Statement of House Judiciary Committee Chairman Bob Goodlatte Subcommittee on the Constitution and Civil Justice Hearing on H.R. 3624, the Fraudulent Joinder Prevention Act

Chairman Goodlatte: America’s small businesses are some of the leading victims of frivolous lawsuits and the extraordinary costs that our legal system imposes. Everyday local business owners have lawsuits filed against them based on claims for which they are ultimately not responsible.  These lawsuits impose a tremendous burden on small businesses and on our economy as a whole, as America’s small businesses are major drivers of the U.S. economy. Just two weeks ago the House passed the Lawsuit Abuse Reduction Act to help rein in frivolous lawsuits. Enactment of that legislation will help eliminate some of the abuses that exist in the federal legal system that harm small business in particular. The bill we are examining today, the Fraudulent Joinder Prevention Act, will also help address a litigation abuse that regularly drags small businesses into court to answer for claims to which they have no real connection. 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 fraudulently joined in-state defendant is a small business or the owner or employee of a small business. Ultimately, these in-state defendants may not face any liability as a result of being named as a defendant, but that does not prevent them from having to spend money to hire a lawyer and taking valuable time away from running their businesses to deal with matters related to a lawsuit. Plaintiffs’ attorneys join these basically 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.  In fact, the system actually encourages plaintiffs to fight to get their cases sent back to state court once they are removed to federal court by providing that plaintiffs may have their attorneys’ fees reimbursed if a case is remanded back to state court. The Fraudulent Joinder Prevention Act attempts to bring some balance to a federal court’s determination over whether a case that has been removed from state to federal court should remain in federal court. It does this by making a modest change to the statute that governs the fraudulent joinder determination. The change is modest because it merely requires federal judges to apply concepts to the fraudulent joinder determination that they already regularly use in other areas of the law. The bill provides that the standard judges are to use in determining whether a defendant has been fraudulently joined is whether the plaintiff states a plausible claim for relief against an in-state defendant. This plausible claim for relief standard is already used by federal judges in determining whether to grant motions to dismiss. Additionally, the bill allows judges to determine whether the claims against an in-state defendant were made in “good faith.” Again, judges are already asked in other areas of the law to examine a party’s good or bad faith. Nothing in this bill forces a judge to decide issues in favor of a defendant or creates a new standard that federal judges and litigants are not already familiar with. I look forward to the witnesses’ testimony on this common-sense legislative proposal and any suggestions they may have for ways this legislation can be improved. Finally, I want to thank Representative Buck for introducing this bill to help level the playing field for defendants when questions regarding fraudulent joinder arise. Click here to learn more about this hearing.