On April 10, 2014, the US District Court for the Southern District of California in McGrath v. Home Depot USA, Inc. held that the post-removal joinder of non-diverse defendants in a diversity jurisdiction case must be scrutinized for impropriety under 28 U.S.C. § 1447(e) even where the amendment is made as of right under FRCP 15(a) (No. 14-cv-0071, (S.D. Cal. Apr. 10, 2014)).

The plaintiff, Michael McGrath filed a complaint on behalf of the people of California in state court against Home Depot USA, Inc. regarding safety concerns in Home Depot's retail facilities. Home Depot removed the action to federal court under 28 U.S.C. § 1332 (diversity jurisdiction) and the Class Action Fairness Act. McGrath then filed an amended complaint as of right under FRCP 15(a), adding three individual defendants, and moved to remand the matter to state court for, among other things, a lack of complete diversity. McGrath argued that the federal court lacked diversity jurisdiction over this matter because the plaintiff and the individual defendants all reside in California. The defendants opposed remand on the grounds that McGrath improperly added the individual defendants post-removal as "sham defendants" to destroy complete diversity between the parties. The defendants also moved to dismiss, arguing that the plaintiff lacked standing to pursue his claims.

The Southern District of California denied the plaintiff’s motion to remand. The court noted that there is a split unresolved by the US Court of Appeals for the Ninth Circuit on the standard governing post-removal joinder of diversity-destroying parties. Under 28 U.S.C. § 1447(e), if adding defendants post-removal would destroy subject matter jurisdiction, the court has the discretion to either deny joinder or permit joinder and remand the case. While some courts in the Ninth Circuit have held that leave of court is not required to add a party under the liberal amendment policy of Rule 15(a),other courts have found that a diversity-destroying amendment must be scrutinized to make sure that it is proper under 28 U.S.C. § 1447(e). The court followed the latter approach, reasoning that:

The court concluded that joinder of the non-diverse individual defendants was improper by analyzing the following factors to determine whether to permit joinder under 28 U.S.C. § 1447(e), including whether:

While the Ninth Circuit has not resolved this issue, the Southern District of California will not automatically permit, but will instead scrutinize the propriety of, an amended complaint that joins a non-diverse party in a diversity action.