Williams MD v. Homeland Insurance
18 F.4th 806
| 5th Cir. | 2021Background
- In 2009 Louisiana medical providers (the "Class") sued several PPOs in state court under the Louisiana PPO Act; Med-Comp remained as the only non-diverse defendant by 2019.
- CorVel (an insurer/insured in related litigation) assigned insurance-coverage claims against Homeland to the Class; that assignment was later expanded to include a bad-faith claim that the Delaware Supreme Court dismissed on statute-of-limitations grounds.
- The Class amended its state complaint to assert the assigned bad-faith claim against out-of-state Homeland while retaining PPO Act claims against in-state Med-Comp; Homeland removed to federal court asserting diversity.
- The district court found Med-Comp was improperly joined, retained the bad-faith claim against Homeland, and remanded the PPO Act claims; it later dismissed the bad-faith claim based on Delaware preclusion principles.
- The Fifth Circuit majority reversed, holding the district court lacked subject-matter jurisdiction because Med-Comp was properly joined and complete diversity did not exist; it declined to adopt the "fraudulent misjoinder" doctrine.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal court had ordinary diversity jurisdiction despite a non-diverse defendant (Med-Comp) | Williams: Med-Comp is properly joined; its PPO Act claims are viable, so removal is barred | Homeland: Med-Comp is improperly joined (no possibility of recovery) so its citizenship may be ignored | Held: No diversity jurisdiction; Med-Comp properly joined and removal improper |
| Whether the court should treat misjoinder as a basis to ignore in-state defendant (fraudulent misjoinder) | Williams: state-court procedural misjoinder cannot be used to create federal jurisdiction | Homeland: misjoinder of unrelated claims is "egregious" and permits removal | Held: Fifth Circuit refuses to adopt fraudulent misjoinder; procedural misjoinder must be addressed in state court before removal |
| Whether CAFA minimal diversity provided an alternative basis for jurisdiction | Williams: prior panel resolved remand and CAFA is not now available under law-of-the-case | Homeland: CAFA could supply jurisdiction | Held: Court declines to reach CAFA; law-of-the-case bars reargument of CAFA jurisdiction |
| Whether Delaware judgment precluded the bad-faith claim (claim preclusion/full faith and credit) | Williams: (alternative) Delaware dismissal should not necessarily preclude Class's suit here | Homeland: Delaware decision bars the claim; federal court should dismiss on preclusion grounds | Held: Majority does not reach merits because it reverses for lack of jurisdiction (district court had dismissed on preclusion) |
Key Cases Cited
- Smallwood v. Ill. Cent. R.R. Co., 385 F.3d 568 (5th Cir. 2004) (establishes improper-joinder test: fraud or no possibility of recovery)
- Flagg v. Stryker Corp., 819 F.3d 132 (5th Cir. 2016) (explains courts may disregard improperly joined non-diverse defendants but jurisdictional facts are fixed at removal)
- Tapscott v. MS Dealer Serv. Corp., 77 F.3d 1353 (11th Cir. 1996) (articulates fraudulent misjoinder doctrine; not adopted by Fifth Circuit)
- Lincoln Property Co. v. Roche, 546 U.S. 81 (U.S. 2005) (confirms complete-diversity requirement under § 1332)
- Homeland Ins. Co. of N.Y. v. CorVel Corp., 197 A.3d 1042 (Del. 2018) (Delaware Supreme Court decision dismissing CorVel’s bad-faith claim on statute-of-limitations grounds)
- In re Benjamin Moore & Co., 318 F.3d 626 (5th Cir. 2002) (discussed but did not adopt Tapscott-style misjoinder removal)