Washington, D.C. – House Judiciary Committee Chairman Bob Goodlatte (R-Va.) made the following remarks during floor debate of the Innocent Party Protection Act of 2017 (H.R. 725).
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 Innocent Party Protection Act, introduced by Judiciary Committee Member Mr. Buck from Colorado, 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 or spending time with their families to deal with matters related to a lawsuit to which they have no real connection.
To take just a couple of examples, in Bendy v. C.B. Fleet Company, the plaintiff brought product liability claims against a national company for its allegedly defective medicinal drink. The plaintiff also joined a resident local defendant health clinic, alleging it negligently instructed the plaintiff to ingest the drink. The national company removed the case to federal court and argued that the small local defendant was fraudulently joined because the plaintiff’s claims against the clinic were time-barred by the statute of limitations, showing “no possibility” of recovery. Despite finding the possibility of relief against the local defendant “remote,” the court remanded the case after emphasizing the draconian burden on the national company to show fraudulent joinder under the current rules. The court practically apologized publicly to the joined party, stating “the fact that Maryland courts are likely to dismiss Bendy’s claims against [the local defendant] is not sufficient for jurisdiction, given the Fourth Circuit’s strict standard for fraudulent joinder.” Shortly after remand, all claims against the local defendant were dismissed, of course, after its presence in the lawsuit served the trial lawyer’s tactical purpose of forum shopping. When courts themselves complain about the unfairness of current court rules, Congress should take notice.
And in Baumeister v. Home Depot, Home Depot removed a slip-and-fall case to federal court. The day after removal and before conducting any discovery, the plaintiff amended the complaint to name a local business, which it alleged failed to maintain the store’s parking lot. The court found the timing of the amended complaint was “suspect,” noting the possibility “that the sole reason for amending the complaint to add [the local defendant] as a Defendant … could have been to defeat diversity jurisdiction.” Nevertheless, the court held Home Depot had not met its “heavy burden” of showing fraudulent joinder under current law because the court found it was “possible,” even if it were just a tenth-of-a-percent-possible, that “the newly-added defendant could potentially be held liable” and remanded the case back to state court. Once back in state court, the plaintiff stipulated to dismiss the innocent local defendant from the lawsuit, but only after it had been used successfully as a forum shopping pawn.
Trial lawyers join these unconnected in-state defendants to their lawsuits because today, 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 [FLOOR POSTER 3] “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 … [T]hat’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.”
The bill before us today addresses those real problems in two main ways. First, the bill allows judges greater discretion to free an innocent local party from a case where the judge finds there is no plausible case against that party. That plausibility standard is the same standard the Supreme Court has said should be used to dismiss pleadings for failing to state a valid legal claim, and the same standard should apply to release innocent parties from lawsuits. Second, the bill allows judges to look at evidence that the trial lawyers aren’t acting in good faith in adding local defendants. This is a standard some lower courts already use to determine whether a trial lawyer really intends to pursue claims against the local defendant, or is just using them as part of their forum shopping strategy.
This bill is strongly supported by the National Federation of Independent Business and the U.S. Chamber of Commerce, among other legal reform groups. Please join me in supporting this vital legislation to reduce litigation abuse and forum shopping, and to protect innocent parties from costly, extended, and unnecessary litigation.