The Ninth Circuit Court of Appeals reinstated a wrongful death suit against Philip Morris and Altria.

Delores Hunter brought the suit on behalf of her common law husband, Benjamin Francis, who died from lung cancer in 2004 at age 52.

The ruling is significant to the tobacco industry and potentially thousands of claimants.

To comment on this case, go to Hunter v. Philip Morris USA.

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HUNTER v. PHILIP MORRIS USA

DOLORES HUNTER; ESTATE OF BENJAMIN G. FRANCIS, Plaintiffs-Appellants,

v.

PHILIP MORRIS USA; ALTRIA GROUP, INC.; THE ALASKA COMMERCIAL COMPANY, Defendants-Appellees.

No. 07-35916.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted August 4, 2008 — Anchorage, Alaska.

Submission Vacated and Deferred October 29, 2008.

Resubmitted August 27, 2009.

Filed September 28, 2009.

Don C. Bauermeister, Burke & Bauermeister, PLLC, Anchorage, Alaska, for the plaintiff-appellant.

John W. Phillips, Phillips Law Group, PLLC, Seattle, Washington, for the defendants-appellees.

Before: Dorothy W. Nelson, A. Wallace Tashima, and Raymond C. Fisher, Circuit Judges.

Opinion by Judge Tashima.

OPINION

TASHIMA, Circuit Judge.

The question of the preemption of state law by federal tobacco legislation has been addressed numerous times. Today, we address the preemption issue in the context of the doctrine of fraudulent joinder, which is invoked to achieve diversity jurisdiction. We hold that the district court erroneously allowed the defendants-appellees to achieve diversity jurisdiction by its incorrect finding that the plaintiffs appellants' state law claims were preempted and constituted fraudulent joinder. Because the district court should have remanded the action to state court, we vacate the judgment and remand with instructions to remand the action to state court. We have jurisdiction over the final judgment of the district court pursuant to 28 U.S.C. § 1291.

BACKGROUND

Benjamin Francis, an Alaska resident and citizen, died at age fifty-two from lung cancer. As Francis' survivor and on behalf of his estate, Dolores Hunter brought a wrongful death lawsuit in Alaska state court against Philip Morris USA, a Virginia corporation that produces, markets, and distributes cigarettes; Altria Group, the parent company of Philip Morris USA; and the Alaska Commercial Company ("ACC"), an Alaska corporation that sells merchandise, including cigarettes manufactured by Philip Morris, in stores throughout Alaska (all three Appellees are collectively referred to as "Appellees").

Hunter alleged that Francis' death resulted from defective products sold by Appellees. Hunter's complaint included claims of: (I) fraud and misrepresentation, (II) products liability, (III) failure to warn, (IV) deceptive advertising, (V) breach of warranty, (VI) conspiracy, and (VII) addiction defectiveness.

Philip Morris and Altria (together, the "Altria defendants") removed the case to the United States District Court for the District of Alaska. They argued that Hunter's state law claims against ACC were preempted by congressional policy not to remove tobacco from the market and that ACC therefore was fraudulently joined, resulting in complete diversity of citizenship. The Altria defendants then filed a motion to dismiss Hunter's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. Hunter filed a motion to remand, asserting that her complaint adequately pleaded a strict products liability claim against ACC under Alaska state law. She argued that ACC was not fraudulently joined and, consequently, that total diversity between plaintiff and all defendants did not exist.

The district court denied Hunter's motion to remand. The court agreed with the Altria defendants that Hunter's state product liability claim against ACC was preempted because it would result in an effective ban on cigarettes, in contravention of congressional policy. Hunter therefore had stated no possible claim against ACC. The court accordingly found that ACC was fraudulently joined, resulting in diversity of citizenship. The court denied Hunter's motion for reconsideration.

The district court then granted the 12(b)(6) motion to dismiss, reasoning that Hunter had failed to identify the specific products Francis used and the alleged defects in the products, and that any product liability claims were preempted by the congressional intent not to ban the sale of cigarettes. The district court entered final judgment in favor of Appellees. Hunter timely appealed.

DISCUSSION

Hunter contends that the district court erred in denying her motion to remand the case to state court and, accordingly, that the court lacked jurisdiction to grant the Altria defendants' motion to dismiss. We review de novo the district court's denial of a motion to remand to state court for lack of removal jurisdiction. Moore-Thomas v. Alaska Airlines, Inc., 553 F.3d 1241, 1243 (9th Cir. 2009); Hamilton Materials, Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1206 (9th Cir. 2007).

[1] A defendant may remove an action to federal court based on federal question jurisdiction or diversity jurisdiction. 28 U.S.C. § 1441. However, "`[i]t is to be presumed that a cause lies outside [the] limited jurisdiction [of the federal courts] and the burden of establishing the contrary rests upon the party asserting jurisdiction.' " Abrego Abrego v. Dow Chem. Co., 443 F.3d 676, 684 (9th Cir. 2006) (quoting Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994)) (alterations in original). The "strong presumption against removal jurisdiction means that the defendant always has the burden of establishing that removal is proper," and that the court resolves all ambiguity in favor of remand to state court. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992) (per curiam) (internal quotation marks omitted).

[2] "`The threshold requirement for removal under 28 U.S.C. § 1441 is a finding that the complaint contains a cause of action that is within the original jurisdiction of the district court.' " Ansley v. Ameriquest Mortgage Co., 340 F.3d 858, 861 (9th Cir. 2003) (quoting Toumajian v. Frailey, 135 F.3d 648, 653 (9th Cir. 1998)). In determining federal question jurisdiction, the well-pleaded complaint rule "provides that federal jurisdiction exists only when a federal question is presented on the face of the plaintiff's properly pleaded complaint." Fisher v. NOS Commc'ns (In re NOS Commc'ns), 495 F.3d 1052, 1057 (9th Cir. 2007) (internal quotation marks and citations omitted). Thus, the plaintiff is "the master of his complaint" and may "avoid federal jurisdiction by relying exclusively on state law." Balcorta v. Twentieth Century-Fox Film Corp., 208 F.3d 1102, 1106 (9th Cir. 2000). It is "settled law that a case may not be removed to federal court on the basis of a federal defense, including the defense of preemption, even if the defense is anticipated in the plaintiff's complaint, and even if both parties admit that the defense is the only question truly at issue in the case." Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 14 (1983); see also Vaden v. Discover Bank, 129 S. Ct. 1262, 1272 (2009) ("Federal jurisdiction cannot be predicated on an actual or anticipated defense."); Valles v. Ivy Hill Corp., 410 F.3d 1071, 1075 (9th Cir. 2005) ("A federal law defense to a statelaw claim does not confer jurisdiction on a federal court, even if the defense is that of federal preemption and is anticipated in the plaintiff's complaint."); Ritchey v. Upjohn Drug Co., 139 F.3d 1313, 1319 (9th Cir. 1998) ("Even when the area involved is one where complete preemption is the norm, if the complaint relies on claims outside of the preempted area and does not present a federal claim on its face, the defendant must raise its preemption defense in state court.").

[3] As for diversity jurisdiction, federal district courts have jurisdiction over suits for more than $75,000 where the citizenship of each plaintiff is different from that of each defendant. 28 U.S.C. § 1332(a). Although an action may be removed to federal court only where there is complete diversity of citizenship, 28 U.S.C. §§ 1332(a), 1441(b), "one exception to the requirement for complete diversity is where a non-diverse defendant has been `fraudulently joined.' " Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001). Joinder is fraudulent "`[i]f the plaintiff fails to state a cause of action against a resident defendant, and the failure is obvious according to the settled rules of the state.' " Hamilton Materials, 494 F.3d at 1206 (quoting McCabe v. Gen. Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987)) (alteration in original). In such a case, the district court may ignore the presence of that defendant for the purpose of establishing diversity. Morris, 236 F.3d at 1067.

The Altria defendants removed the case to federal court based on diversity of citizenship, not federal question jurisdiction. In order to establish diversity, the Altria defendants contended that Hunter's claims against ACC were both impermissibly vague and subject to conflict preemption and, accordingly, that ACC had been fraudulently joined. Removal accordingly was based on a meld of the implied preemption doctrine from the federal question context and the fraudulent joinder doctrine from the diversity context.

[4] The Altria defendants relied in the district court, and rely here, on the Supreme Court's decision in Food & Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 137 (2000) ("FDA"), to argue that Hunter's product liability claim was impliedly preempted by the congressional intent to prevent the categorical ban of cigarettes. The issue in FDA was whether the FDA had jurisdiction to regulate tobacco products pursuant to the Food, Drug and Cosmetic Act ("FDCA"), 21 U.S.C. §§ 301-397. The Court held that "Congress has clearly precluded the FDA from asserting jurisdiction to regulate tobacco products" because, if the FDA were to regulate tobacco, the provisions of the FDCA would have required the FDA to ban tobacco altogether. Id. at 126, 137. "Congress, however, has foreclosed the removal of tobacco products from the market." Id. at 137.

The district court agreed with the Altria defendants' reliance on FDA in denying Hunter's motion to remand. The court thus concluded that Hunter's product liability claim against ACC was preempted because allowing such a claim would result in an effective ban on the sale of tobacco products in contravention of congressional objectives. We disagree with the district court's reasoning on two grounds. First, we disagree with the Altria defendants' use of the affirmative defense of implied preemption as a basis for asserting fraudulent joinder in order to invoke diversity jurisdiction. Second, even if the defendants were to be allowed to use the defense of federal preemption to establish fraudulent joinder, we conclude that Hunter's state product liability claim is not impliedly preempted by federal law.

The use of the affirmative defense of federal preemption to assert fraudulent joinder in order to establish diversity jurisdiction was addressed by the Fifth Circuit in Smallwood v. Illinois Central R.R. Co., 385 F.3d 568 (5th Cir. 2004) (en banc). In Smallwood, the plaintiff, Kelli Smallwood, a citizen of Mississippi, sued Illinois Central, an Illinois corporation that operated a train in Mississippi, and the Mississippi Department of Transportation in state court for negligence. Illinois Central removed the case to federal court, arguing that the in-state defendant was improperly joined because Smallwood had no reasonable possibility of recovery against it because Smallwood's claims were preempted by the Federal Railroad Safety Act. The district court agreed and granted summary judgment on the basis that Smallwood's claim against Illinois Central also was preempted. Thus, "the district court's decision that Smallwood's claims against the in-state defendant were preempted effectively decided the entire case." Id. at 571. The Fifth Circuit held that this was error. Id.

[5] The court explained that there are "two ways to establish improper joinder: `(1) actual fraud in the pleading of jurisdictional facts, or (2) inability of the plaintiff to establish a cause of action against the non-diverse party in state court.' " Id. at 573 (quoting Travis v. Irby, 326 F.3d 644, 646-47 (5th Cir. 2003)). The court addressed only the second type. Id. The court "caution[ed] that a summary inquiry is appropriate only to identify the presence of discrete and undisputed facts that would preclude plaintiff's recovery against the instate defendant" and reasoned that "the inability to make the requisite decision in a summary manner itself points to an inability of the removing party to carry its burden." Id. at 573-74. The court further stated that "[t]he party seeking removal bears a heavy burden of proving that the joinder of the in-state party was improper." Id. at 574; see also Florence v. Crescent Res., LLC, 484 F.3d 1293, 1299 (11th Cir. 2007) (holding that, "if there is any possibility that the state law might impose liability on a resident defendant under the circumstances alleged in the complaint, the federal court cannot find that joinder of the resident defendant was fraudulent, and remand is necessary").

Smallwood also addressed the unique situation when the same analysis applied to an assertion of fraudulent joinder applies to all defendants.

[W]hen, on a motion to remand, a showing that compels a holding that there is no reasonable basis for predicting that state law would allow the plaintiff to recover against the in-state defendant necessarily compels the same result for the nonresident defendant, there is no improper joinder; there is only a lawsuit lacking in merit. In such cases, it makes little sense to single out the in-state defendants as "sham" defendants and call their joinder improper. In such circumstances, the allegation of improper joinder is actually an attack on the merits of plaintiff's case as such — an allegation that, as phrased by the Supreme Court in Chesapeake & O.R. Co. v. Cockrell, [232 U.S. 146, 153 (1914),] "the plaintiff's case [is] ill founded as to all the defendants."

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