Worth reading: the First Circuit finally takes a stance on the fraudulent joinder test

Fraudulent joinder is a term of art referring to the doctrine that allows district courts to disregard for removal purposes the presence of a diversity-defeating defendant in a complaint. The issue comes up almost routinely in Law 75 cases where the defendant, usually the principal in Law 75 or 21 cases, seeks to remove the case filed in local court to federal court and the dealer has joined as a co-defendant a diversity-defeating Puerto Rico distributor.

Is the standard of fraudulent joinder the same as for a Rule 12(b)(6) motion to dismiss? They are similar standards to be sure but not necessarily identical. Both tests present challenges to the insubstantiality of the local law claims against the diversity-defeating defendant. In Universal Truck v. Southworth-Milton, Inc., 2014 WL 4290458 (1st Cir. Sept. 2, 2014), the First Circuit concurred with the Seventh and Ninth Circuits and held that fraudulent joinder exists where "there is no reasonable possibility that the state's highest court would find that the complaint states a claim upon which relief may be granted against the non-diverse defendant."

This sounds like the familiar Rule 12(b)(6) standard but since the Seventh Circuit's decision requires the district court to construe all issues of fact and law in the defendant's favor, and the First Circuit remained silent, I am not so sure that the standards are identical. Let's leave that for another day.