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Adams and Reese Counsel and Litigator Deborah Challener is published in Texas Lawyer, an ALM/Law.com publication, for her article, “Procedural Lessons for Litigators from Fifth Circuit Decision in ‘Palmquist’”.
Challener discusses a highly publicized products liability case, Palmquist v. Hain Celestial Group, No. 23-40197 (5th Cir. May 28, 2024).
Below is the article published in Texas Lawyer:
Procedural Lessons for Litigators from Fifth Circuit Decision in ‘Palmquist’
By Deborah Challener | June 26, 2024
It is a truism that defense counsel often prefer federal court. In removed cases, however, the pursuit of a federal forum comes at a high cost when a defendant defeats a motion to remand and succeeds on the merits, but an appellate court reverses on jurisdictional grounds and sends the case back to state court long after the removal occurred. The defendant is then faced with the prospect of starting over in state court after years in litigation.
This is exactly what happened in Palmquist v. Hain Celestial Group, No. 23-40197 (5th Cir. May 28, 2024).
In 2021, Grant and Sarah Palmquist sued Hain, a baby-food manufacturer, and Whole Foods, a grocery retailer, in state court. The plaintiffs alleged that Hain’s baby food, which they purchased at Whole Foods, was contaminated with toxic heavy metals and had seriously injured their son. They asserted various causes of action, including breach-of-warranties. The plaintiffs are citizens of Texas, Hain is a citizen of Delaware and New York, and Whole Foods is a citizen of Texas. Hain removed on the ground that Whole Foods was improperly joined for the sole purpose of defeating diversity jurisdiction.
The plaintiffs then filed an amended complaint and moved to remand. The district court denied the motion to remand and dismissed Whole Foods from the case. Some of the plaintiffs’ claims against Hain proceeded to trial in 2023, but Hain obtained judgment as a matter of law on all of them. Unfortunately, the thrill of victory turned into the agony of (jurisdictional) defeat. The plaintiffs appealed, and the Fifth Circuit concluded that the district court never had jurisdiction because Whole Foods was not improperly joined. In other words, the plaintiffs had alleged a plausible claim against Whole Foods, and, therefore, diversity jurisdiction did not exist.
The appeals court (1) reversed the district court’s denial of the plaintiffs’ motion to remand, (2) vacated the district court’s final judgment, and (3) remanded the case to the district court with instructions for the lower court to remand the case to state court.
Five Procedural Lessons for Litigators
Palmquist offers several important procedural lessons for litigators:
- In a removed case, jurisdiction is judged based on the claims in the state court complaint as it exists at the time of removal and the complaint must comply with the federal “plausibility” pleading standard.
- Because most states don’t require plausibility pleading, plaintiffs are permitted to amend the complaint post-removal to conform it to the federal pleading standard.
- Since jurisdiction is judged based on the claims in the state-court complaint at the time of removal, a post-removal amendment cannot add a new claim, or, in other words, expand the substance of the complaint. A plaintiff can, however, amend a complaint post-removal to add supporting allegations, or facts, that “clarify” or “amplify” a claim that was asserted in state court.
- In the Fifth Circuit, to determine whether a defendant is improperly joined to defeat diversity jurisdiction, a district court conducts a “Rule 12(b)(6)-type analysis.” It accepts all well-pleaded facts in the controlling complaint as true and views them in the light most favorable to the non-moving party. The party moving to dismiss the non-diverse defendant has a heavy burden. It must show that there is no possibility of recovery by the plaintiff against the non-diverse defendant. This means that there must be no reasonable basis for the district court to predict that the plaintiff might be able to recover against the non-diverse defendant. Contested issues of fact and any ambiguities of state law must be resolved in favor of remand.
- If a district court improperly denies a motion to remand based on lack of diversity jurisdiction, but the jurisdictional defect is cured by the voluntary dismissal of the non-diverse party before final judgment, an appellate court is not required to remand the case to state court despite the district court’s error. At that point, considerations of finality and efficiency prevail over the district court’s error. In contrast, where, as in Palmquist, the jurisdictional defect lingers through judgment because a non-diverse defendant was improperly dismissed, then the whole case must be remanded to state court due to a lack of diversity jurisdiction.
Taken together, these five procedural lessons suggest that in evaluating whether to remove or oppose a motion to remand, defense counsel should consider the likelihood that success in the district court could, nevertheless, result in a jurisdictional reversal on appeal. More specifically, counsel should recognize that the plaintiff may amend the complaint post-removal and pay close attention to any such amendments. Given the difficult improper joinder standard, counsel should carefully identify the claims that the plaintiff is (or might be) asserting.
Counsel must then determine whether there is ambiguity in the applicable state law and to what degree. Even if counsel can convince a district court judge that there is no reasonable basis to predict that plaintiff might be able to recover against the non-diverse defendant, counsel should consider whether a panel of three appellate judges might see things differently. If they might, then counsel should evaluate whether the benefits of litigating in a federal forum are worth the risk of a jurisdictional reversal on appeal.
Texas Products Liability Act Factors Into ‘Palmquist’ Decision
In Palmquist, for example, the Texas Products Liability Act required the plaintiffs to plead sufficient facts to show that Whole Foods made an express factual representation about an aspect of the product at issue. In their amended complaint, the plaintiffs alleged that Whole Foods represented to its customers that its products were of the highest quality, that it carefully vetted its products, and that it refused to sell products with harmful ingredients. Thus, the plaintiffs alleged that Whole Foods made general, positive statements to the public about its products, but did not allege that Whole Foods made express representations specifically about Hain’s baby food.
Federal cases indicated that the plaintiffs were required to plead that Whole Foods made express representations specifically about Hain’s baby food. The district court relied on these cases in concluding that plaintiffs had no possibility of recovery against Whole Foods. The few Texas cases interpreting the Texas Products Liability Act, however, indicated that fairly generalized statements were adequate to support an express breach of warranty claim.
Other Texas express representation cases also supported the proposition that fairly generalized statements could sometimes be actionable. In short, it wasn’t entirely clear under Texas case law what the plaintiffs had to plead, but nothing in Texas law required the plaintiffs to allege that Whole Foods made express representations specifically about Hain’s baby food.
Because state law applies in diversity cases and because ambiguities in the law are construed in favor of remand, the Fifth Circuit held that the district court erred in determining that the plaintiffs had no possibility of recovery against Whole Foods. This meant that Whole Foods was not improperly joined and the district court erred in denying the plaintiffs’ motion to remand. Because the district court never had subject matter jurisdiction, the case had to go back to state court.
Conclusion
Although defense counsel often prefer federal court, sometimes the price of a federal forum may be too high. In deciding whether to remove a case based on improper joinder or oppose a motion to remand, litigators would do well to remember the lessons of Palmquist v. Hain Celestial Group, No. 23-40197 (5th Cir. May 28, 2024).
Deborah Challener is a member of the Adams and Reese litigation practice group and counsel in the firm’s Jackson office. Deborah is a former academic affairs associate dean and longtime professor at Mississippi College School of Law.