Well, that appears finally to be over, and like the “ships” (relationships) at the end of the Harry Potter series, we’re not particularly happy with the end result – as compatible as ashwinder eggs and erumpent horn, those two would be, and we’re not alone in thinking that.  

Similarly unsatisfying is the apparently definitive resolution of the decades-long, back-and-forth removal/remand issue concerning Louisiana’s peculiar statutory scheme for medical malpractice actions (called the “LMMA”) and whether non-diverse medical malpractice defendants:  (1) are “fraudulently joined” or (2) are properly joined and thus defeat diversity.  The recent Fifth Circuit opinion in Flagg v. Stryker Corp., ­___ F.3d ___, 2015 WL 5193378 (5th Cir. Sept. 4, 2015), chose door number two.  No fraudulent joinder, and thus remand for lack of federal jurisdiction.

Some of our readers may remember the comprehensive post we did on the (then) state of Louisiana law on this issue in May of last year.  That post described the issue at some length, with more citations than you can shake a stick at, so we’ll only sketch the outlines of the issue here.  The LMMA (§40:1299.47(B)(1)(a)(I)) outright forbids suing health care providers before a malpractice claim is evaluated by a medical review panel.  Some plaintiffs do anyway, in violation of the statute, and defendants have argued, with considerable success, that such joinder of in-state defendants should be ignored precisely because it violated the statutory prohibition.

Although, the LMMA had been around for decades, the Fifth Circuit had never – until last week – ruled directly on the question.  In Flagg a 2-1 majority found for the other side, despite acknowledging that the joinder violated state procedural law. 2015 WL 5193378, at *1 (“[d]espite the provisions in that statute requiring review as a prerequisite to suit, [plaintiff] sued the Medical Defendants and the Manufacturing Defendants in Louisiana state court”) (citation and quotation marks omitted).

Plaintiff’s litigation strategy didn’t exactly didn’t exactly cover itself in glory.  According to the Fifth Circuit’s description, plaintiff didn’t challenge the removal, and after losing on the merits, didn’t raise the issue on appeal either.  Nonetheless, “subject-matter jurisdiction cannot be waived, so [the court of appeals] requested supplemental briefing on this issue.”  Id.  That’s important, because after Flagg other similarly situated plaintiffs are free to mount similarly belated jurisdictional challenges.

The Fifth Circuit applied this fraudulent joinder standard:  “a court should disregard the citizenship of non-diverse defendants where there is no reasonable basis for predicting that the plaintiff might establish liability.”  Id.  Examining the LMMA, Flagg recognized the split in opinion that we discussed in our 2014 post.  On the one hand:

Some of those courts have found that the LMMA requires the presentation or exhaustion of administrative remedies before an LMMA claim is ripe to be heard in federal court. These cases dismiss non-diverse defendants as improperly joined and allow plaintiffs' claims against diverse defendants to proceed in federal court.

2015 WL 5193378, at *3 (citing some of the cases we’d blogged about).  On the other hand:

Some courts have reasoned that just because a claim is procedurally premature under Louisiana law does not mean there is no reasonable basis for predicting that plaintiffs might establish liability against the in-state defendants.  On this side of the issue, many courts found no improper joinder of non-diverse defendants when a plaintiff's claims were premature.

Id. (citing other cases we’d blogged about).

As we discussed in 2014, Flagg observed that the pro-removal side began getting the better of the argument “[a]fter our decisions in Melder v. Allstate Corp., 404 F.3d 328, 331–32 (5th Cir. 2005), and Holder v. Abbott Laboratories, Co., 444 F.3d 383, 387–89 (5th Cir. 2006).”  Flagg, 2015 WL 5193378, at *3. However, the majority in Flagg “conclude[d] . . . that these cases do not reach as broadly as the Manufacturing Defendants contend.”  Id.  Those cases both involved “comprehensive” administrative schemes that would result in “adjudication of the plaintiffs’ claim.”  Id.

The Louisiana statute, by contrast, didn’t measure up to the comprehensiveness” of those in Melder and Holder:

By contrast, the LMMA is not a comprehensive administrative scheme designed to adjudicate a plaintiff's malpractice claims.  The net result of the process is an expert opinion admissible in a subsequent lawsuit, but not a decision in and of itself. . . .  Thus, a plaintiff who obtains a positive opinion from the medical review board must still file suit and have the claim adjudicated; it is the same for the defendants who have not received anything akin to a final administrative decision and therefore are not finished . . . .  In other words, the medical review panel will not adjudicate [plaintiff’s] claim at all; it will simply provide evidentiary support for one side or the other.

Flagg, 2015 WL 5193378, at *4.  Not only that, the Louisiana statute provided several procedural “outs” so that medical panel review “is not always a prerequisite to filing suit.”  Id.  All this mattered because of the “no reasonable basis” standard for fraudulent joinder.  Even if joinder were “premature” and improper procedure statute, a “reasonable basis” still existed for believing that the medical malpractice claims would eventually might be adjudicated in the plaintiff’s favor:

The Medical Defendants and the Manufacturing Defendants are clearly properly joined parties in this case under Federal Rule of Civil Procedure 20. . . .  [T]he fact that the medical review panel apparently still has yet to issue its opinion does not negate any “reasonable basis for predicting that plaintiffs might establish liability against the in-state defendants.” Thus, while the case against the Medical Defendants may be premature, they are not “improperly joined” within the meaning of the [federal] case law.

Id. at *5.  Therefore, there was no federal jurisdiction, and the Fifth Circuit remanded the case to state court.  Id.

The moral of the story is that, by violating the Louisiana statute and improperly joining the defendant under state law, under Flagg, the plaintiff is nonetheless rewarded with a substantial federal procedural advantage requiring remand of the case. Perhaps the result would be different if future defendants obtained dismissals in state court before removing (one of the scenarios covered in our 2014 post), but given the rationale Flagg employed, we can’t be sure of that, either.

That’s pretty much the point that the dissent made – that federal courts should not let plaintiffs get away with ignoring and violating state law:

This is not a sensible approach.  To the contrary, we should respect the judgment of the state on how it chooses to structure its administrative scheme. So long as the state determines that no suit may be filed on a cause of action until exhaustion, we should follow that directive.

Flagg, 2015 WL 5193378, at *7 (Davis, J. dissenting).

As much as we might agree with the dissent that the majority engaged in hair-splitting and employed retroactive distinctions without differences, the majority result in Flagg is what it is. Henceforth, improperly joined Louisiana medical malpractice defendants nevertheless defeat diversity, so any removal on that basis is now asking for trouble – both immediately and down the line.

Finally, what’s worse is that “henceforth” isn’t all that’s at issue. Subject matter jurisdiction can’t be waived, or else the plaintiff in Flagg would have done so.  That means that any case currently in federal court that was originally removed on the basis of prematurity under the Louisiana malpractice statute is a zombie – as in “walking dead.”  Because they are jurisdictionally infirm after Flagg, they are subject to remand at any time, with the resultant loss of most (if not all) of the legal time and effort invested in the federal litigation.  That means, after Flagg plaintiffs in such cases can take a second bite at any litigation-related apple with which they might be dissatisfied, simply by torching subject matter juristidiction.  Defendants in Louisiana, be forewarned.