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Posted July 2025Choose the best answer to the question below based on this scenario:
A plaintiff sues two defendants in state court. One defendant is a citizen of a different state than the plaintiff and one defendant is a citizen of the same state as the plaintiff. The defendant removes the case to federal court on the basis of diversity jurisdiction and moves to dismiss the non-diverse defendant as fraudulently joined. (Assume the amount-in-controversy requirement is satisfied). The district court dismisses the non-diverse defendant and, after two years of litigation, the case proceeds to trial. The district court grants judgment as a matter of law for the defendant on all of the plaintiff's claims and enters a judgment for the defendant. The plaintiff appeals, and the appellate court holds that the dismissal of the non-diverse defendant was improper.
Did the district court have diversity jurisdiction at the time it entered the final judgment in favor of the defendant?
On the one hand, it seems like the correct answer must be “Yes.” The district court dismissed the non-diverse defendant after the case was removed, so complete diversity existed from the time the non-diverse defendant was dismissed through entry of the final judgment and the amount-in-controversy was satisfied. If you chose “Yes,” the Fourth, Eighth, and Ninth Circuits appear to agree with you.
On the other hand, if you chose “No,” the Fifth and Eleventh Circuits agree with you. In Palmquist v. Hain Celestial Group, Inc.., 103 F. 4th 294 (5th Cir. 2024), for example, the Fifth Circuit held that the district court had improperly dismissed the non-diverse defendant and vacated the judgment in full. The court reasoned that the district court never had jurisdiction over the case because the non-diverse defendant was improperly dismissed and therefore the judgment must be vacated. The Fifth Circuit remanded the case to state court for the parties to start over from scratch.
If you chose “It depends,” you chose the best answer because the U.S. Supreme Court granted certiorari in Palmquist on April 28, 2025, to decide “[w]hether a district court's final judgment as to completely diverse parties must be vacated when an appellate court later determines that it erred by dismissing a non-diverse party at the time of removal.” Hain Celestial Group, Inc. v. Palmquist, No. 24-724.
In 2021, Grant and Sarah Palmquist sued Hain, a baby-food manufacturer, and Whole Foods, a grocery retailer, in state court. The plaintiffs alleged that Hain's baby food, which they purchased at Whole Foods, was contaminated with toxic heavy metals and caused their son to suffer from autism spectrum disorder. They asserted various causes of action, including breach-of-warranties. The plaintiffs are citizens of Texas, Hain is a citizen of Delaware and New York, and Whole Foods is a citizen of Texas. Hain removed on the ground that Whole Foods was improperly joined for the sole purpose of defeating diversity jurisdiction.
The plaintiffs then filed an amended complaint and moved to remand. The district court denied the motion to remand and dismissed Whole Foods from the case. Some of the plaintiffs' claims against Hain proceeded to trial in 2023, but Hain obtained judgment as a matter of law on all of them because the plaintiffs could not prove causation. The plaintiffs appealed, and the Fifth Circuit concluded that the district court never had jurisdiction because Whole Foods was not improperly joined. In other words, according to the Fifth Circuit, the plaintiffs had alleged a plausible claim against Whole Foods, and, therefore, diversity jurisdiction did not exist. The appeals court (1) reversed the district court's denial of the plaintiffs' motion to remand, (2) vacated the district court's final judgment, and (3) remanded the case to the district court with instructions for the lower court to remand the case to state court for the parties to start over.
In their petition for certiorari, the defendants emphasized that there is a circuit split regarding whether a district court's final judgment as to completely diverse parties must be vacated when an appellate court later determines that the district court erred in dismissing a nondiverse defendant as fraudulently joined. The defendants also argued that the rationales underlying the Court's earlier decisions in Caterpillar Inc. v. Lewis, 519 U.S. 61 (1996), and Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826 (1989), warrant reversal of the Fifth Circuit's decision.
In Caterpillar, the parties lacked complete diversity at the time of removal, but the non-diverse party was dropped from the lawsuit prior to trial and entry of the final judgment. In Newman-Green, a case filed in federal court, the lack of complete diversity was not detected until the final judgment was on appeal, but a panel of the appellate court cured the defect by dismissing the dispensable nondiverse defendant in order to preserve the final judgment as to the remaining completely diverse parties. In affirming the final judgment in Caterpillar and holding that the appellate court in Newman-Green had the authority to dismiss the dispensable nondiverse defendant, the Court emphasized the “overwhelming” considerations of finality, efficiency, and economy.
The defendants contend that under Caterpillar and Newman-Green, a court of appeals “should preserve the district court's final judgment” as to completely diverse parties “in order to avoid wasting judicial and party resources and for the sake of finality.” They argue that the Fifth Circuit's decision in Palmquist cannot be squared with Caterpillar and Newman-Green because there is no dispute that Whole Foods, the non-diverse defendant, was a dispensable party and did not participate in the proceedings leading up to and through trial and final judgment. They appear to argue that the Fifth Circuit should have dismissed Whole Foods instead of “reinstating a dispensable nondiverse defendant in order to destroy the jurisdiction of the federal court, with great prejudice to the defendants.” They also assert that Newman-Green makes it clear—contrary to the Fifth Circuit's decision in Palmquist—that there is no requirement that a court of appeals must vacate a final judgment and remand a case to state court when the court of appeals determines that the district court erred by dismissing a nondiverse defendant.
According to the defendants, the consequences of the Fifth Circuit’s decision for Hain are “staggering.” If the decision stands, the parties will return to state court to start over. Whole Foods will again seek dismissal from the case. If Whole Foods is dismissed, Hain will be unable to re-remove the case because of the one-year limit on removal in diversity cases. And, either way, Hain will have to defend itself all over again, despite the fact that after two years of litigation, the plaintiffs did not have sufficient evidence of causation to reach a jury.
In opposing the defendants cert petition, the plaintiffs argued that the Fifth Circuit correctly vacated the judgment and remanded the case to state court because complete diversity never existed since the district court improperly dismissed Whole Foods as fraudulently joined. The plaintiffs distinguish Palmquist from Caterpillar on the ground that the jurisdictional defect was never cured in Palmquist whereas, in Caterpillar, the non-diverse party settled and dropped out of the case prior to trial and entry of final judgment.
The plaintiffs also cite Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567 (2004), for the proposition that under Caterpillar, a lack of complete diversity at the time of removal does not require dismissal only if the jurisdictional defect is cured before judgment. They contend that Caterpillar stands for the proposition that “if, at the end of the day and case, a jurisdictional defect remains uncured, the judgment must be vacated” and therefore supports their argument that the Fifth Circuit correctly vacated the judgment in Palmquist.
The plaintiffs acknowledge that Newman-Green allows an appellate court to cure a jurisdictional defect by dismissing a dispensable non-diverse party but assert that the remedy is discretionary and should be used only when it will not prejudice the parties. They point out that neither the district court nor the Fifth Circuit exercised that option and argue that the facts did not warrant dropping Whole Foods.
The plaintiffs also argue that a long line of authority stands for the proposition that a case can become removable through the voluntary actions of the plaintiff but cannot be made removable by an “involuntary action,” such as the opposed dismissal of a nondiverse party. They contend that Caterpillar fits within this line of authority because the non-diverse party in Caterpillar voluntarily settled out of the case. They insist that under Caterpillar, a voluntary dismissal of a party can cure a jurisdictional defect but an involuntary dismissal, such as the dismissal of Whole Foods in Palmquist, cannot. Thus, according to the plaintiffs, the holding in Caterpillar is inapplicable. Finally, the plaintiffs assert that the values of finality, efficiency, and economy simply do not—and cannot—matter if a jurisdictional defect isn't cured prior to judgment. They reason that when jurisdiction does not exist and a federal court enters a judgment, the court has exceeded its authority, and the judgment must be vacated.
The parties are currently briefing the merits, and the Court will hear arguments in the October 2025 Term. More to come!
