On behalf of Wolf Popper LLP
Republicans in the U.S. House of Representatives are currently working on pushing forward several bills aimed at reforming the civil justice system. The bills have many aims, but the common denominator is to make changes to lessen the purported burdens to businesses.
One of the bills approved by the House of Representatives at the beginning of the month is the Innocent Party Protection Act, which intends to make it easier for defendants to prevent being sued in state court and to remove a lawsuit to federal court. If a defendant is sued in a state court in its non-home state and all of the parties are from different states, the defendant can often remove the case to federal court, which an out-of-state defendant might believe is a more neutral forum, under "diversity jurisdiction." If a plaintiff adds a local defendant to their lawsuit, the out-of-state defendant would be unable to remove the case to federal court. However, a plaintiff cannot add a local defendant that it has no viable claim against solely to prevent federal court jurisdiction. When defendants remove a case to federal court, they sometimes argue that any in-state defendants were "fraudulently joined" and they should not be included in the lawsuit, thereby allowing the case to proceed in federal court.
The Innocent Party Protection Act intends to make it easier for defendants to overcome fraudulent joinder by instructing the federal court to consider whether the plaintiff improperly added the in-state defendant. The proposed law instructs the federal court to not allow the case to proceed in state court if: there is actual fraud in pleading the jurisdictional facts; it is not plausible to conclude that the defendant would be liable under state law; state or federal law clearly prevents the claims against the defendant; and there is objective evidence demonstrating lack of good faith to prosecute the action against the defendant. The proposal also allows the federal court to consider any amended complaints or affidavits and other evidence submitted by the parties.
The bill passed the House on a vote of 224 to 194, with only Republicans voting in favor, while all voting Democrats and 10 Republicans voted against the bill. Democratic opponents argued that the bill complicates a problem which has already been adequately addressed by the federal courts who have considered fraudulent joinder claims. In light of the body of case law evaluating these claims as well as motions to dismiss under Federal Rule of Civil Procedure 12, the new language unnecessarily adds ambiguity, such as whether a claim is "plausible" under state law or the plaintiff acts with a "good faith intention." The proposal also would prompt additional litigation expense if the parties have to submit "other evidence" to determine plaintiff's state of mind.
In our next post, we'll say more about other measures advanced in the House, as well as the importance of working with experienced legal counsel to hold businesses accountable for taking advantage of and harming consumers.