There are two basic ways to get federal jurisdiction under Article III: there must be a federal question or diversity of citizenship.* And most of the time, diversity jurisdiction requires all the plaintiffs to be citizens of different states than all the defendants. But you might not know the rules about “sham defendants.” A single non-diverse defendant stops a federal court from having jurisdiction—and so that defendant stops the other defendants from removing the case to federal court. But how do you spot a sham defendant? The Ninth Circuit recently addressed the until-now-unanswered question of how much you have to plead to keep your defendants real.

Ruth Thrower’s estate and successors filed a wrongful-death lawsuit in state court against the nursing home where Ruth had been staying when she died. They also sued the nursing home’s administrator. The nursing home’s owner removed to federal court, arguing federal courts had diversity jurisdiction because the single non-diverse defendant—the administrator—was a sham defendant. The district court wasn’t convinced and remanded the case to state court.

Because the district court also awarded attorneys’ fees, the nursing home was able to appeal the entire order to the Ninth Circuit. (Remand orders, by themselves, cannot be appealed.) The Ninth Circuit held that there was no federal diversity jurisdiction because the administrator was a proper defendant.

The nursing home’s owner argued that the Ninth Circuit should apply Rule 12(b)(6)’s well-pleaded-complaint standard to test whether the administrator was a sham defendant. Because the complaint didn’t allege any particular act or omission by the administrator, their argument went, the complaint did not state any cause of action against the administrator. And if the complaint didn’t state a cause of action against the administrator then he was a sham defendant and there was complete diversity—the nursing home could remove the case to federal court.

The Ninth Circuit held that “the test for fraudulent joinder and for failure to state a claim under Rule 12(b)(6) are not equivalent.” Although there are some similarities, “[a] claim against a defendant may fail under Rule 12(b)(6), but that defendant has not necessarily been fraudulently joined. . . . A standard that equates fraudulent joinder with Rule 12(b)(6) conflates a jurisdictional inquiry with an adjudication on the merits.” The remand bar seems to be set a notch lower: “[I]f there is a possibility that a state court would find that the complaint states a cause of action against any of the [non-diverse] defendants,” then there’s no federal jurisdiction. (Italics in the opinion.)

And in Thrower’s case, it was fairly possible that the claims against the non-diverse defendant would stand. The administrator was, after all, in charge of the nursing home where Thrower died. Whether or not the claims against the administrator were detailed enough was an argument over the wording in the complaint, not the “viability” of the claim against him.

Read the Ninth Circuit’s opinion here.

* We shall sail right by “all Cases of admiralty and maritime Jurisdiction . . . .”