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‘Fraudulent Joinder’ Argument Secures Favorable Federal Court Ruling for Title Company

Case Study

‘Fraudulent Joinder’ Argument Secures Favorable Federal Court Ruling for Title Company

February 21, 2023
Marc W. Brown

Marc W. Brown recently received a successful result in a New York federal court — employing, despite a heavy legal burden, a fraudulent joinder argument that resulted in a favorable ruling for a Goldberg Segalla client.

Federal Magistrate Judge Mark W. Pedersen ruled that plaintiffs fraudulently joined a Midwest title insurance company represented by Goldberg Segalla with two unrelated New York companies in response to plaintiffs’ attempt to remand the case to state court. The plaintiffs initially filed suit in Steuben County Supreme Court as part of a breach of contract/insurance coverage dispute.

Marc — a partner in Goldberg Segalla’s Business and Commercial practice group, and the group’s co-chair — successfully removed the case to the U.S. District Court, Western District, arguing that “diversity jurisdiction” existed between our client and the plaintiff since the two were from different states. He also argued the plaintiff fraudulently joined the New York companies with our Midwest client.

Magistrate Judge Pedersen agreed with the arguments put forth by Goldberg Segalla, finding the two New York companies were improperly joined with our client, as the plaintiffs did not have cognizable claims against them.

In opposing the plaintiffs’ motion to remand the case to state court, Marc argued the plaintiffs had no plausible legal claims against the fraudulently joined parties under the contract/title insurance policy. The court agreed, noting that even though the party seeking removal “bears a heavy burden of proving fraudulent joinder by clear and convincing evidence,” there was no possibility, based on the pleadings and evidence produced by Goldberg Segalla, that the plaintiffs could state a cause of action against the non-diverse defendants in state court.

Despite knowing the burden was significant in making a fraudulent joinder argument, Marc  understood doing so was critical to the successful representation of Goldberg Segalla’s client, given evidence that showed non-diverse parties were improperly joined solely to block the case from being heard in the proper jurisdiction.