Chairman Goodlatte Statment at Markup of H.R. 3624, the “Fraudulent Joinder Prevention Act”

Chairman Goodlatte: Hard-working Americans are some of the leading victims of frivolous lawsuits and the extraordinary costs that our legal system imposes.  Everyday local business owners routinely have lawsuits filed against them based on claims they have no substantive connection to, as a means of forum shopping on the part of the lawyers filing the case. These lawsuits impose a tremendous burden on small businesses and their employees. The Fraudulent Joinder Prevention Act will help reduce the litigation abuse that regularly drags small businesses into court for no other reason than as part of a lawyers’ forum shopping strategy. In order to avoid the jurisdiction of the federal courts, plaintiffs’ attorneys regularly join in-state defendants to the lawsuits they file in state court even if the in-state defendants’ connections to the controversy are minimal or non-existent. Typically, the innocent but fraudulently joined in-state defendant is a small business or the owner or employee of a small business. Even though these innocent in-state defendants ultimately don’t face any liability as a result of being named as a defendant, they nevertheless have to spend money to hire a lawyer and take valuable time away from running their businesses to deal with matters related to a lawsuit to which they have no real connection. Trial lawyers join these unconnected in-state defendants to their lawsuits because the current rules for determining whether fraudulent joinder has occurred provide little disincentive to adding an in-state defendant, no matter how frivolous the claim is against that defendant. Currently, a case can be kept in state court by simply joining as a defendant a local party that shares the same local residence as the person bringing the lawsuit. When the primary defendant moves to remove the case to federal court, the addition of that local defendant will generally defeat removal under a variety of approaches judges currently take to determine whether the joined defendant prevents removal to federal court. One approach judges take is to require a showing that there is “no possibility of recovery” against the local defendant before a case can be removed to federal court, or some practically equivalent standard. Others require the judge to resolve any doubts regarding removal in favor of the person bringing the lawsuit. Still others require the judge to find that the local defendant was added in bad faith before they allow the case to be removed to federal court. The current law is so unfairly heavy-handed against innocent local parties joined to lawsuits that federal appeals court Judge J. Harvie Wilkinson of the Fourth Circuit Court of Appeals has publicly supported Congressional action to change the standards for joinder, saying “That’s exactly the kind of approach [to federal jurisdiction reform] that I like because it’s targeted.  And there is a problem with fraudulent jurisdiction law as it exists today, I think, and that is that you have to establish that the joinder of a non-diverse defendant is totally ridiculous and that there’s no possibility of ever recovering, that it’s a sham, that it’s corrupt and everything, that’s very hard to do. So I think making the fraudulent joinder law a little bit more realistic … appeals to me because it seems to me the kind of intermediate step that addresses some real problems … One of the problems here is that fraudulent jurisdiction, the bar, is so terribly high.” The Fraudulent Joinder Prevention Act brings some balance to a federal court’s ability to determine whether a case that has been removed from state to federal court should remain in federal court.  It does this by requiring federal judges to apply concepts to the fraudulent joinder determination that they already regularly use in other areas of the law.  I understand Mr. Buck will be offering a substitute amendment to make some technical changes to the bill, and so I will let him explain that amendment in more detail.  But the policy of the bill remains the same: namely, to allow judges to review more evidence earlier in a case to determine whether or not a plausible case can be made for the in-state defendant’s liability under state law, or that there is no good faith intent on the part of the trial lawyers to continue the case against all defendants. Click here to learn more about today’s markup.