On May 23, 2011, the Seventh Circuit issued an opinion dealing with federal diversity jurisdiction, fraudulent joinder, and the common-defense exception in
, ___ F.3d ___ (7th Cir. 2011), Cause No. 10-3462. In this decision, the Court ultimately held that principles of judicial estoppel would prevent the plaintiff from successfully obtaining a remand back to state court.
- the case reads a bit like a law school exam question - below the fold.
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In this case, a plaintiff brought a case in state court against a number of Bayer affiliates, all citizens of states other than Illinois, plus Niemann Foods, Inc., an Illinois citizen, alleging that they failed to warn her of dangerous side effects of a prescription drug. Niemann's relationship to the case was that it operated the pharmacy where the plaintiff bought the drug. The Bayer defendants removed the case to federal court, arguing that the plaintiff had improperly joined Niemann to eliminate complete diversity of citizenship. The plaintiff asked the district judge to remand the case to state court. He refused, instead dismissing Niemann as a defendant, with prejudice, thus restoring complete diversity. After the district court entered this order, the plaintiff abandoned the case and the district court dismissed the case as a discovery sanction. The plaintiff then appealed.
On appeal, the defendants argued that the 7th Circuit did not have jurisdiction to review the order denying remand, but the 7th Circuit disagreed. It noted that while the order denying the request to remand was not an appealable interlocutory order, the decision was now appealable because of the dismissal of the case as a discovery sanction.
Because our plaintiff wagered her entire claim on being proved right about jurisdiction, considerations of judicial economy justified immediate appellate review. For had the plaintiff complied with the discovery order and continued to prosecute her case in the district court, and lost, and then had successfully appealed on the ground that the district court lacked jurisdiction, the case would have had to be remanded to the state court — and since the basis of the remand would have been an absence of federal jurisdiction over the suit, the parties would have had to relitigate the case from scratch.
The Court then referenced
a case we recently discussed in support of the proposition that the amount in controversy exceeded the statutory minimum, even though the plaintiff had not explicitly said so, and rejected the plaintiff's argument that an inconsequential defect in the notice of removal required remand.
The Court then moved to the meat of the plaintiff's argument - application of the fraudulent joinder doctrine, which applies when a nondiverse defendant is joined simply to defeat removal. In order to prove that this doctrine applies, the defendants must show that the claim against the nondiverse defendant had no possible merit. In this case, that test turned on the "learned intermediary" doctrine, which excuses the manufacturer of a prescription drug from having to warn consumers of the drug's adverse side effects; it need warn only physicians, so that armed with the warning they can make a medical decision to prescribe or not to prescribe the drug for a particular patient. The Court held that the learned intermediary doctrine applies as strongly to pharmacies as manufacturers.
Pharmacies (and normally other sellers in the chain of distribution that runs from the manufacturer to the ultimate consumer) can't be expected to warn their customers of the possible defects and dangers of the prescription drugs they sell. It would be senseless, especially given drug regulation by the Food and Drug Administration and the extensive tort liability of drug manufacturers, to make pharmacies liable in tort for the consequences of failing to investigate the safety of thousands of drugs. What a pharmacy sometimes knows, however, without investigation, and the manufacturer will not know and even a treating physician may not know, is susceptibilities of particular customers of the pharmacy to the side effects of a drug that it sells them — susceptibilities because of other drugs that the pharmacy knows the customer is taking, or a pre-existing physical or mental condition (again known to it) that makes the drug contraindicated for the customer — and then it must warn either the customer or his physician.
This discussion provides an interesting complement to a recent Indiana Court of Appeals opinion
that we discussed, which dealt with a pharmacist's duty to warn of a prescribed medication's side effects.
Application of the learned intermediary doctrine in this case on behalf of Niemann was so clear, that the district court properly invoked fraudulent joinder as a ground for dismissing Niemann from the case.
The plaintiff argued that the learned intermediary doctrine applies just as strongly to the Bayer defendants as it does to Niemann, so she is entitled to an exception from the fraudulent joinder doctrine, called the common-defense exception.
[A] plaintiff can defeat the fraudulent joinder exception to the requirement of complete diversity of citizenship by proving that his claim against the nondiverse defendant is no weaker than his claim against the diverse defendants. Especially if the claims are identical, the diverse defendants really are just arguing that the suit has no merit, period. And that is a ground not for removal but for asking the court in which the suit was filed — the state court — to dismiss the suit.
In this case, the plaintiff could not take advantage of that exception, however, because she had asserted that the Bayer defendants had concealed the drug's side effects from its customers, a claim that was not directed at Niemann. Because the leaned intermediary doesn't allow manufacturers or distributors to conceal a drug's adverse side effects, the doctrine did not provide those entities with a defense.
After this conclusion, the Court provided a lesson to plaintiffs in the same position as the plaintiff in this case on the dangers a plaintiff faces when opposing a fraudulent joinder argument.
The district court's denial of her motion for a remand confronted her with a choice between, on the one hand, obtaining immediate appellate review of her jurisdictional argument by refusing to litigate in the district court and having her claims dismissed with prejudice, and on the other hand pursuing her claims to final judgment in the district court and then seeking appellate review, where she could assert her jurisdictional ground as well as any objections to the substantive merits of the district court's decision. She followed the first approach and by doing so forfeited her claims against all the defendants in the event her jurisdictional argument failed.
And had the plaintiff prevailed in this court on the basis of the common-defense doctrine, and thus succeeded in getting the case remanded to state court, her claims against the Bayer defendants in the remanded proceeding would still be barred, for she would have run head-on into the bar of judicial estoppel. She would have prevailed in this court in getting her case remanded to state court by persuading us that those defendants were identically situated to Niemann — which if true would be a complete defense because her claim against Niemann is frivolous — only to turn around and argue in the state court that her claim against the diverse defendants was not subject to the learned-intermediary doctrine after all and so her claim against them should survive Niemann's dismissal.
A litigant is not permitted to advance a ground in one lawsuit, prevail on that ground, and in a later lawsuit against the same party seek a judgment based on a repudiation of its earlier position. For reasons we don't understand, the cases are coy about defining the doctrine; typical is the statement in
New Hampshire v. Maine that "courts have observed that '[t]he circumstances under which judicial estoppel may appropriately be invoked are probably not reducible to any general formulation of principle.' Nevertheless, several factors typically inform the decision whether to apply the doctrine in a particular case: First, a party's later position must be 'clearly inconsistent' with its earlier position. Second, courts regularly inquire whether the party has succeeded in persuading a court to accept that party's earlier position, so that judicial acceptance of an inconsistent position in a later proceeding would create 'the perception that either the first or the second court was misled.' Absent success in a prior proceeding, a party's later inconsistent position introduces no 'risk of inconsistent court determinations,' and thus poses little threat to judicial integrity. A third consideration is whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped. In enumerating these factors, we do not establish inflexible prerequisites or an exhaustive formula for determining the applicability of judicial estoppel. Additional considerations may inform the doctrine's application in specific factual contexts."
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If as we believe judicial estoppel would bar the plaintiff's claim against the Bayer defendants in state court were we to order the case remanded, a victory for her in the present phase of the litigation would be Pyrrhic.
This decision strikes a severe blow against the ongoing viability of the common-defense exception to the doctrine of fraudulent joinder, for if acceptance of the common-defense exception would always result in a conclusion that the state court must dismiss the claims of all defendants with a common defense with prejudice, then no plaintiff is likely to ever raise the common-defense exception. While there may be occasions in which this is a viable strategy, plaintiffs are well-advised to carefully consider the ramifications of raising a common-defense argument when deciding whether to seek a remand to state court.
