Removal, LLC Citizenship, and the Fraudulently Joined Forum Defendant
Riverside Logistics LLC, an Indiana limited liability company with three members (two Indiana citizens and one Illinois citizen), sued its former software vendor, CloudSpan Inc., a Delaware corporation with its principal place of business in Ohio, in Marion County Superior Court. The complaint joins Tom Becker, CloudSpan's Indiana-based account manager, as a defendant. Riverside alleges breach of contract against CloudSpan, seeking $140,000, and fraudulent misrepresentation against Becker, seeking $30,000. CloudSpan timely removes to the U.S. District Court for the Southern District of Indiana, invoking diversity jurisdiction. Riverside moves to remand. CloudSpan argues that Becker is a fraudulently joined party and that the amount in controversy exceeds $75,000 anyway. The CloudSpan contract contains a forum-selection clause naming "the state and federal courts located in Marion County, Indiana." Becker has been served.
1. Is there complete diversity among the parties? Analyze the citizenship of the LLC, the corporation, and the individual defendant.
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LLC citizenship. An LLC is not treated like a corporation for diversity purposes. Its citizenship is the citizenship of each of its members. Riverside has two Indiana members and one Illinois member, so it is a citizen of Indiana and Illinois.
Corporate citizenship. CloudSpan is incorporated in Delaware and has its principal place of business in Ohio. Under 28 U.S.C. § 1332(c)(1), it is a citizen of Delaware and Ohio.
Individual citizenship. Becker is an Indiana citizen by domicile.
Complete diversity. Diversity must be complete: no plaintiff may share citizenship with any defendant. Riverside (Indiana and Illinois) and CloudSpan (Delaware and Ohio) are diverse from each other. But Riverside is an Indiana citizen, and Becker is an Indiana citizen. That overlap destroys complete diversity unless Becker's citizenship is disregarded.
Amount in controversy. The $140,000 contract claim against CloudSpan exceeds $75,000. The $30,000 tort claim against Becker does not, standing alone. The amount is not the problem; complete diversity is. Supplemental jurisdiction under § 1367 cannot cure a lack of complete diversity because § 1367 requires an underlying claim within original jurisdiction. If diversity is incomplete, there is no original jurisdiction to supplement.
Conclusion. There is no complete diversity on the face of the complaint. Removal fails unless CloudSpan proves fraudulent joinder.
2. Even if complete diversity existed, does the forum-defendant rule or the forum-selection clause bar removal?
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Forum-defendant rule. Under 28 U.S.C. § 1441(b)(2), a civil action otherwise removable solely on diversity cannot be removed if any properly joined and served defendant is a citizen of the forum state. Becker is an Indiana citizen, he has been served, and he was joined as a defendant. If he is properly joined, the forum-defendant rule bars removal even if complete diversity somehow existed.
Effect of fraudulent joinder. If Becker is fraudulently joined, his citizenship is disregarded and he is not a "properly joined" defendant for the forum-defendant rule. In that case, removal could proceed. The fraudulent-joinder analysis therefore controls both complete diversity and the forum-defendant rule.
Forum-selection clause. A forum-selection clause does not by itself bar removal. Under Atlantic Marine Construction Co. v. U.S. District Court, the clause is enforced through a motion to transfer under § 1404(a) or § 1406, not through remand. The clause may support transfer to another federal court, but it does not defeat federal jurisdiction. Here the clause names state and federal courts in Marion County, so it may actually be consistent with the federal court in Indianapolis.
Conclusion. The forum-selection clause is not a remand ground. The forum-defendant rule bars removal if Becker is properly joined. The pivotal issue is fraudulent joinder.
3. What standard governs fraudulent joinder, and is Becker's joinder fraudulent? Address supplemental jurisdiction over the $30,000 claim.
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Fraudulent-joinder standard. The removing defendant bears a heavy burden. A court may disregard the citizenship of a joined defendant only if there is no reasonable basis in fact or law for the claim against that defendant. The question is not whether the claim will succeed; it is whether the claim is colorable under state law. The court may pierce the pleadings and consider evidence, but it must resolve disputed facts in the plaintiff's favor.
Becker's claim. Riverside alleges fraudulent misrepresentation. Under Indiana law, that requires a false statement of material fact, knowledge of falsity, reliance, and damages. An employee can be personally liable for torts he commits, even while acting for a corporation. If Becker made representations about CloudSpan's software capabilities that he knew were false, the claim is colorable. His status as account manager does not immunize him. The $30,000 damages figure is not so implausible as to make the claim frivolous.
Supplemental jurisdiction. If complete diversity existed, § 1367(a) might appear to allow the $30,000 claim against Becker because it arises from the same transaction or occurrence. But § 1367(b) restricts supplemental jurisdiction in diversity cases over claims by plaintiffs against parties joined under Rule 20. Becker was joined as a co-defendant, and the claim is by the plaintiff. That limitation may independently bar supplemental jurisdiction over the $30,000 claim. In any event, § 1367 cannot create diversity jurisdiction where complete diversity is absent.
Conclusion. Becker's joinder is not fraudulent. His Indiana citizenship destroys complete diversity, the forum-defendant rule independently bars removal, and the case should be remanded.