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Taking Down the Flagg: Fifth Circuit Remands Med Mal & Device Case for Lack of Diversity Despite Uncompleted Administrative Review Against Non-Diverse Defendants

Taking Down the Flagg: Fifth Circuit Remands Med Mal & Device Case for Lack of Diversity Despite Uncompleted Administrative Review Against Non-Diverse Defendants

A divided panel (2-1) of the U.S. Circuit Court of Appeals for the Fifth Circuit recently held that failure to exhaust a state law pre-suit medical panel review process did not subject the plaintiff’s claims against the non-diverse medical defendants to dismissal, and thus those defendants’ citizenship must still be considered for purposes of diversity jurisdiction. Flagg v. Stryker Corp., No. 14-31169, 2015 U.S. App. LEXIS 15864 (5th Cir. Sept. 4, 2015).

Flagg sued over problems with a medical device implanted in his foot. He sued the manufacturers of the device as well as the medical personnel involved in his implantation surgery. The medical personnel defendants were citizens of Louisiana along with Flagg, though the manufacturers were not citizens of Louisiana. The manufacturers removed the case under diversity jurisdiction, arguing that the medical defendants were improperly joined because Flagg had not yet completed an administrative review by a medical board, a prerequisite to filing suit under the Louisiana Medical Malpractice Act (“LMMA”). The district court later granted the manufacturers’ Rule 12(b)(6) motion, on non-jurisdictional grounds resulting in an appeal.

The Fifth Circuit panel sua sponte examined jurisdiction and found it lacking. It held that the LMMA was not a “comprehensive administrative scheme designed to adjudicate a plaintiff’s [medical] malpractice claims.” It held that contrary to other statutory schemes where the end result of the process is an adjudication of the claim, the LMMA’s medical review panel resulted in an expert opinion admissible in a subsequent lawsuit. In addition, the parties could waive the medical panel review process altogether.

From its analysis of the LMMA, the Fifth Circuit held that the fact that the medical panel had yet to issue its opinion did not necessarily lead to the conclusion that there was no “‘reasonable basis for predicting that plaintiffs might establish liability . . . against the in-state defendants.’” Quoting Badon v. R J R Nabisco Inc., 224 F.3d 382, 393 (5th Cir. 2000). As the court held, “while the case against the Medical Defendants may be premature, they are not ‘improperly joined’ within the meaning of the case law.”

The dissent characterized the improper joinder standard as establishing diversity when a plaintiff is “unable to maintain a cause of action against the non-diverse party” (emphasis added). The dissent noted an inexplicable inconsistency in the majority’s reasoning: that a Title VII plaintiff is subject to dismissal of his suit if he has not exhausted the EEOC process even though that process does not result in a final decision but rather results in a right-to-sue letter. The dissent advocated for a bright-line rule: when the statute creating a cause of action requires exhaustion of an administrative review process prior to suit, a plaintiff cannot maintain a lawsuit on the unexhausted claim, and those defendants should be disregarded for diversity jurisdiction purposes.

Significantly, this decision impacts not only future removed cases, but also cases that are currently in federal court based on improper joinder of non-diverse medical malpractice defendants for failure to complete the panel review process under the LMMA. Subject matter jurisdiction cannot be waived, and thus some of those cases may be subject to remand, now that the Fifth Circuit has weighed in on the question.

The manufacturers have filed a petition for rehearing en banc, so stay tuned to Biz Lit News for any updates. It will be interesting to see if the en banc court will rehear the case and, if so, whether it adopts the bright-line test proposed by the dissent.

John H. Dollarhide

high-dollar commercial litigation