.
Once in the district court, the Estate argued that the
Northern District of Ohio lacked subject matter juris-
diction due to the forum defendant removal defect,
which rendered the § 1404(a) transfer invalid. Alterna-
tively, the Estate argued that if the transfer was valid,
it could still seek remand. Mid-Century and Nuzzo
claimed that the transfer did moot the Estate’s
remand motion, and renewed its contention that Nuzzo
was fraudulently joined and should be dismissed from
the case.
The district court found that diversity jurisdiction
was properly exercised because the requirements of 28
U.S.C. § 1332(a) were met, and because the alleged
forum defendant rule violation was a procedural error
that does not affect jurisdiction. So the § 1404(a) transfer
was valid, but the Estate’s motion to remand was not
foreclosed. In seeking remand, the Estate argued that the
fraudulent joinder doctrine did not apply to Nuzzo
because his presence did not compromise the parties’
complete diversity—it simply prevented removal under
No. 12-3220 5
the forum defendant rule. The Estate also argued that,
in any event, Nuzzo was not fraudulently joined
because the claims against him stood a “reasonable pos-
sibility of success” under Ohio law. See Poulos v.
Naas Foods, 959 F.2d 69, 73 (7th Cir. 1992).
While acknowledging that “most fraudulent joinder
cases involve a defendant who is non-diverse to the
Plaintiff and who the removing parties contend was
joined to defeat diversity,” the district court could find
“no principled basis” for refusing to extend the doctrine
to a diverse resident defendant joined for purposes of
triggering the forum defendant rule. The district court
agreed that the Estate’s claims against Nuzzo were po-
tentially viable under Ohio law, but determined that
Indiana law governed both claims because Indiana had
the most significant relationship to the events under-
lying the claims. See generally Restatement (Second) of
Conflict of Laws (1973). Under Indiana law, the district
court concluded, the claims against Nuzzo were not
cognizable and stood no chance of success. Accordingly,
Nuzzo was fraudulently joined. The district court dis-
missed all claims against Nuzzo and denied the Estate’s
motion to remand. This appeal followed.
Analysis
On appeal, the Estate contends: (1) that the district court
lacked diversity jurisdiction over the case because its
removal from Ohio state court was prohibited under
the forum defendant rule, (2) that the district court erred
in applying the fraudulent joinder doctrine to a diverse
6 No. 12-3220
resident defendant, and (3) that the district court erred
in making a choice of law determination as part of the
fraudulent joinder analysis. We review issues involving
removal of an action from state to federal court de novo.
See Schwartz v. State Farm Mut. Auto. Ins. Co., 174 F.3d
875, 878 (7th Cir. 1999).
I
The first question before us is whether the district
court exercised proper diversity jurisdiction over this
case. A defendant removing a case on diversity grounds
must not only demonstrate that the case satisfies the
requirements of 28 U.S.C. § 1332(a), but must also
clear the “additional hurdle” of 28 U.S.C. § 1441(b)(2),
or the “forum defendant rule.” Hurley v. Motor Coach
Industries, Inc., 222 F.3d 377, 378 (7th Cir. 2000).
Section 1441(b)(2) provides:
A civil action otherwise removable solely on the
basis of the jurisdiction under section 1332(a) of
this title may not be removed if any of the parties in
interest properly joined and served as defendants
is a citizen of the State in which such action is brought.
The forum defendant rule is “designed to preserve
the plaintiff’s choice of forum, under circumstances
where it is arguably less urgent to provide a federal
forum to prevent prejudice against an out-of-state
party.” Hurley, 222 F.3d at 380. In other words, the forum
defendant rule disallows federal removal premised
on diversity in cases where the primary rationale for
No. 12-3220 7
diversity jurisdiction—to protect defendants against
presumed bias of local courts—is not a concern because
at least one defendant is a citizen of the forum state. See
Dresser Indus., Inc. v. Underwriters at Lloyd’s of London, 106
F.3d 494, 499 (3d Cir. 1997) (“If diversity jurisdiction
exists because of a fear that the state tribunal would
be prejudiced towards the out-of-state plaintiff or defen-
dant, that concern is understandably allayed when
the party is joined with a citizen from the forum state.”);
Lively v. Wild Oats Mkts., Inc., 456 F.3d 933, 940 (9th
Cir. 2006).
The Estate’s argument that the district court lacked
diversity jurisdiction over this case because its removal
violated the forum defendant rule is wrong. The argu-
ment ignores our decision in Hurley v. Motor Coach Indus-
tries, Inc., where we joined “the longstanding line of
authority that holds that the forum defendant rule is not
jurisdictional.” 222 F.3d at 379 (listing cases). See also
Holmstrom v. Peterson, 492 F.3d 833, 836 (7th Cir. 2007).
Neither side disputes that there is complete diversity
between the parties—the Estate is alleged to be a citizen
of Indiana, Nuzzo is alleged to be a citizen of Ohio, and
Mid-Century is alleged to be incorporated and have
its principle place of business in California—and the
amount in controversy exceeds $75,000. Like the
plaintiff in Hurley, there is no question that if the
Estate’s “case had been filed in the first instance in
federal court, jurisdiction under § 1332 would have
been clear.” 222 F.3d at 380. Whether the case was
properly removed to federal court, therefore, is a matter
of removal procedure, not jurisdiction. Id.8 No. 12-3220
The Estate attempts to distinguish Hurley on the
grounds that it filed a timely motion to remand and
thus did not waive its right to invoke the forum de-
fendant rule. See 28 U.S.C. § 1447(c). But the fact that the
Estate’s motion to remand was timely does not change
the nonjurisdictional nature of the forum defendant
rule—it simply means that the district court had to
address the motion on its merits, which it did. Indeed
the Estate’s acknowledgment that it could have waived
its objection is a tacit admission that the forum de-
fendant rule is nonjurisdictional. See Hurley, 222 F.3d at
379 (“Of course, waiver is possible only if the forum
defendant rule is nonjurisdictional; true jurisdictional
flaws are nonwaivable and can be raised at any time.”
(internal citation omitted)).
More to the point, subject matter jurisdiction is not
the threshold issue in this unusual case. The district
court for the Northern District of Ohio did not need to
determine its own subject matter jurisdiction prior to
transferring the case to the Southern District of Indiana.
See In re LimitNone, LLC, 551 F.3d 572, 576 (7th Cir. 2008)
(a district court is not required to determine its own
subject matter jurisdiction prior to transferring a case
under 28 U.S.C. § 1404(a)). And once the case arrived in
the Southern District of Indiana, the district court was
allowed to “assume” subject matter jurisdiction for pur-
poses of conducting the fraudulent joinder analysis.
Schur v. L.A. Weight Loss Centers, Inc., 577 F.3d 752, 763
(7th Cir. 2009). The real question here is whether
the district court erred in applying the fraudulent
joinder doctrine to dismiss Nuzzo, a diverse resident
defendant.
No. 12-3220 9
II
Under the fraudulent joinder doctrine (the “doctrine”),
an out-of-state defendant’s right of removal premised
on diversity cannot be defeated by joinder of a
nondiverse defendant against whom the plaintiff’s
claim has “no chance of success.” Poulos v. Naas Foods, Inc.,
959 F.2d 69, 73 (7th Cir. 1992); see also Walton v. Bayer Corp.,
643 F.3d 994 (7th Cir. 2011); Schur v. L.A. Weight Loss
Centers, Inc., 577 F.3d 752 (7th Cir. 2009); Schwartz v.
State Farm Mut. Auto. Ins. Co., 174 F.3d 875 (7th Cir. 1999);
Gottlieb v. Westin Hotel Company, 990 F.3d 323 (7th Cir.
1993). The doctrine is designed to “strike a reasonable
balance among the policies to permit plaintiffs the
tactical prerogatives to select the forum and the
defendants they wish to sue, but not to reward abusive
pleading by plaintiffs, and to protect the defendants’
statutory right to remove.” 14B Wright, Miller, Cooper &
Steinman, § 3723 pp. 788-93; see also Poulos, 959 F.2d at 73;
Schur, 577 F.3d at 763 (“A plaintiff typically may choose
its own forum, but it may not join a nondiverse
defendant simply to destroy diversity jurisdiction”).
To establish fraudulent joinder, a removing defendant
“must show that, after resolving all issues of fact and law
in favor of the plaintiff, the plaintiff cannot establish a
cause of action against the in-state defendant.” Poulos,
959 F.2d at 73 (emphasis in original). If the removing
defendant can meet this “heavy burden,” Poulos, 959 F.2d
at 73, the federal district court considering removal
may “disregard, for jurisdictional purposes, the citizen-
ship of certain nondiverse defendants, assume jurisdic-
10 No. 12-3220
tion over a case, dismiss the nondiverse defendants,
and thereby retain jurisdiction.” Schur, 577 F.3d at 763.
Because the district court may “disregard” the nondiverse
defendant, we have described the fraudulent joinder
doctrine as an “exception” to the requirement of com-
plete diversity. See Walton, 643 F.3d at 999.
The question before us is whether the district court
erred in applying the fraudulent joinder doctrine to
Nuzzo, whose presence triggers the forum defendant
rule but does not compromise the parties’ complete
diversity. In other words, we are asked to determine
whether the fraudulent joinder doctrine creates an ex-
ception to the forum defendant rule. It does not appear
that any court of appeals has answered this question.
The few district courts that have decided the issue are
split. See, e.g., Yellen v. Teledne Continental Motors, Inc., 832
F.Supp.2d 490 (E.D. Pa. Dec. 6, 2011) (fraudulent joinder
doctrine applies to a diverse forum defendant); Sargent
v. Cassens Corp., No. 06 CV 1042, 2007 WL 1673289 (S.D.
Ill. June 7, 2007) (same); but see Yount v. Shashek, 472
F.Supp.2d 1055 (S.D. Ill. 2006) (fraudulent joinder
doctrine does not apply to a diverse forum defendant);
Davenport v. Toyota Motor Sales, No. 09 CV 532, 2009 WL
4923994 (S.D. Ill. Dec. 14, 2009) (same).
The district court’s view that the doctrine extends to
diverse resident defendants was based largely on lan-
guage from one of the earliest Supreme Court cases to
address fraudulent joinder, Wilson v. Republic Iron & Steel
Co., 257 U.S. 92, 42 S.Ct. 35 (1921). The plaintiff in Wilson
was an Alabama citizen who filed a negligence suit
No. 12-3220 11
against his employer, a citizen of New Jersey, and a co-
employee, a citizen of Alabama, after sustaining an
injury on the job. The employer removed the case to
federal district court based on diversity of citizenship,
arguing that the co-employee had nothing to do with
the plaintiff’s injury and was joined solely for purposes
of obstructing the employer’s right of removal. Id. at 94,
42 S.Ct. at 36. The plaintiff moved to remand on the
grounds that the district court lacked diversity jurisdic-
tion. The Alabama district court denied the motion to
remand, finding that the co-employee did not belong in
the lawsuit. The plaintiff obtained a direct writ of error
to the Supreme Court to review the decision to dismiss
the co-employee and retain jurisdiction. The Supreme
Court upheld the decision, stating:
[a] civil case, at law or in equity, presenting a con-
troversy between citizens of different states and
involving the requisite jurisdictional amount, is one
which may be removed from a state court into the
District Court of the United States by a defendant,
if not a resident of the state in which the case is
brought; and this right of removal cannot be
defeated by a fraudulent joinder of a resident de-
fendant having no real connection with the contro-
versy.
Wilson, 257 U.S. at 97, 42 S.Ct at 37 (citation omitted).
Although the co-employee in Wilson was a nondiverse
defendant, the district court determined that the above
passage applied to Nuzzo. Specifically, the district
court interpreted the Supreme Court’s use of the term
12 No. 12-3220
“resident defendant” strictly in terms of the defendant’s
relationship to the forum state, and not as a reference to
his shared citizenship with the plaintiff. Because Nuzzo
is a “resident” of Ohio, the district court reasoned, Wilson
holds that his fraudulent joinder could not be used to
defeat Mid-Century’s right of removal, regardless of the
fact that his presence did not compromise the parties’
complete diversity. In quoting from Wilson, however,
the district court did not include the clause “if not a
resident of the state in which the case is brought.”
The district court also relied on our decision in Poulos
v. Naas Foods, Inc, 959 F.2d 69 (7th Cir. 1992), the first
case in which we addressed the fraudulent joinder doc-
trine. Like Wilson, Poulos involved an alleged fraudulent
joinder of a nondiverse resident defendant, and makes
no mention of the forum defendant rule. The district
court interpreted the following passage from Poulos
as supporting the doctrine’s extension to a diverse
resident defendant:
No matter what the plaintiff’s intentions are, an out-of-
state defendant may need access to federal court
when the plaintiff’s suit presents a local court with a
clear opportunity to express its presumed bias—when
the insubstantiality of the claim against the in-state
defendant makes it easy to give judgment for the in-
state plaintiff against the out-of-state defendant
while sparing the in-state defendant.
Id. at 73. The district court found that this rationale
“applies equally to a fraudulently joined forum defen-
dant.”
No. 12-3220 13
We are unwilling to rely on Wilson and Poulos to ex-
tend the doctrine to the forum defendant rule. As men-
tioned, both cases involved an alleged fraudulent
joinder of a nondiverse resident defendant and therefore
shed little light upon the question before us. While it is
true that the Supreme Court’s use of the term “resident
defendant” in Wilson could arguably encompass diverse
resident defendants, we do not believe that was the
Court’s intended meaning given its unqualified reference
to the forum defendant rule in the same passage.
Further, it does not appear that any federal court in the
country had considered whether the doctrine could
apply to a diverse resident defendant at the time Wilson
was decided—we doubt the Court had this rather uncom-
mon scenario on its radar. Whatever ambiguity Wilson
might raise, we do not agree that our explanation in
Poulos of the doctrine’s rationale applies with equal
force to diverse resident defendants.
We also do not accept the proposition that the district
court could “identify no principled basis for refusing
to apply the principles of fraudulent joinder” to a diverse
resident defendant. The party seeking removal bears
the burden of proving the propriety of removal; doubts
regarding removal are resolved in favor of the plaintiff’s
choice of forum in state court. See, e.g., Schur, 577 F.3d at
758; Boyd v. Phoenix Funding Corp., 366 F.3d 524, 529
(7th Cir. 2004). The better question to ask is: what princi-
pled basis does exist to extend the fraudulent joinder
doctrine to the forum defendant rule? Nuzzo does not
offer substantive argument on this critical question—
14 No. 12-3220
his briefings consist mostly of out-of-context quotations
and conclusory statements.1
It seems to us that extending the fraudulent joinder
doctrine to diverse resident defendants would constitute
a nontrivial expansion of the removal right. To offer a
first appellate resolution of a question not often con-
sidered even in district courts in a case in which the
briefs are, at best, unhelpful, would be unwise, especially
when another clear ground exists for a final disposition
of this appeal. Accordingly, we will lay out the policy
factors we deem to be most relevant in considering
whether to extend the doctrine, but ultimately do not
decide the issue.
The fraudulent joinder doctrine is designed to strike
a “reasonable balance” between competing policy inter-
ests. See 14B Wright, Miller, Cooper & Steinman, § 3723
pp. 788-93. At one end of the scale is the plaintiff’s right
to select the forum and the defendants, as well as the
general interest in confining federal jurisdiction to its
appropriate limits. Id. At the other end of the scale is the
defendant’s statutory right of removal, and associated
interest in guarding the removal right against abusive
pleading practices. Id. To determine whether the fraudu-
lent joinder doctrine ought to extend to diverse resident
defendants, it is necessary to consider how these
interests balance out in the context of the forum
defendant rule.
1
We note that the district court received briefing of similar
quality on the fraudulent joinder question.
No. 12-3220 15
We begin with the right of removal. When an out-of-
state defendant’s right of removal is destroyed by the
presence of a diverse resident co-defendant there is no
reason to “presume bias” on the part of the local courts
in favor of an in-state plaintiff because, by definition,
there are no in-state plaintiffs. Cf. Poulos, 959 F.2d at 73.
The out-of-state defendant, therefore, does not “need
access to federal court” in the same way we described
in Poulos, because the case can proceed in state court
in only one of two ways. Id. First, the resident co-defen-
dant could remain in the case alongside the out-of-state
defendant, in which case any local bias would run
against the out-of-state plaintiff. Alternatively, if the
claims against the local defendant truly are meritless, the
state court will, presumably, dismiss that defendant
and there will be no local parties on either side of the
lawsuit, a scenario in which the local court should be
neutral. Absent any threat of local bias to the out-of-state
defendant, federal courts arguably have a diminished
interest in protecting the removal right against abusive
pleading tactics designed to trigger the forum de-
fendant rule.
On the other hand, the actual right of removal is not
limited to situations involving a possible risk of local
bias. An out-of-state defendant may remove regardless
of whether a suit has been brought in the plaintiff’s
home state so long as there is complete diversity and no
resident co-defendants. In other words, we do not give
automatic deference to a plaintiff’s choice of state forum
simply because the plaintiff has filed suit outside of
his or her home state. Nor have we limited application
16 No. 12-3220
of the fraudulent joinder doctrine to cases in which the
local bias rationale is implicated. In fact, Poulos itself
involved an out-of-state plaintiff who was found to
have engaged in fraudulent joinder.
So even though a plaintiff can never secure home-
court advantage by joining a diverse resident defendant,
limiting the doctrine to nondiverse defendants could
lead to some troubling inconsistencies and potential
loopholes. Consider the following example: if a plain-
tiff from State A (“Plaintiff A”) sues a defendant from
State A (“Defendant A”) and a defendant from State C
(“Defendant C”) and does so in state court in State B
(“Court B”), Defendant C can remove the case and
argue to the federal district court that Defendant A was
fraudulently joined. 2 It is difficult to explain why we
should not allow Defendant C to do the same if, instead of
blocking removal by joining Defendant A, Plaintiff A joins
a defendant from State B (“Defendant B”) to trigger the
forum defendant rule. If it is Defendant C’s right of
removal that concerns us, and that right is equally frus-
trated in both scenarios, why should federal courts
police against one potential abusive pleading tactic but
2
This is exactly what happened in Poulos. The plaintiff from
Illinois (state A), sued an Illinois defendant (RHM) and an
Indiana (state C) defendant (Naas Foods) in Wisconsin (state
B) state court. Naas foods was able to successfully argue
that RHM had been fraudulently joined and that removal
was proper, despite the fact that there was no reason to
believe that the Wisconsin state court would be biased
toward the plaintiff.
No. 12-3220 17
not the other? Concern about local bias in favor
of Plaintiff A cannot explain the discrepancy, be-
cause Plaintiff A is out of state in both scenarios. Nor is
it satisfactory to invoke the rationale behind the forum
defendant rule itself—that we need not protect De-
fendant B “from the prejudices of its own local courts.” See
Davenport, 2009 WL 4923994, at *3. That is of course true,
but it is Defendant C’s right of removal that is at issue. If
the claim against Defendant B is truly meritless,
Court B will presumably dismiss Defendant B, and then
Plaintiff A will face Defendant C in Court B—a situation
in which Defendant C would have been entitled to
remove but for the wrongful joinder of Defendant B!
This, we believe, is what the district court had in mind
when it cited to Wecker v. National Enameling & Stamping
Co., 204 U.S. 176, 27 S.Ct. 184 (1907). Like Wilson and
Poulos, Wecker involved an alleged fraudulent joinder
of a nondiverse resident defendant. In explaining the
competing policy interests that underlie the fraudulent
joinder doctrine, however, the Supreme Court used
language that we find to be of greater relevance to
this case:
While the plaintiff, in good faith, may proceed in
the state courts upon a cause of action which he
alleges to be joint, it is equally true that the fed-
eral courts should not sanction devices intended to
prevent a removal to a Federal court where one has
that right, and should be equally vigilant to protect
the right to proceed in the Federal court as to permit
the state courts, in proper cases, to retain their
own jurisdiction.
18 No. 12-3220
Id. at 186, 27 S.Ct. at 188. As our example above demon-
strates, a plaintiff could potentially use the forum de-
fendant rule as a “device” to defeat removal where an
out-of-state defendant would otherwise have that right.
Extending the doctrine to preclude this conduct, there-
fore, seems consistent with Wecker’s directive that
federal courts vigilantly protect the removal right
against abusive pleading practices.
Despite the logical inconsistency, we are reluctant to
expand the fraudulent joinder doctrine absent a better
understanding of the need to do so. Such a move would
be in tension with long-established precedent that the
removal statutes are to be strictly construed to preserve
the limited jurisdiction of federal courts. See Shamrock
Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09, 61 S.Ct.
868, 872 (1941) (“The power reserved to the states under
the Constitution to provide for the determination of
controversies in their courts” calls for narrow construc-
tion of removal statutes); Healy v. Ratta, 292 U.S. 263,
270, 54 S.Ct. 700 (1934) (“Due regard for the rightful
independence of state governments . . . requires that
[federal courts] scrupulously confine their own jurisdic-
tion to the precise limits which the statue has defined”);
Syngenta Crop Protection, Inc. v. Henson, 537 U.S. 28, 32,
123 S.Ct. 366, 369-70 (2002) (“[The] statutory procedures
for removal are to be strictly construed.”). Further, it
might well substantially increase the number of removal
petitions filed in federal court, which would stall the
administration of justice at both the state and federal
levels as district courts engage in what can often be
complex “act[s] of prediction” regarding the viability of
No. 12-3220 19
a plaintiff’s state law claims. Poulos, 959 F.2d at 74. In
short, the costs of expanding the doctrine could far out-
weigh the benefits of policing against what appears to
be an exceptionally rare abusive pleading tactic.3
3
Both parties fail to point out that there is already one mecha-
nism in place to guard against wrongful triggering of the
forum defendant rule. District courts have interpreted
§ 1441(b)(2)’s “properly joined and served” provision as
creating a service-based exception to the forum defendant
rule, meaning that a properly served out-of-state defendant
will not be prevented from removing a case when the plaintiff
has named but not yet served a resident defendant. See 14B
Wright, Miller, Cooper & Steinman, § 3723, at 784 (“[T]he
language in Section 1441(b) . . . implies that a diverse but
resident defendant who has not been served may be ignored
in determining removability”). This rule provides at least a
modicum of protection against the insertion of a “straw-man”
resident defendant whose presence blocks removal but
against whom the plaintiff does not intend to proceed. See, e.g.,
Stan Winston Creatures, Inc. v. Toys “R” Us, Inc., 314 F.Supp.2d
177, 181 (S.D.N.Y. Apr. 17, 2003) (“The purpose of the ‘joined
and served’ requirement is to prevent a plaintiff from blocking
removal by joining as a defendant a resident party against
whom it does not intend to proceed, and who it does not even
serve”); Holmstrom v. Harad, No. 05 C 2714, 2005 WL 1950672, *2
(N.D. Ill. 2005) (“The ‘joined and served’ requirement makes
sense . . . a plaintiff should not be able to prevent a served
defendant from removing simply by naming, but not serving,
a forum citizen as a defendant”). It is not apparent to us
that further measures are necessary to protect the removal
right in this context.
20 No. 12-3220
Ultimately, we think it a very close question whether
the fraudulent joinder doctrine ought to extend to
diverse resident defendants, and we are reluctant to
rule definitively on the issue today absent a more
thorough and more able presentation of the relevant
balance of interests described above. In any event, we
are convinced that Nuzzo was not fraudulently joined.
III
For purposes of reaching the choice of law question
we assume, without deciding, that the fraudulent joinder
doctrine does apply to diverse resident defendants.4 In
finding that Nuzzo was fraudulently joined, the district
court rested on its determination that Indiana law gov-
erned the claims against Nuzzo, even while acknowl-
edging that the claims were potentially viable under
Ohio law. We must decide whether this choice of law
determination exceeded the bounds of the fraudulent
joinder analysis. The question of whether, or to what
extent, a federal district court can make choice of
law determinations in conducting a fraudulent joinder
analysis appears to be a question of first impression
for this court.
The district court agreed with the parties that the
Estate’s claims against Nuzzo had a reasonable possi-
4
It is undisputed that this case should be remanded to the
Ohio state court if the fraudulent joinder doctrine does not
apply to diverse resident defendants.
No. 12-3220 21
bility of success under Ohio law but not under Indiana
law, and assumed it could reach a decision over which
law to apply.5 The Estate argues that this assumption
was incorrect because a district court cannot engage
in choice of law decisions without first establishing diver-
sity jurisdiction. See Abels v. State Farm Fire & Casualty
Company, 770 F.2d 26, 33 n. 10 (3d Cir. 1985).6 But the
fraudulent joinder analysis allows district courts to
“assume” limited jurisdiction over an otherwise non-
removable action to consider the viability of claims
against an alleged fraudulently joined defendant. Schur,
577 F.3d at 763. We interpret the Estate to argue that
5
The district court also considered the claims against Nuzzo
under the Sixth Circuit’s test for fraudulent joinder, which is
the law the Northern District of Ohio would have applied had
it ruled on the motion to remand. The Sixth Circuit’s fraudulent
joinder test is whether, after resolving all issues of fact and
ambiguities in the controlling law, there is a “colorable basis”
for the claim against the alleged fraudulently joined defendant.
See Coyne v. Am. Tobacco Co., 183 F.3d 488, 493 (6th Cir. 1999). We
stick exclusively to our own “any reasonable possibility” test
in this opinion both because the law of the transferee court
generally controls on question of federal law, see McMasters
v. United States, 260 F.3d 814, 819 (7th Cir. 2001), but also for
simplicity sake, as there is no apparent substantive difference
between the two tests.
6
Again, diversity jurisdiction is not an issue in this case
because the forum defendant rule is nonjurisdictional. We
interpret the Estate’s argument to be that choice of law deci-
sions cannot be made prior to, or as part of, the removal
determination.
22 No. 12-3220
choice of law decisions necessarily exceed the scope of
this analysis. Poulos, 959 F.2d at 73.
District courts may not be absolutely precluded from
considering choice of law questions that may arise in
the fraudulent joinder context. In Poulos, we described
the fraudulent joinder analysis as “an act of prediction”
to determine whether there is “any reasonable possi-
bility” that a state court would rule against the alleged
fraudulently joined defendant. 959 F.2d at 73. In making
this determination, the district court must necessarily
predict what substantive law the state court would
apply. If the parties dispute what law governs, therefore,
the district court must engage in some type of choice of
law decision. If district courts were powerless to do so,
plaintiffs could potentially circumvent the fraudulent
joinder doctrine by identifying any jurisdiction in
the United States in which its claim against the alleged
fraudulently joined defendant stood a reasonable possi-
bility of success, even if the jurisdiction bore absolutely
no relation to the case. That would substantially under-
mine the purpose of the doctrine.
We hold that choice of law decisions can be made as
part of the fraudulent joinder analysis where the choice
of law decision is dispositive to the outcome, and where
the removing defendant bears the same “heavy burden”
to make the choice of law showing. Poulos, 959 F.2d at
73. A choice of law decision is dispositive to the
fraudulent joinder analysis when the plaintiff and the
removing defendant disagree over the substantive law
that should govern the claim against the alleged fraudu-
No. 12-3220 23
lently joined defendant, and where the district court
determines that the claim stands a reasonable possi-
bility of success under the plaintiff’s suggested choice
of law but not under the removing defendant’s. In that
case, the removing defendant can demonstrate fraud-
ulent joinder only by showing that, after resolving
all issues of fact and law in favor of the plaintiff, there is
no reasonable possibility that the state court would
apply the plaintiff’s suggested choice of law.7 Id.7
This holding is fully consistent with Abels v. State Farm Fire &
Casualty Co., 770 F.3d 26 (3d Cir. 1985), which may be the only
other case in which a federal court of appeals has considered
whether choice of law decisions may be made in the context
of the fraudulent joinder analysis. Abels involved a bad faith
insurance dispute removed from California state court to the
Central District of California, and then transferred under
§ 1404(a) to the Western District of Pennsylvania. The de-
fendant insurance company alleged that the plaintiffs, citizens
of California, had fraudulently joined several “John Doe”
defendants for purposes of destroying diversity jurisdiction.
As part of its argument, the insurance company argued that
Pennsylvania law, which did not recognize Doe claims,
applied to the plaintiffs’ claims, not California law, which
potentially did. The Court rejected this argument, stating: “A
federal court cannot engage in a choice of law analysis
where diversity jurisdiction is not first established. Again,
the result might be different were there no colorable basis for the
plaintiffs’ suggested choice of law, but such is not the case here.” Id.
at 33 n. 10 (emphasis added). We interpret this language to be
in line with our holding today: a district court considering a
(continued...)
24 No. 12-3220
This should be a difficult showing for the defendant
to make. If the federal court considering removal de-
termines that the plaintiff could satisfy even one
applicable choice of law factor, it should end the analy-
sis there and remand the case unless that one factor is so
attenuated, and so obviously outweighed by the other
relevant factors, that there is no reasonable possibility
that the state court would rely upon it to apply the plain-
tiff’s suggested choice of law. If the district court deter-
mines that the plaintiff could satisfy more than one ap-
plicable choice of law factor, the district court should
necessarily find against the removing defendant and
remand.
So the district court did not err by making a choice of
law determination. The error was that it treated the
choice of law question as if it was deciding it directly,
rather than trying to predict whether there was any
reasonable possibility the Ohio state court would
decide the question against Nuzzo. Applying the proper
standard, we find, at the very least, there is a reasonable
possibility the state court would have ruled against
(...continued)
fraudulent joinder allegation cannot engage in a choice of law
analysis as if it was hearing the case directly. However, the
district court can make a choice of law determination when it
is necessary to resolving a fraudulent joinder allegation (as
described above), and where the removing defendant has
alleged that there is no reasonable possibility [i.e., colorable
basis] that the state court would apply the plaintiff’s suggested
choice of law.
No. 12-3220 25
Nuzzo and applied Ohio law to the Estate’s claim
of tortious bad faith.
IV
The district court’s choice of law analysis consisted
of three steps. First, the district court determined that
Ohio choice-of-law rules should apply because the case
had been transferred from the Northern District of Ohio
under 28 U.S.C. § 1404(a). This was the right conclusion
perhaps reached for the wrong reason. In support of
its decision to apply Ohio choice-of-law rules, the district
court cited Edwardsville Nat’l Bank and Trust Co. v. Marion
Laboratories, Inc., 808 F.2d 648, 650 (7th Cir. 1987) (“A
transfer under § 1404(a) changes venue but not law; the
transferee court must apply the transferor’s choice-of-
law rules”). Unlike the instant case, however, Edwardsville
Nat’l Bank involved a diversity suit filed directly in
federal district court in Illinois and later transferred
to the Southern District of Indiana under § 1404(a).
This case is very different because the district court was
examining a fraudulent joinder allegation—it was
engaging in an “act of prediction” over how the state
court would resolve the choice of law dispute. Poulos,
959 F.2d at 73. Thus, to determine what choice-of-law
rules to apply, the proper question for the district court
to ask was what choice-of-law rules the Ohio state
court would apply, not what choice-of-law rules federal
law required.
Next, the district court correctly determined that,
when confronted with a choice-of-law question re-
26 No. 12-3220
garding a tort claim, Ohio courts apply a presumption
“that the law of the place of injury controls unless
another jurisdiction has a more significant relationship
to the lawsuit.” Morgan v. Biro Mfg. Co., Inc., 474 N.E.2d
286, 289 (Ohio 1984). It also rightly noted that, to deter-
mine the state with the most significant relationship,
Ohio courts consider the general principles set forth
in § 145 of the Restatement (Second) of Conflict of
Laws (1971) (the “Restatement”), which include: (1) the
place of the injury; (2) the place where the conduct
causing the injury occurred; (3) the domicile, residence,
nationality, place of incorporation, and place of business
of the parties; and (4) the place where the relationship
between the parties, if any, is located. However, the
district court did not consider that Ohio courts also
apply the more generalized principles listed in § 6 of the
Restatement (which § 145 itself references), namely:
(a) the needs of the interstate and international systems;
(b) the relevant policies of the forum; (c) the relevant
policies of other states and the relative interests of those
states in the determination of the particular issue; (d) the
protection of justified expectations; (e) the basic policies
underlying the particular field of law; (f) certainty, pre-
dictability and uniformity of result; and (g) ease in
the determination and application of the law to be ap-
plied. The Restatement at § 6; Morgan, 474 N.E.2d at 289.
Finally, weighing the § 145 factors against the facts
of this case, the district court determined “with no
doubt” that Indiana law applied to the tortious
bad faith claim:
No. 12-3220 27
As to the tort claims, Indiana was the place of
injury (both the injuries involved in the car accident
and the excess verdict injury), and no other state has
a more significant relationship to the lawsuit. All
the other choice-of-law factors also point to Indiana.
The conduct causing the injury (the bad faith
failure to defend and settle Morris’s claim against
Sampson, the insured) was centered in Indiana, and
the domiciles and places of business of the parties
favor Indiana, if indeed they favor any state:
the plaintiff is domiciled in Indiana, the insured is
domiciled in Indiana, and, while defendant Nuzzo
is domiciled in Ohio, Mid-Century regularly transacts
the business of insurance in Indiana and did so
here. Thus we conclude that under Ohio’s choice-of-
law rules, Indiana’s substantive law applies to
Morris’s claims against Mr. Nuzzo.
There are several difficulties with the final step in the
district court’s choice-of-law analysis. First, it erroneously
considered “the injuries involved in the car accident” as
somehow tied to the bad faith claim. The excess jury
verdict was the only relevant injury the court should
have weighed—the alleged bad faith failure to pay the
insurance claim did not cause any injuries suffered in
the car accident.
Second, the district court’s determination that the
conduct causing the excess jury verdict was “centered in
Indiana” is not supported by the record. Resolving all
issues of fact in favor of the Estate, the conduct that
caused the injury was Nuzzo’s failure to “properly in-
vestigate, adjust and settle the claims against the in-
28 No. 12-3220
sured.” The district court had before it a signed declara-
tion from Nuzzo stating that “[a]ll decisions and deter-
minations I made in the adjustment of the Estate of
Morris claim were made in Burg Hill, Ohio.” Thus, the
conduct causing the injury appears to have emanated from
Ohio, where the Estate’s claim was processed, not Indiana.
Third, the district court did not consider that the tort
of bad faith refusal to pay an insurance claim is
arguably designed more to deter wrongful conduct than
to compensate for injury. See generally Hoskins v. Aetna Life
Ins. Co., 452 N.E.2d 1315, 1321 (Ohio 1983) (punitive
damages available under bad faith insurance claim
“deters refusals on the part of insurers to pay valid
claims where the refusals are both unjustified and in
bad faith”). The Restatement (Second) of Conflict of
Laws, which the Ohio Supreme Court has adopted in its
entirety, see Morgan, 474 N.E.2d at 288-89, states that
“[i]f the primary purpose of the tort rule involved is to
deter or punish misconduct . . . the state where the
conduct took place may be the state of dominant interest
and thus that of most significant relationship.” The Re-
statement at § 145 cmt. c. In our view, this alone is suf-
ficient to satisfy the “any reasonable possibility” test.
Fourth, the district court did not weigh any of the choice
of law principles laid out in the Restatement at § 6.
Several of these principles, including the relevant policies
of the forum, weigh in favor of applying Ohio law. The
district court’s own interpretation of Ohio law reflects
a policy interest in favor of regulating the conduct of
individual insurance agents, while Indiana law does
not. See Schwartz, 174 F.3d at 878-79 (bad faith insurance
No. 12-3220 29
claim against individual employee who handled the
claim is not cognizable under Indiana law). Given that
Nuzzo was operating out of Ohio, there is a reasonable
possibility the Ohio state court would have seized on
this difference in state policy and applied Ohio law to
the bad faith claim.
Based on the above, we believe that there was more
than a reasonable possibility that the Ohio state court
would have decided against Nuzzo and applied Ohio
law to the Estate’s bad faith failure to settle claim.
Thus, regardless of what law the Ohio state court would
have ultimately applied to the breach of contract claim,
Nuzzo was not fraudulently joined and his presence
prevented removal under 28 U.S.C. § 1441(b)(2). Because
the Estate timely objected to this procedural defect in
removal, it has a right to remand.
CONCLUSION
For the reasons set forth above, we will V ACATE the
judgment of the district court and R EMAND with instruc-
tions that this case be further remanded to the Trumbull
County Common Pleas Court of Ohio.
5-23-13