PHILADELPHIA (Legal Newsline) - Disgraced celebrity lawyer Michael Avenatti lost a bid to revive his lawsuit against Fox News over its allegedly defamatory coverage of his arrest after a federal appeals court said it was properly dismissed because of his attempt to maneuver around federal jurisdiction by adding an unnecessary defendant to the case.
Avenatti, who once represented Donald Trump accuser Stormy Daniels, was arrested on charges of identity theft and fraud in November 2018. He sued Fox and a number of its on-air personalities - including Sean Hannity, Laura Ingraham and Maria Bartiromo in November 2020 - accusing them of mounting a “purposeful and malicious” campaign of defamation and slander against him by lying about the details of his arrest. Avenatti was sentenced to four years in prison in June.
“We are pleased with the Court’s decision in favor of FOX News," the company said. "(The) ruling is another victory for journalists everywhere, who should not be intimidated into silence when bullies like Michael Avenatti file baseless multimillion-dollar lawsuits and further waste the Court’s time with appeals.”
Fox News immediately removed the case to federal court on diversity grounds, since he was a California resident and none of the named defendants were. Federal courts have limited jurisdiction under the U.S. Constitution, but that includes diversity, where the plaintiff and defendants are from different states.
Three days later, Avenatti amended the complaint to include Fox correspondent Jonathan Hunt, who was a California resident. He then moved to remand the case back to state court.
The federal district court refused to add Hunt to the case, applying a four-factor test that asks whether the amendment is intended to defeat diversity and if the plaintiff would be “significantly injured” by disallowing it. On August 13, 2021, the district court dismissed Avenatti’s amended complaint, and when he said he intended to stand on that complaint anyway, dismissed the entire case with prejudice.
Avenatti appealed to the Third Circuit, arguing the case belonged in state court and therefore the federal judge lacked jurisdiction to dismiss it. The Third Circuit disagreed, ruling in a July 21 decision that the district court had discretionary authority to drop Hunt from the case. Not only was he added after removal in an obvious attempt to defeat diversity, the appeals court said, but Avenatti wouldn’t suffer any harm since any claims against Hunt could be paid by Fox under joint and several liability.
“The plaintiff is master of his complaint, but his power is not absolute,” the Third Circuit ruled. “District courts have authority of their own to structure the litigation before them and, in doing so, prevent manipulation by the parties. This includes policing the addition of new parties whose presence would unravel vested jurisdiction.”
Normally, plaintiffs seek the court’s permission to add parties under federal law. Avenatti tried a different route, however, by amending his complaint under the Federal Rules of Civil Procedure. Once he did that, he argued, the federal court had the choice of remanding the case or refusing under the doctrine of fraudulent joinder, a strict standard that requires a lack of a viable claim against the named defendant or good faith by the plaintiff.
Not so, the Third Circuit said. Fraudulent joinder doesn’t apply to parties added after a case has been removed. And the federal court has discretionary authority under Rule 21 of the federal rules to drop a party added to defeat diversity. Requiring fraudulent joinder would defeat the purpose of the rule, the court went on.
“This is a substantial concern because we must be on guard against forum manipulation in removal cases,” the court said. “It would make little sense to grant district courts discretion under Rule 21, only to channel that discretion into a rigid formula.”
Avenatti’s lawyer couldn’t explain at oral argument why Hunt was added to the complaint. The Third Circuit also was dismissive of Avenatti’s accusation Fox was engaging in “blatant forum shopping” by removing his case to federal court.
“Coming from Avenatti, the accusation of exploiting technicalities to obtain one’s preferred forum rings hollow,” the Third Circuit concluded.