In In re Abbott Laboratories, No. 25-2327 (7th Cir. July 28, 2026), the Seventh Circuit reverses an order denying a remand of a products liability case to state court, holding that the district court exceeded the bounds of the fraudulent joinder doctrine by considering whether the plaintiffs’ lawyers “demonstrated sufficient intent to pursue claims against” the non-diverse defendants.
The diversity jurisdiction statute, 28 U.S.C. § 1332, demands (with limited exceptions) complete diversity of citizenship between plaintiffs and defendants. Plaintiffs seeking to stay out of federal court may thwart diversity jurisdiction by joining a defendant who is a citizen of the same state as the plaintiff.
Under the fraudulent joinder doctrine, a federal court may disregard a non-diverse defendant and retain jurisdiction if the defendant was not properly joined in the case. The doctrine is unfortunately named, though, because the finding of fraudulent joinder does not rest on proof of plaintiff’s intentional misconduct, let alone scienter.
As the opinion here notes, there are two established “ways of establishing fraudulent joinder: First, by joining a non-diverse party by making false allegations of jurisdictional facts to support joinder . . . . Second, by showing that the plaintiffs have ‘no chance of success’ in their claims against the non-diverse defendants, after resolving all issues of fact and law in favor of the plaintiffs.” Notably, both routes are objective determinations of the merits of the plaintiff’s allegations.
Some district courts, including the present one, have suggested a third route to fraudulent joinder: where plaintiff demonstrates “no real intention in good faith to prosecute the action” against the non-diverse plaintiff. This departs from the established test by contemplating an essentially subjective, rather than objective, inquiry into plaintiff counsel’s litigation strategy.
In this case, the plaintiffs sued two infant-formula makers in Pennsylvania state court, alleging that their products caused necrotizing enterocolitis (“NEC”) in newborn children and resulted in long-term medical complications. The plaintiffs also named the hospital where the children were fed the formula, defeating diversity. At a latter stage of the state-court litigation, the hospital was dismissed (though the state court allowed the plaintiffs to replead the claims against that defendant). The formula makers then removed the cases to federal court. The Pennsylvania case wound up before a federal district court in Illinois, because the NEC claims were part of a multidistrict litigation (“MDL”) based there.
The district court denied the plaintiffs remand to state court. While allowing that the defendants established neither false allegations of jurisdiction nor “no chance of success” against the non-diverse defendant, it held that the hospital was nevertheless fraudulently joined.
Reviewing the plaintiff law firm’s strategy in this and related NEC cases, the district court found that “the plaintiffs were naming hospitals as defendants only when such a joinder was necessary to defeat federal diversity jurisdiction.” In the present case, it found “that the plaintiffs had not actively pursued their claims [against the hospital]. The court noted that the plaintiffs had conducted only a single ninety-minute deposition in support of their case against Pennsylvania Hospital, and only at the apparent urging of the state court.”
The district court certified plaintiffs’ interlocutory appeal of its order denying remand.
The Seventh Circuit reverses.
“Our court has not had occasion to confront the precise question of whether fraudulent joinder of a party can be grounded in the reason given by the district court.”
After laying out the Supreme Court and Seventh Circuit authority on fraudulent joinder, the panel summarizes the state of the law, which gives wide berth to a plaintiff’s choice of legal theories and defendants: “In determining whether complete diversity is present, the federal court must limit its inquiry so as to respect the proper domain of the state courts to define according to their own procedures the contours of the rights and responsibilities imposed by their laws. Nor can we second-guess the plaintiff’s decision to base his complaint on a particular state law even if the chances of success seem, at this early stage of the proceedings, far less than sure.”
“The district court chose an approach that cannot be squared with the established case law delineating the permissible boundaries of the fraudulent joinder inquiry. The district court’s inquiry sought to ascertain the intent of the plaintiffs in suing Pennsylvania Hospital not by assessing the truth of the jurisdictional facts in the pleadings nor by assessing whether the allegations against the hospital were entirely devoid of substance. Rather it attempted to ascertain, by examining the litigation strategy of the plaintiffs and their management of the litigation, whether the plaintiffs harbored any genuine interest in obtaining a judgment against the hospital. This inquiry took the court far afield of the jurisdictional facts and causes of action contained within the plaintiffs’ pleadings.”
The panel observes, sympathetically, that the “situation faced by the district court with the responsibility of dealing with so many MDL cases filed across the Country is indeed a daunting one. The present statutory scheme, designed in an era when litigation was less complex, may well be inadequate to the present task. But, if such is the case, remedial measures are the province of Congress. The needed task is not interpretation [of the diversity statute] but enactment” of new procedures.
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