Defendant May Not Substitute Diverse Party Where Plaintiff Sued “Wrong” Entity

In Salazar v. Allstate Texas Lloyd’s, Inc., No. 04-41043 (5th Cir. July 10, 2006), plaintiff sued for breach of contract and bad faith the entity he believed was his insurer. That entity was a Texas resident, and plaintiff sued in state court. In fact, however, the issuer of the policy was Allstate Illinois, and if plaintiff had sued that company instead Allstate could have removed based on diversity.

Allstate Texas filed removal papers and then moved to add Allstate Illinois and dismiss Allstate Texas. The district court granted those motions and refused to remand the case.

The Fifth Circuit held that this type of substitution is improper. While Rules 17, 19 and 21 might apply in a typical misjoinder or fraudulent joinder case, here only one party had ever been named as a defendant. In that situation, the district court lacked jurisdiction at the outset and substitution could not be used to create federal jurisdiction.