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February 3, 2016

The Fraudulent Joinder Prevention Act of 2015 — What It Is and Why It Matters

Today, the House Judiciary Committee will markup the Fraudulent Joinder Prevention Act of 2015 (FJPA). What is fraudulent joinder and why does it matter? Well, consider these situations:

  • A customer is injured when a box of Christmas tree ornaments falls on him while shopping at a department store; he sues the national retailer and the local store manager.
     
  • A person trips and falls on a sidewalk outside a hotel and sues the hotel chain and the general manager.
     
  • A patient sustains internal injuries from an implanted medical device and sues both the device maker and a local supplier of materials used in making the device.

In each of these instances, why were the local store manager, hotel general manager and the local supplier named in the lawsuit? Among other possibilities, the most likely reason is that suing the local party anchors the case in a trial lawyer friendly state court.

State courts are advantageous to plaintiffs and their attorneys for a number of reasons. The attorneys know the local court’s rules, procedures and practices. They may believe a local jury is likely to side with a local plaintiff against an out-of-state business, or be familiar with the local judges. They are also keenly aware that trial court judges are subject to political pressure and held accountable to in-state plaintiffs, witness and friends that may cast votes during an election. This is in stark contrast to out-of-state defendants, who, as one judge put it, “can’t even be relied upon to send a campaign donation.”

The Constitution’s Framers’ anticipated the potential for state court bias, which was one of the reasons for the establishment of the federal court system and its jurisdiction over cases between citizens of different states. Federal courts apply uniform rules of civil procedure and evidence and are presided over by judges safe from political pressures through lifetime appointments.

A case can be heard in federal court if it involves federal law, or is based on state law and is a matter between citizens of different states. However, the formula to have a case heard in federal court is ripe for abuse. All a plaintiff’s lawyer needs to do is name a local business or individual—one that is from the same state as the plaintiff—as a defendant when the real target of the lawsuit is a deep pocket out-of-state company. In that instance, as in the scenarios above, the case frequently cannot be heard in federal court.

The Supreme Court understood this problem and created the rule of “fraudulent-joinder,” which allows a federal court to overlook the local party, for jurisdictional purposes, and keep the case in federal court. The only problem? Courts agree the standard for fraudulent joinder is incredibly difficult to meet. And once the case is back in state court, the out-of-state defendant typically cannot remove the case again—even if the local defendant is dismissed, never served, or no further action is taken to pursue the claim against that defendant.

The FJPA speaks to this problem by making modest changes to the existing system. The bill allows judges to consider more relevant information, beyond the four-corners of the complaint, in making their decisions to determine whether the case should be in state or federal court. It also provides federal judges the discretion to consider whether the plaintiff has a good faith intention of actually seeking a judgment against a local defendant and requires federal courts to consider whether it is plausible to conclude that the local defendant would be liable under the state law being considered. If it is not plausible, then the federal court should retain jurisdiction.

The passage of FJPA is necessary to close a loophole being exploited by trial lawyers and help federal courts operate more predictably and fairly. It serves to protect against bias for out-of-state defendants, while preserving the delicate balance between federal and state courts that was recognized during our nation’s founding.

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