Key Takeaway

In Hain Celestial Group, Inc. v. Palmquist, the Supreme Court unanimously held that a district court’s erroneous dismissal of a nondiverse party does not cure a jurisdictional defect under 28 U.S.C. § 1332(a). When an appellate court reverses such a dismissal, the nondiverse party is restored, diversity is destroyed, and the judgment on the merits must be vacated. The decision reinforces the limits of federal diversity jurisdiction, strengthens plaintiffs’ forum-selection rights, and demands a more careful approach to removal strategy.

The Problem

Imagine you’re a Delaware-based company that gets sued in Texas state court. The plaintiff has named you and a Texas business in the same lawsuit, bringing claims under Texas law against both. You’d rather be in federal court, but complete diversity doesn’t exist because the plaintiff and your co-defendant are both Texans. Still, you think the claims against the co-defendant are too flimsy to count—that it was “improperly joined.” So, you remove, the federal judge agrees, the co-defendant is dismissed, and you go all the way through trial and win.

Then, on appeal, things unravel. The appellate court takes a fresh look and says the trial judge got it wrong: those claims were perfectly viable, and the co-defendant should never have been dismissed. The parties were never completely diverse. The federal court never had jurisdiction.

So, what happens to your hard-won trial victory? Do you get to keep it because a trial happened, and you won fair and square? Or does it all get wiped out because the federal court never had the power to hear the case? Is there anything you can do now to salvage the result?

Today, the Supreme Court answered unanimously: your victory is gone. A federal court cannot bootstrap its own jurisdiction through an erroneous ruling, the entire judgment must be vacated, and the case goes back to state court.

Background

The scenario above is what happened when two Texas plaintiffs, the Palmquists, sued Hain Celestial Group, Inc. (an out-of-state entity) and Whole Foods Market, Inc. (a Texas-based entity), bringing state-law tort claims. Hain removed on diversity grounds and argued that Whole Foods had been improperly joined. The district court agreed, dismissed Whole Foods, denied the Palmquists’ motion to remand, and ultimately granted Hain judgment as a matter of law for insufficient evidence of causation. The Fifth Circuit reversed the improper-joinder decision, holding that the claims against Whole Foods were plausible, and vacated the judgment for lack of subject-matter jurisdiction. The Supreme Court granted certiorari to resolve a split among the circuits on whether vacatur is required in these circumstances.

The Court’s Analysis

On February 24, 2026, the Court unanimously concluded vacatur was required. Writing for the Court, Justice Sotomayor began with a foundational principle: federal courts are courts of limited jurisdiction. If an appellate court concludes that the district court lacked jurisdiction when a case was filed or removed, it “typically must vacate any judgment on the merits.” Slip op. at 5.

The one recognized exception comes from Caterpillar Inc. v. Lewis, 519 U.S. 61 (1996), where a nondiverse defendant was voluntarily dismissed with all parties’ consent through a Rule 54(b) partial final judgment. Because the jurisdictional defect had been properly cured before trial, the verdict stood despite the earlier removal error. But the Caterpillar Court warned that had the defect instead “lingered through judgment,” vacatur would have been required. Id. at 76–77.

Here, the defect lingered. The dismissal of Whole Foods was interlocutory—it merged into the final judgment and remained subject to appellate review. As Justice Sotomayor explained, Whole Foods “was only temporarily and erroneously removed from the case; it was not ‘gone for good.’” Slip op. at 8. When the Fifth Circuit reversed the dismissal, Whole Foods was restored, complete diversity was destroyed, and vacatur was required.

The Court rejected two counterarguments. First, it rejected Hain’s contention that the parties were completely diverse by the time of final judgment, explaining that the Court “has never held that a district court can create jurisdiction through its own mistakes.” Slip op. at 8. Second, it rejected Hain’s fallback argument that Whole Foods should be dismissed under Federal Rule of Civil Procedure 21. Because the plaintiff is “the master of the complaint” with a right to choose the litigation forum, Rule 21 cannot be used to strip a properly joined defendant from the case over the plaintiff’s objection. Slip op. at 10.

Justice Thomas Calls for Scrutiny of the Improper-Joinder Doctrine

Justice Thomas joined the opinion in full but wrote separately to question the improper-joinder doctrine itself. He argued that the doctrine, as applied by lower courts, allows federal courts to enlarge their jurisdiction by assessing the merits of state-law claims otherwise beyond their reach—precisely the kind of jurisdiction the statute denies them. He distinguished this modern practice from the Court’s early “fraudulent joinder” precedents, which he read as limited to cases of bad faith or actual fraud. In an appropriate case, Justice Thomas would revisit the doctrine’s validity.

Practical Implications

The Hain Celestial decision has several practical implications for corporate litigants:

• Removal strategy requires careful assessment. Defendants relying on improper-joinder arguments face heightened risk. If the appellate court later concludes that the nondiverse defendant was properly joined, the entire judgment will be vacated—regardless of how much litigation occurred in the interim.
• Interlocutory appeal mechanisms become more important. The Court noted that Rule 54(b) partial final judgments and § 1292(b) interlocutory certifications can resolve improper-joinder disputes before trial, reducing the risk of wasteful litigation. Slip op. at 9 n.3. Parties on both sides should consider pursuing early appellate review of joinder decisions.
• Consider excising the nondiverse defendant in state court before removing. Removal is not limited to the start of a case. Under § 1446(b)(3), a defendant may remove within 30 days of receiving a paper showing the case has become removable. If the claims against a nondiverse co-defendant are genuinely weak, one strategy after Hain Celestial may be to move to dismiss that defendant on the merits in state court first. If the state court grants dismissal, the diverse defendant can remove on solid footing. Defendants should be mindful, however, of the one-year outer limit on diversity removal under § 1446(c)(1) and of the plaintiff’s ability to challenge the dismissal through the state appellate courts.
• Product liability and mass tort defendants take note. In cases involving multiple defendants in the supply chain, plaintiffs can strategically join in-state retailers or intermediaries to defeat removal. This decision confirms that strategy is effective so long as joinder is proper, and that an erroneous dismissal at the trial-court level will not insulate the judgment from vacatur on appeal.
• The improper-joinder doctrine may face further scrutiny. Justice Thomas’s concurrence signals that at least one Justice is prepared to reconsider whether federal courts may assess the merits of claims against nondiverse defendants to establish diversity jurisdiction. Litigants should watch for future cert petitions raising this issue.