District Court Did Not Abuse Discretion Under Fed. R. Civ. P. 21 in Dropping Non-Diverse Party Added to Complaint Days After Removal, Holds Third Circuit

In Avenatti v. Fox News Network LLC, No. 21-2702 (3d Cir. July 21, 2022), the Third Circuit affirms a decision of the district court to drop a defendant added to a complaint, just days after its removal, under Fed. R. Civ. P. 21.

When non-diverse defendants are named in the state-court complaint prior to removal under 28 U.S.C. § 1441(a), the federal court may dismiss them only if it finds that they were fraudulently joined. The bar is very high, i.e., no reasonable basis in fact or colorable ground supporting the claim against the joined defendants, or no real intention in good faith to pursue the claim against them.

But when a complaint is removed to federal court and the plaintiff then tries to add them, the standard is reversed and the federal court may dismiss such defendants on its own motion “at any time, on just terms” under Rule 21, without being hindered by the stringent standards of the fraudulent-joinder rule.

Michael Avenatti – a California citizen (now a former attorney and convicted felon) – sued Fox News and other Delaware defendants in Delaware Superior Court for defamation. Before the defendants could be served in that case, they filed a removal petition in the U.S. District Court in the District of Delaware asserting diversity jurisdiction.

Avenatti sought to reverse that three days later by “amend[ing] his complaint to add a new, nondiverse defendant [a Fox journalist named Hunt] as of right, see Fed. R. Civ. P. 15(a)(1)(A), and then mov[ing] for remand. But the District Court rejected Avenatti’s motion, invoking its discretionary authority under Federal Rule of Civil Procedure 21 to drop the interloper from the case and restore complete diversity.”

The Third Circuit affirms. The panel notes that “Rule 21 empowers courts to police the litigation’s cast of characters” as necessary to preserve jurisdiction. But there are limits to that authority. “The court cannot drop indispensable parties . . . [under] Fed. R. Civ. P. 19(b), and it must assure itself that its actions will not prejudice any party[.]” The district court “confirmed the applicability of the Rule by deciding: (1) Hunt was a dispensable party under Rule 19; and (2) that dropping him would not be prejudicial.”

The panel then approves the district court’s use of a four-factor test from the Fifth Circuit, Hensgens v. Deere & Co., 833 F.2d 1179 (5th Cir. 1987), to guide its discretion [in applying Rule 21]. In Hensgens, the Fifth Circuit laid out an open-ended balancing test for considering post-removal amendments that add nondiverse parties, asking:

• “the extent to which the purpose of the amendment is to defeat federal jurisdiction,”

• “whether plaintiff has been dilatory in asking for [the] amendment,”

• “whether plaintiff will be significantly injured if [the] amendment is not allowed,” and

• “any other factors bearing on the equities.”

The wrinkle in this case was that the plaintiff added the non-diverse defendant as of right, rather than by leave of court. But the panel holds that the standard is the same regardless of the procedural posture. “Litigants may not employ procedural tactics to deny the district court’s ability to reject new parties whose presence would defeat diversity. Once jurisdiction has vested in a federal court—which it did here upon removal from state court—careful scrutiny should be applied to any post-removal events threatening to wrench that jurisdiction away.” In so holding, the panel rejects plaintiff’s argument that the fraudulent-joinder standard sould apply at this stage. “[W]e think the fraudulent joinder doctrine is too rigid to serve as the sole lens for analysis—it imposes too high a bar for the district court to meet before it may defend its vested jurisdiction. This is a substantial concern because we must be on guard against forum manipulation in removal cases.”

“In sum, we hold that district courts are empowered to police the joinder of parties whose presence would defeat subject matter jurisdiction. In removal actions predicated on complete diversity, plaintiffs cannot nullify a court’s gatekeeping function by adding jurisdictional spoilers as of right under Rule 15(a).”

Here, the panel holds that the district court understandably concluded that the plaintiff’s amendment was a ruse to divest the court of jurisdiction. “Avenatti amended to add Hunt a mere three days after removal—seven days after initial filing and before any discovery had taken place—and he moved to remand just five days later. He sought consensual remand before the motion was even filed. It was reasonable for the District Court to suspect an illicit motive based on this sequence of events.”

And, finally, there was no prejudice to plaintiff in dropping Hunt. “Hunt was charged with making just two defamatory statements, which the amended complaint attributed equally to his employer, Fox News. Because Fox News was already in the case and could provide complete recovery under joint-and-several liability, there was no need to retain Hunt.”

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