A common strategy for plaintiffs wishing to avoid federal court is to ensure at least one of the defendants is non-diverse. In theory at least, this would preclude the defendants from removing a case based on state-law claims from Virginia circuit court to federal court. In a ruling issued earlier this month, Judge Kiser of the Western District of Virginia clarified that this strategy will not always be effective: if the joinder of the non-diverse defendant is found to be fraudulent, the citizenship of that party will be disregarded for the purpose of analyzing whether subject-matter jurisdiction exists.
Federal courts have subject-matter jurisdiction primarily in two situations: where a federal question is raised, and where “complete diversity” exists. Complete diversity refers to a situation where no plaintiff resides in the same state as any defendant, and the amount in controversy exceeds $75,000. (See 28 U.S.C. § 1332(a)). If any defendant resides in the same state as any plaintiff, complete diversity is lacking and the court would lack jurisdiction to decide the case. So if Company A wants to sue Company B for breach of contract (a claim that does not involve a federal question) in state court, but the two companies are citizens of different states and the amount in dispute exceeds $75,000, Company A might be tempted to add a second defendant (such as an employee of Company B) who resides in the same state as Company A, simply for the purpose of destroying any basis for federal-court jurisdiction.