[House Report 114-422]
[From the U.S. Government Publishing Office]
114th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 114-422
======================================================================
FRAUDULENT JOINDER PREVENTION ACT OF 2016
_______
February 16, 2016.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Goodlatte, from the Committee on the Judiciary, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 3624]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 3624) to amend title 28, United States Code, to
prevent fraudulent joinder, having considered the same, reports
favorably thereon with an amendment and recommends that the
bill as amended do pass.
CONTENTS
Page
The Amendment.................................................... 2
Purpose and Summary.............................................. 2
Background and Need for the Legislation.......................... 2
Hearings......................................................... 6
Committee Consideration.......................................... 6
Committee Votes.................................................. 6
Committee Oversight Findings..................................... 7
New Budget Authority and Tax Expenditures........................ 7
Congressional Budget Office Cost Estimate........................ 7
Duplication of Federal Programs.................................. 8
Disclosure of Directed Rule Makings.............................. 9
Performance Goals and Objectives................................. 9
Advisory on Earmarks............................................. 9
Section-by-Section Analysis...................................... 9
Changes in Existing Law Made by the Bill, as Reported............ 17
Dissenting Views................................................. 18
The Amendment
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Fraudulent Joinder Prevention Act of
2016''.
SEC. 2. PREVENTION OF FRAUDULENT JOINDER.
Section 1447 of title 28, United States Code, is amended by adding at
the end the following:
``(f) Fraudulent Joinder.--
``(1) This subsection shall apply to any case in which--
``(A) a civil action is removed solely on the basis
of the jurisdiction conferred by section 1332(a);
``(B) a motion to remand is made on the ground that--
``(i) one or more defendants are citizens of
the same State as one or more plaintiffs; or
``(ii) one or more defendants properly joined
and served are citizens of the State in which
the action was brought; and
``(C) the motion is opposed on the ground that the
joinder of the defendant or defendants described in
subparagraph (B) is fraudulent.
``(2) The joinder of the defendant or defendants described in
paragraph (1) (B) is fraudulent if the court finds that--
``(A) there is actual fraud in the pleading of
jurisdictional facts;
``(B) based on the complaint and the materials
submitted under paragraph (3), it is not plausible to
conclude that applicable State law would impose
liability on each defendant described in paragraph
(1)(B);
``(C) State or Federal law clearly bars all claims in
the complaint against all defendants described in
paragraph (1)(B); or
``(D) objective evidence clearly demonstrates that
there is no good faith intention to prosecute the
action against all defendants described in paragraph
(1)(B) or to seek a joint judgment.
``(3) In determining whether to grant or deny a motion under
paragraph (1)(B), the court may permit the pleadings to be
amended, and shall consider the pleadings, affidavits, and
other evidence submitted by the parties.
``(4) If the court finds fraudulent joinder under paragraph
(2), it shall dismiss without prejudice the claims against the
defendant or defendants found to have been fraudulently joined
and shall deny the motion described in paragraph (1)(B).''.
Purpose and Summary
Congress has the authority to regulate the jurisdiction of
the lower Federal courts. As an exercise of that authority, the
Fraudulent Joinder Prevention Act establishes a uniform
standard for determining whether a defendant has been
fraudulently joined to a lawsuit in order to defeat Federal
diversity jurisdiction. It also makes clear that Federal courts
may consider evidence outside the pleadings when deciding a
motion to remand a case that has been removed to Federal court,
as well as whether the plaintiff has shown a good faith intent
to pursue a judgment against a non-diverse defendant.
Background and Need for the Legislation
The current law of Federal jurisdiction allows trial
lawyers to keep their cases in state court if they sue a
defendant from another state, as long as they also sue a local
defendant in the state in which they are filing the case. Not
surprisingly, this body of law has been abused by trial lawyers
who fraudulently sue local defendants, even though the
plaintiff's claims against those defendants have little or no
support in fact or law, because suing them allows the trial
lawyers to keep their case in a preferred state court forum.
If a local defendant has no proper connection to the
controversy,\1\ joinder of that defendant is referred to as
``fraudulent joinder.'' The Supreme Court has recognized, since
the early 1900's, the fraudulent joinder doctrine as an
exception to the complete diversity rule. The doctrine allows
the district court to disregard, for jurisdictional purposes,
the citizenship of certain nondiverse defendants under certain
circumstances. The doctrine of fraudulent joinder prevents
plaintiffs' ``attempts to wrongfully deprive parties entitled
to sue in the Federal courts of the protection of their rights
in those tribunals.''\2\ However, despite its importance, the
Supreme Court has not clarified or elaborated upon the
fraudulent joinder doctrine since first recognizing it in
several cases in the early 1900's.
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\1\Chesapeake & Ohio Ry. Co. v. Cockrell, 232 U.S. 146, 152 (1914).
\2\Alabama Great Southern Railway Co. v. Thompson, 200 U.S. 206,
218 (1906).
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Without guidance from the Supreme Court or Congress on the
contours of fraudulent joinder, lower Federal courts, as
described by one commentator, have been forced to grapple
``with several issues raised by the doctrine, and in doing so,
have created conflicts among the circuits with respect to the
standard and procedure used to evaluate allegations of
fraudulent joinder.''\3\ Indeed, another commentator has
observed that, ``[p]resently, courts take divergent approaches
when analyzing claims of fraudulent joinder. Predicting what
test a court will apply to determine fraudulent joinder is
difficult, as the standards can shift, even within the same
opinion,''\4\ and that ``[r]ather than adopting one universal
approach, courts attempt to discern fraudulent joinder by
applying a collection of amorphous approaches.''\5\ According
to another commentator, the present standards are ``poorly
defined and thus subject to . . . inconsistent interpretation
and application.''\6\ However, one aspect is consistent across
different applications of the doctrine, and that is that in
every court, the burden of proving fraudulent joinder is one of
the heaviest burdens known to civil law.
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\3\E. Farish Percy, Making a Federal Case of It: Removing Civil
Cases to Federal Court Based on Fraudulent Joinder, 91 Iowa L. Rev.
189, 206-207 (2005).
\4\Paul Rosenthal, Improper Joinder: Confronting Plaintiffs'
Attempts to Destroy Federal Subject Matter Jurisdiction, 59 Am. U.L.
Rev. 49, 64 (2009).
\5\Paul Rosenthal, Improper Joinder: Confronting Plaintiffs'
Attempts to Destroy Federal Subject Matter Jurisdiction, 59 Am. U. L.
Rev. 49, 73 (2009).
\6\Peter G. Neiman, Root, Root, Root for the Home Team: Pete Rose,
Nominal Parties, and Diversity Jurisdiction, 66 N.Y.U.L. Rev. 148, 156
(1991).
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Testimony at the hearing on H.R. 3624 made clear that this
very demanding standard has substantial real-world
consequences. Plaintiffs' attorneys have a strong incentive in
lawsuits targeting out-of-state businesses to name as an
additional defendant a local individual or business that had
only a tangential or peripheral role in the case. Doing so
allows the plaintiff's lawyer to litigate the case in a state
court viewed as favorable to the plaintiff, whether due to a
perception of bias against out-of-state defendants, procedures
that favor plaintiffs, or other advantages. Current fraudulent
joinder law allows this gamesmanship even when the plaintiff's
lawyer can muster only an extremely weak or highly attenuated
claim against the local defendant.
To avoid Federal court jurisdiction, plaintiffs' lawyers
have a number of go-to local defendants that they name
depending on the type of lawsuit. In personal injury lawsuits,
such as slip-and-fall claims, against retailers, hotels, and
other national businesses, plaintiffs' lawyers include a local
store manager or employee as a defendant. In product liability
actions, plaintiffs' lawyers include in the lawsuit a local
distributor, the neighborhood shop that sold the product, or a
sales representative. In pharmaceutical litigation, plaintiff's
lawyers also name drug stores, pharmacists, or doctors as
defendants in the complaint. When an automaker is sued, the
local dealership or repair shop that serviced the vehicle may
be dragged into court. In insurance coverage disputes,
plaintiffs' lawyers name local claims adjusters even when the
adjuster's only role was to assess the damage claimed by the
insured.
In many of these situations, the local defendant, which is
often an individual or small business, is not subject to
liability under applicable state law or has a complete defense
under Federal law, or the plaintiff's lawyer has no intention
of actually pursuing a judgment against the local defendant.
But the test for fraudulent joinder is so demanding that the
district court will feel obliged to grant the plaintiff's
motion to remand.
Once the case is remanded to state court, the local
defendant will often be dropped from the case. By that time,
the harm is done. Small business owners and other individuals
who are named as a defendant for an improper reason are forced
to incur substantial financial costs in defending their
business. They must dedicate their time and energy to the case.
They must deal with the heavy emotional toll that a wrongful
suit may cause. As the great Judge Learned Hand wrote, ``I must
say that, as a litigant, I should dread a lawsuit beyond almost
anything short of sickness and death.''\7\ Public policy should
encourage plaintiffs' attorneys to prudently assess the
viability of their clients' potential claims before initiating
a lawsuit and discourage plaintiffs from taking unfounded or
improvident positions.
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\7\Judge Learned Hand, The Deficiencies of Trials to Reach the
Heart of the Matter (1926).
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H.R. 3624 fosters such a policy, and it does so in way that
is consistent with principles of federalism as they have been
understood since the Founding. The Judiciary Act of 1789 was
enacted by a Congress whose members included individuals who
served in the Constitutional Convention. That Act included a
provision (Sec. 12) authorizing removal of cases commenced in
state court if the plaintiff was a citizen of the forum state
and the defendant was a citizen of another state. Similar
provisions have been included in the Judicial Code ever since.
``Thus, from the beginning of the Nation's history, a non-
citizen [of the forum state] sued in state court by a citizen
of the forum state has had the right to remove the case to
Federal court, provided that the case satisfied an amount-in-
controversy requirement.''\8\
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\8\See Fraudulent Joinder Prevention Act: Hearing Before the
Subcomm. on the Constitution & Civil Justice of the House Judiciary
Committee, 114th Cong., 1st Sess. at 64 (2015) (statement of Arthur D.
Hellman). Professor Hellman added: ``Today the right extends to all
cases in which all plaintiffs are diverse from all defendants, provided
that the amount-in-controversy requirement is satisfied and no
defendant properly joined and served is a citizen of the forum state.''
Id. n. 6.
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Today, under section 1441(a) of the Judicial Code, a civil
action can be removed to Federal court based on diversity of
citizenship jurisdiction if the suit could have been filed in
Federal court by the plaintiff. Original jurisdiction, however,
is limited by the rule of ``complete diversity,'' that is,
Federal jurisdiction is unavailable if any defendant is a
citizen of the same state as any plaintiff. This is a court-
made rule tracing back to a decision of Chief Justice John
Marshall--a decision that he is said to have later
regretted.\9\
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\9\See Charles J. Cooper & Howard C. Nielson, Jr., Complete
Diversity and the Closing of the Federal Courts, 37 Harv. J. L. & Pub.
Pol'y 295, 324-325 (2014). The Committee notes there are additional
policy solutions that could promote access to Federal courts when
plaintiff attorneys seek to evade Federal court jurisdiction for cases
that are fundamentally interstate in nature. There has been recent
commentary from legal scholars and practitioners that the diversity
statute should be amended to effectuate the original understanding of
the Framers of the Constitution. For instance, the aforementioned
article in the Harvard Journal of Law and Public Policy entitled
``Complete Diversity and the Closing of the Federal Courts'' argues
that ``the statutory requirement of complete diversity of citizenship
is not one that the First Congress truly intended to impose on Federal
jurisdiction in the first place, and it very well may be a requirement
that Congress lacked constitutional authority to impose in any event.
Yet, the requirement has governed diversity jurisdiction throughout our
nation's history, and in recent times it has been used by plaintiffs as
an instrument to close the Federal courts to the very types of inter-
state disputes for which the Founders intended to provide a neutral
Federal forum.'' See id. at 326, available at http://www.harvard-
jlpp.com/wp-content/uploads/2014/01/37_1_295_
Cooper_Nielson.pdf.
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The fraudulent joinder doctrine was developed by courts as
a way of limiting the gamesmanship that would otherwise be
permitted by an unyielding and mechanical application of the
rule of complete diversity. But current decisional law in all
circuits makes it very difficult for defendants to counter any
but the most blatant manipulation.\10\
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\10\For example, in Simpkins v. Southern Wine & Spirits of America,
2010 WL 3155844 (N.D. Cal. Aug. 9, 2010), the district court
acknowledged that ``the result it [was] compelled to reach in light of
the very high standard for establishing fraudulent joinder may not
further the interests of judicial economy and deterrence of forum
shopping.''
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H.R. 3624 addresses the problem by codifying a somewhat
more robust version of the fraudulent joinder doctrine than the
one now applied by the lower Federal courts. In particular, the
bill expands the class of situations in which the citizenship
of a local defendant can be disregarded in determining whether
the case can be removed on the basis of diversity. The bill
adopts a uniform approach for evaluating fraudulent joinder
that will result in a more realistic examination of whether a
plaintiff has stated a viable claim against a local defendant
and intends to pursue a judgment against that individual or
entity.
The bill will give out-of-state defendants a better
opportunity to secure the neutral Federal forum that they would
be entitled to if sued alone. And it will help to protect
individuals and small businesses from being dragged into court
when their involvement in the controversy is peripheral at
best. But removal law is otherwise unchanged.
H.R. 3624 is precisely the kind of remedy urged by one of
the most respected Federal judges in the country, Judge J.
Harvie Wilkinson of the Fourth Circuit Court of Appeals.\11\ It
is a narrowly targeted legislative response to a very real
problem created by current law.
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\11\See Hearing, supra note 9, at 47 (statement of Cary Silverman)
(quoting remarks by Judge Wilkinson).
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The Framers included Federal diversity jurisdiction in the
Constitution to provide a neutral Federal forum in which
interstate controversies could be adjudicated. Accordingly, as
the Supreme Court has held, the Constitution ``presume[s] . . .
that state attachments, state prejudices, state jealousies, and
state interests, might sometimes obstruct, or control, or be
supposed to obstruct or control, the regular administration of
justice.''\12\ This legislation will help ensure that
Congress's extension of Federal diversity jurisdiction is
living up to the Framers' intentions in a manner fair to
everyone.
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\12\Martin v. Hunter's Lessee, 14 U.S. (1 Wheat.) 304, 347 (1816).
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Hearings
The Committee's Subcommittee on Constitution and Civil
Justice held 1 day of hearings on H.R. 3624, the Fraudulent
Joinder Prevention Act, on September 29, 2015. Testimony was
received from Elizabeth Milito, Senior Executive Counsel, NFIB
Small Business Legal Center; Cary Silverman, Partner, Shook,
Hardy & Bacon LLP; and Lonny Hoffman, Professor, University of
Houston Law Center.
Committee Consideration
On February 3, 2016, the Committee met in open session and
ordered the bill H.R. 3624 favorably reported with an
amendment, by a rollcall vote of 13 to 10, a quorum being
present.
Committee Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
following rollcall votes occurred during the Committee's
consideration of H.R. 3624.
1. H.R. 3624, with an amendment in the nature of a
substitute that was adopted by voice vote, was reported out.
Approved 13 to 10.
ROLLCALL NO. 1
Ayes Nays Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman................... X
Mr. Sensenbrenner, Jr. (WI)....................
Mr. Smith (TX).................................
Mr. Chabot (OH)................................ X
Mr. Issa (CA).................................. X
Mr. Forbes (VA)................................ X
Mr. King (IA).................................. X
Mr. Franks (AZ)................................ X
Mr. Gohmert (TX)............................... X
Mr. Jordan (OH)................................
Mr. Poe (TX)...................................
Mr. Chaffetz (UT).............................. X
Mr. Marino (PA)................................ X
Mr. Gowdy (SC).................................
Mr. Labrador (ID)..............................
Mr. Farenthold (TX)............................
Mr. Collins (GA)...............................
Mr. DeSantis (FL)..............................
Ms. Walters (CA)............................... X
Mr. Buck (CO).................................. X
Mr. Ratcliffe (TX).............................
Mr. Trott (MI)................................. X
Mr. Bishop (MI)................................ X
Mr. Conyers, Jr. (MI), Ranking Member.......... X
Mr. Nadler (NY)................................ X
Ms. Lofgren (CA)...............................
Ms. Jackson Lee (TX)...........................
Mr. Cohen (TN)................................. X
Mr. Johnson (GA)............................... X
Mr. Pierluisi (PR)............................. X
Ms. Chu (CA)................................... X
Mr. Deutch (FL)................................
Mr. Gutierrez (IL).............................
Ms. Bass (CA)..................................
Mr. Richmond (LA)..............................
Ms. DelBene (WA)............................... X
Mr. Jeffries (NY).............................. X
Mr. Cicilline (RI)............................. X
Mr. Peters (CA)................................ X
------------------------
Total...................................... 13 10
------------------------------------------------------------------------
Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee advises that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of rule XIII of the Rules of the House of
Representatives is inapplicable because this legislation does
not provide new budgetary authority or increased tax
expenditures.
Congressional Budget Office Cost Estimate
U.S. Congress,
Congressional Budget Office,
Washington, DC, February 16, 2016.
Hon. Bob Goodlatte, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 3624, the
``Fraudulent Joinder Prevention Act of 2016.''
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Marin
Burnett, who can be reached at 226-2860.
Sincerely,
Keith Hall,
Director.
Enclosure
cc:
Honorable John Conyers, Jr.
Ranking Member
H.R. 3624--Fraudulent Joinder Prevention Act of 2016.
As ordered reported by the House Committee on the Judiciary
on February 3, 2016.
H.R. 3624 would require Federal courts to deny a motion to
transfer a case to State court under certain circumstances. The
bill also would amend the procedures under which Federal courts
consider a motion to remove a case to State court by permitting
parties to amend their pleadings.
Under current law, plaintiffs can choose to bring certain
claims in Federal or State court. In some cases, plaintiffs may
view State courts as more favorable because of litigation
strategy or timing, whereas, defendants may view Federal courts
as more desirable. In such cases, courts must determine which
jurisdiction is proper. Under H.R. 3624, Federal courts would
have to deny a motion to transfer if they find that the
plaintiff has misrepresented a defendant's State of
citizenship, or made a claim against a specific defendant that
is not possible or plausible under State law, or is not made in
good faith.
Based on information from the Administrative Office of the
U.S. Courts, CBO expects that the increase in claims would not
have a substantial effect on the workload of the Federal
courts. Therefore, CBO estimates that the additional
discretionary costs to implement H.R. 3624 would not be
significant.
Because enacting H.R. 3624 would not affect direct spending
or revenues, pay-as-you-go procedures do not apply. CBO
estimates that enacting H.R. 3624 would not increase net direct
spending or on-budget deficits in any of the four consecutive
10-year periods beginning in 2027.
H.R. 3624 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act.
The CBO staff contact for this estimate is Marin Burnett.
The estimate was approved by H. Samuel Papenfuss, Deputy
Assistant Director for Budget Analysis.
Duplication of Federal Programs
No provision of H.R. 3624 establishes or reauthorizes a
program of the Federal Government known to be duplicative of
another Federal program, a program that was included in any
report from the Government Accountability Office to Congress
pursuant to section 21 of Public Law 111-139, or a program
related to a program identified in the most recent Catalog of
Federal Domestic Assistance.
Disclosure of Directed Rule Makings
The Committee estimates that H.R. 3624 specifically directs
to be completed no specific rule makings within the meaning of
5 U.S.C. 551.
Performance Goals and Objectives
The Committee states that pursuant to clause 3(c)(4) of
rule XIII of the Rules of the House of Representatives, H.R.
3624 is designed to prevent the fraudulent joinder of parties
to lawsuits.
Advisory on Earmarks
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 3624 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as defined in clause 9(e), 9(f), or 9(g) of Rule XXI.
Section-by-Section Analysis
The following discussion describes the bill as reported by
the Committee. Following the text of the various provisions of
the bill as reported is some commentary on those provisions.
Sec. 1. Short title. Section 1 sets forth the short title
of the bill as the ``Fraudulent Joinder Prevention Act of
2016.''
Sec. 2. Prevention of Fraudulent Joinder. Section 2
contains the following provisions:
``(f) Fraudulent joinder. (1) This subsection shall apply to
any case in which--(A) a civil action is removed solely on the
basis of the jurisdiction conferred by section 1332(a); and''
Since fraudulent joinder is only a problem in a subclass of
cases involving diversity of citizenship jurisdiction, this
provision makes clear that the bill applies only in cases that
are removed under the general diversity statute, 28 U.S.C.
1332(a), which states as follows:
(a) The district courts shall have original
jurisdiction of all civil actions where the matter in
controversy exceeds the sum or value of $75,000,
exclusive of interest and costs, and is between--(1)
citizens of different States; (2) citizens of a State
and citizens or subjects of a foreign state, except
that the district courts shall not have original
jurisdiction under this subsection of an action between
citizens of a State and citizens or subjects of a
foreign state who are lawfully admitted for permanent
residence in the United States and are domiciled in the
same State; (3) citizens of different States and in
which citizens or subjects of a foreign state are
additional parties; and (4) a foreign state, defined in
section 1603(a) of this title, as plaintiff and
citizens of a State or of different States.
``(B) a motion to remand is made on the ground that--(i) one or
more defendants are citizens of the same state as one or more
plaintiffs, or -(ii) one or more defendants properly joined and
served are citizens of the state in which the action was
brought; and''
When a case is removed under 28 U.S.C. Sec. 1332(a), there
can be many grounds for a motion to remand other than those
that implicate the fraudulent joinder doctrine. Some are
jurisdictional like the amount-in-controversy requirement;
others are procedural. If even one of those other grounds is
well-taken, the case should be remanded whether or not the
joinder is fraudulent. Paragraph (1)(B) specifies that the new
provision applies when there is a motion to remand on the
ground that the joinder of a co-defendant either destroys
complete diversity or violates the forum defendant rule of 28
U.S.C. Sec. 1441(b)(2).
Subparagraph (B)(ii) deals with situations where the
objection to removal is based on violation of the forum
defendant rule. This provision is necessary because courts
apply the fraudulent joinder doctrine when a plaintiff who is
not a citizen of the forum state names a citizen of the forum
state as a defendant, implicating 28 U.S.C. 1441(b)(2), which
prohibits removal of a diversity case ``if any of the parties
in interest properly joined and served as defendants is a
citizen of the State in which [the] action is brought.''
District courts apply the fraudulent joinder doctrine to
forum defendants in the same way that they do to defendants who
share citizenship with the plaintiff. As a district court in
Missouri observed last year, ``The standards for determining
whether a resident defendant is fraudulently joined are the
same as the standards for determining whether a diversity-
destroying defendant is fraudulently joined.''\13\
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\13\Byrd v. TVI, Inc., 2015 WL 5568454, at *2 (E.D. Mo. Sept. 21,
2015) (emphasis added). Accord, In re Ethicon, Inc., Pelvic Repair Sys.
Prods. Liab. Litig., 2013 WL 6710345, at *3 n.2 (S.D. W. Va. Dec. 19,
2013) (``In Musewicz, the issue is diversity of citizenship, while in
Hammons and Delacruz, the issue is the home state defendant rule.
However, the fraudulent joinder analysis remains the same in both
instances.''). There are some district court cases on the other side,
primarily in the Southern District of Illinois.
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Paragraph (1)(B)(ii) codifies this line of cases because it
represents sound policy. It would be very confusing to create a
situation in which courts apply two different standards to two
kinds of alleged fraudulent joinder, with a less rigorous
standard for determining whether an in-state defendant has been
fraudulently joined. This would be particularly anomalous in
view of the fact that in most cases the defendant whose joinder
is challenged is both a co-citizen of the plaintiff and a
citizen of the forum state. In most instances the plaintiff
would raise both objections; it would make no sense to apply
different standards to each of the two. Nor would it make sense
to apply different standards depending on which objection the
plaintiff chose to raise.
Paragraph (1)(B)(ii) uses the exact language of
Sec. 1441(b)(2), including the limitation to defendants
``properly joined and served.'' This avoids any implication
that the provision resolves the ongoing dispute in the lower
Federal courts over the propriety of removal before service of
process on resident defendants.\14\ However, the limitation is
not included in paragraph (1)(B)(i), because ``a defendant who
is a citizen of plaintiff's state destroys complete diversity,
regardless of whether that defendant was properly served prior
to removal.''\15\
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\14\See, e.g., Breitweiser v. Chesapeake Energy Corp., 2015 WL
6322625, at *2 (N.D. Tex. Oct. 20, 2015) (collecting cases and
referring to the practice as ``snap removal'').
\15\Jennings-Frye v. NYK Logistics Americas Inc., 2011 WL 642653,
at *3 (C.D. Cal. Feb. 1, 2011) (citing cases).
``(C) the motion is opposed on the ground that the joinder of
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the defendants described in paragraph (B) is fraudulent.''
Since fraudulent joinder is only a problem in a subclass of
cases involving diversity of citizenship jurisdiction, this
provision makes clear that the bill applies only in cases that
are removed under the general diversity statute, 28 U.S.C.
1332(a) and where the motion to remand is opposed solely on the
ground that the joinder of the defendants described by
paragraph (B) is fraudulent. This provision is necessary
because it confines the application of the bill to opposition
to remand on grounds of fraudulent joinder, which is the
subject of the bill. The bill does not apply, for example, to
the related but distinct doctrine of fraudulent misjoinder.\16\
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\16\The distinction between the two doctrines was helpfully
summarized by the court in In re Plavix Prod. Liab. & Marketing Litig.,
2014 WL 4544089, at *5 (D. N.J. Sept. 12, 2014):
Fraudulent misjoinder, otherwise known as ``procedural
misjoinder'', occurs when a plaintiff attempts to defeat
removal by misjoining the unrelated claims of non-diverse
party plaintiffs against a defendant. Geffen v. Gen. Elec.
Co., 575 F.Supp.2d 865, 869 (N.D. Ohio 2008). While
fraudulent joinder tests the viability of the claims
against the defendant, fraudulent misjoinder tests the
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procedural basis of a party's joinder.
``(2) The joinder of the defendant or defendants described in
paragraph (1)(B) is fraudulent if the court finds that--''
Paragraph (2) sets forth four situations in which a court
should find joinder to be fraudulent and should, under
paragraph (4), deny the motion to remand. With the exception of
the adoption of a uniform ``plausibility'' standard in
subparagraph (B), paragraph (2) is largely a codification of
current fraudulent joinder practice. Subparagraph (C) resolves
a conflict in the lower courts and makes clear that a plainly
meritorious affirmative defense, whether under state or Federal
law, can be the basis for finding fraudulent joinder.
H.R. 3624 does not alter the burden of proving fraudulent
joinder. As uniformly recognized by courts, the removing party
must show Federal jurisdiction, and in cases covered by H.R.
3624 this means showing that the in-state defendant has been
fraudulently joined. The removing party does this by persuading
the court that one or more of the criteria set forth in
paragraph (2) are satisfied. If the removing party establishes
this, then the district court must deny the motion to remand
described in paragraph (1)(B). If the removing party does not
carry its burden, then the motion to remand must be granted.
If, however, the removing party carries its burden, no more
is required. In particular, the removing party need not
overcome any ``presumption'' in order to carry its burden.\17\
---------------------------------------------------------------------------
\17\No inference is intended with respect to the use of a
presumption in removal cases not involving fraudulent joinder. See Dart
Cherokee Basin Operating Co. v. Owens, 135 S. Ct. 547, 554 (2014) (``We
need not here decide whether [a purported ``presumption'' against
removal] is proper in mine-run diversity cases.'').
``(A) there is actual fraud in the pleading of jurisdictional
---------------------------------------------------------------------------
facts;''
Fraudulent joinder requiring denial of a motion to remand
is defined by prong (A) as including a situation in which
actual fraud--that is, the making of false allegations--exists
in the pleading of jurisdictional facts. Courts have long
recognized actual fraud in the pleading of jurisdictional facts
as a basis for fraudulent joinder, although it is seldom
asserted.\18\ In Coffman v. Dole Fresh Fruit Co.,\19\ for
example, the court defined ``actual fraud'' as involving
``false allegations,'' such as misrepresenting or concealing
the citizenship of a party. The bill preserves this basis for
finding fraudulent joinder. The bill's language is taken
directly from a two-part test articulated by the Fifth Circuit
in the leading case of Smallwood v. Illinois Central R.R.
Co.\20\ Since then, the same two-part test has been used by
many courts to define fraudulent joinder. For example, the
Tenth Circuit said in 2013: ``To establish [fraudulent]
joinder, the removing party must demonstrate either: (1) actual
fraud in the pleading of jurisdictional facts, or (2) inability
of the plaintiff to establish a cause of action against the
non-diverse party in state court.''\21\
---------------------------------------------------------------------------
\18\See, e.g., Boyer Snap-On Tools Corp., 913 F.2d 108, 111 (3d
Cir. 1990); Green v. Amerada Hess Corp., 707 F.2d 201, 205 (5th
Cir.1983); B., Inc. v. Miller Brewing Co., 663 F.2d 545, 549 (5th
Cir.1981)).
\19\927 F.Supp.2d 427, 434-35 (E.D. Tex. 2013).
\20\385 F.3d 568, 573 (5th Cir. 2004) (en banc).
\21\Dutcher v. Matheson, 733 F.3d 980, 988 (10th Cir. 2013).
``(B) based on the complaint and the materials submitted under
paragraph (3), it is not plausible to conclude that applicable
state law would impose liability on each defendant described in
---------------------------------------------------------------------------
paragraph (1)(B); or''
Fraudulent joinder requiring denial of a motion to remand
is defined in prong (B) as including a situation in which,
based on the complaint and materials submitted under paragraph
(3), it is not plausible to conclude, as a legal matter, that
applicable state law would impose liability on each co-citizen
or in-state defendant. Prong (B) adopts a single uniform
standard in place of the many different verbal formulations
used by the courts today.\22\ In particular, prong (B)
repudiates the ``any possibility'' standard adopted by some
courts. Under that standard, ``if there is any possibility that
the state law might impose liability on a resident defendant
under the circumstances alleged in the complaint, the Federal
court cannot find that joinder of the resident defendant was
fraudulent.''\23\ Some courts have phrased this standard as
requiring remand unless there is ``no possibility'' that the
plaintiff can establish a claim against an in-state defendant
under applicable state law in state court or no possibility of
recovery by the plaintiff against an in-state defendant.\24\
---------------------------------------------------------------------------
\22\See, e.g., Paul Rosenthal, Improper Joinder: Confronting
Plaintiffs' Attempts to Destroy Federal Subject Matter Jurisdiction, 59
Am. U. L. Rev. 49, 64 (2009) (``Presently, courts take divergent
approaches when analyzing claims of fraudulent joinder. Predicting what
test a court will apply to determine fraudulent joinder is difficult,
as the standards can shift, even within the same opinion.'').
\23\Florence v. Crescent Resources, LLC, 484 F.3d 1293, 1299 (11th
Cir. 2007) (emphasis added).
\24\See, e.g., Hartley v. CSX Transp., Inc., 187 F.3d 422, 426 (4th
Cir. 1999) (finding that the ``any possibility'' or ``no possibility''
standard requires remand if there a ``glimmer of hope'' for the
plaintiff).
---------------------------------------------------------------------------
The term ``plausible'' is taken from the Supreme Court's
jurisprudence interpreting Rule 8 of the Federal Rules of Civil
Procedure, and the Court's decisions provide substantial
guidance as to the meaning of the term. Initially, in Bell
Atlantic Corp. v. Twombly,\25\ the Court distinguished between
plausible claims and claims that are speculative: ``Factual
allegations must be enough to raise a right to relief above the
speculative level.''\26\ Later, in Ashcroft v. Iqbal,\27\ the
Court distinguished between a probability requirement, which is
not part of the law, and the plausibility standard: ``The
plausibility standard is not akin to a `probability
requirement,' but it asks for more than a sheer possibility
that a defendant has acted unlawfully.'' Plausibility thus
stands between possibility and probability.
---------------------------------------------------------------------------
\25\550 U.S. 544 (2007).
\26\Id. at 555.
\27\556 U.S. 662, 678 (2009).
---------------------------------------------------------------------------
The Twombly opinion provided further guidance in the course
of explaining why the Court was adopting the plausibility
standard. Quoting from an opinion of the Seventh Circuit, the
Court said:
[T]he costs of modern Federal antitrust litigation and
the increasing caseload of the Federal courts counsel
against sending the parties into discovery when there
is no reasonable likelihood that the plaintiffs can
construct a claim from the events related in the
complaint.\28\
---------------------------------------------------------------------------
\28\Twombly, 550 U.S. at 558 (quoting Car Carriers, Inc. v. Ford
Motor Co., 745 F.2d 1101, 1106 (7th Cir. 1984)) (emphasis added).
The ``reasonable likelihood'' test, which is synonymous
with the plausibility standard, can readily be adapted to the
fraudulent joinder context.\29\ For challenges to the factual
basis of the plaintiff's claim against the co-citizen or in-
state defendant, the court would look at ``the complaint and
[other] materials'' and determine whether there is a reasonable
likelihood that the plaintiff can muster factual support for
each element of the state-law claim. This ``demands more than
an unadorned, the-defendant-unlawfully-harmed-me accusation''
or ``[t]hreadbare recitals of the elements of a cause of
action, supported by mere conclusory statements.''\30\ For
legal challenges, the court would examine the ``applicable
state law'' and determine whether there is a reasonable
likelihood that the state courts would impose liability under
the pleaded facts.
---------------------------------------------------------------------------
\29\For cases using the ``reasonable likelihood'' test in the Rule
8 context, see, e.g., 16630 Southfield Limited Partnership v. Flagstar
Bank, F.S.B., 727 F.3d 502, 504 (6th Cir. 2013) (quoting Twombly);
Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir.
2007).
\30\Iqbal, 556 U.S. at 778.
---------------------------------------------------------------------------
The ``reasonable likelihood'' standard is quite different
from the ``reasonable basis'' and ``reasonable possibility''
standards used in some fraudulent joinder cases.\31\
``Reasonable likelihood'' is another way of expressing the
concept of plausibility, and that concept is drawn from
Twombly-Iqbal jurisprudence, not fraudulent joinder cases.
---------------------------------------------------------------------------
\31\For example, some courts have used ``no reasonable basis''
interchangeably with ``no possibility of recovery.'' See, e.g., In re
1994 Exxon Chem. Fire, 558 F.3d 378, 385 (5th Cir. 2009) (stating that
in the Fifth Circuit the test for fraudulent joinder is ``whether the
defendant has demonstrated that there is no possibility of recovery by
the plaintiff against an in-state defendant, which stated differently
means that there is no reasonable basis for the district court to
predict that the plaintiff might be able to recover against an in-state
defendant'') (quoting Smallwood v. Ill. Cent. R.R. Co., 385 F.3d 568,
573 (5th Cir. 2004)).
---------------------------------------------------------------------------
Professor Martin H. Redish, one of the nation's foremost
scholars of Federal court jurisdiction, has written that ``the
Twombly-Iqbal plausibility standard represents the fairest and
most efficient resolution of the conflicting interests'' in the
context of pleading.\32\ It will similarly provide a fair and
efficient approach in the context of fraudulent joinder.
---------------------------------------------------------------------------
\32\Martin H. Redish, ``Pleading, Discovery, and the Federal Rules:
Exploring the Foundations of Modern Procedure,'' 64 Fla. L. Rev. 845,
850 (2012).
---------------------------------------------------------------------------
In most cases, there will be no dispute as to which state's
law is the ``applicable state law.'' If there is a
disagreement, the court must perform a choice of law analysis.
Under the Klaxon rule, a Federal court sitting in diversity
applies the choice-of-law rules of the state in which it
sits.\33\ The ``reasonable likelihood'' standard can be helpful
here also. If there is a reasonable likelihood that the state
court in which the Federal court sits would apply law that
would impose liability on the co-citizen or in-state defendant,
joinder is not fraudulent.
---------------------------------------------------------------------------
\33\Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487 (1941).
---------------------------------------------------------------------------
Applying the plausibility standard to fraudulent joinder
does not require the court to decide any claims on their
merits. Prong (B) uses the term ``impose liability on,'' drawn
from fraudulent joinder jurisprudence.\34\ And paragraph (4)
makes clear that claims against defendants found to have been
fraudulently joined must be dismissed without prejudice.
---------------------------------------------------------------------------
\34\See, e.g., Hornbuckle v. State Farm Lloyds, 385 F.3d 538, 542
(5th Cir. 2004).
``(C) State or Federal law clearly bars all claims in the
complaint against all defendants described in paragraph (1)(B),
---------------------------------------------------------------------------
or''
Fraudulent joinder requiring denial of a motion to remand
is defined by prong (C) as including a situation in which state
or Federal law clearly bars all claims in the complaint against
the non-diverse or in-state defendants. This would occur, for
example, through the affirmative defenses of statute of
limitations expiration, Federal preemption, or state or Federal
laws that provide immunity from suit. For example, the Fourth
Circuit in Johnson v. American Towers, LLC,\35\ held that the
non-diverse defendant was fraudulently joined because ``the
Communications Act clearly preempts the [plaintiffs'] state-law
tort claim against [that defendant] as a matter of law.'' And
in the leading case of In re Briscoe, the Third Circuit stated:
``Courts have . . . recognized that a statute of limitations
defense is properly considered in connection with a fraudulent
joinder inquiry.''\36\ However, some courts have held that
affirmative defenses cannot be considered as a basis for
finding fraudulent joinder; those decisions should no longer be
followed.\37\
---------------------------------------------------------------------------
\35\781 F.3d 693, 705-06 (4th Cir. 2015).
\36\In re Briscoe, 448 F.3d 201, 219 (3d Cir. 2006).
\37\See, e.g., City of Columbus, Ohio v. Sunstar Columbus, Inc.,
2015 WL 5775532, at *5 (S.D. Ohio Oct. 2, 2015) (``Res judicata and
collateral estoppel are affirmative defenses'' that a court may not
address when considering fraudulent joinder); Huitron v. U.S. Foods,
Inc., 2014 WL 4215656, at *5 (C.D. Cal. Aug. 25, 2014) (``Consent [is]
is an affirmative defense to defamation'' that is ``not considered'' in
the fraudulent joinder inquiry). Some courts have mistakenly applied
the ``well-pleaded complaint'' rule--a rule developed for federal-
question jurisdiction--in the context of fraudulent joinder. These
decisions too should no longer be followed.
---------------------------------------------------------------------------
Subparagraphs (B) and (C), taken together, abrogate the
``common defense'' doctrine associated with the Fifth Circuit
decision in Smallwood v. Illinois Central R. Co.\38\ Under that
doctrine, no matter how clear it is that the plaintiff's claim
against the in-state defendant is barred, the case must be
remanded to the state court if the same defense also bars the
claim against the out-of-state defendant. For reasons given by
the dissenting opinions in Smallwood, the doctrine is seriously
flawed.\39\ Mandatory language in subparagraphs (B) and (C)
make clear that in determining whether joinder is fraudulent,
the court should consider only the claims against the
defendants described in paragraph (B); the court should not
examine the case against the diverse, out-of-state defendants.
---------------------------------------------------------------------------
\38\385 F.3d 568 (5th Cir. 2004) (en banc) (9-7 decision).
\39\Other flaws are discussed in Case Note, 118 Harv. L. Rev. 1086
(2005).
``(D) objective evidence clearly demonstrates that there is no
good faith intention to prosecute the action against all
defendants described in paragraph (1)(B) or to seek a joint
---------------------------------------------------------------------------
judgment.''
Prong (C) codifies a proposition that the Supreme Court has
long recognized: that in deciding whether joinder is
fraudulent, courts may consider whether the plaintiff has a
good-faith intention of seeking a judgment against the non-
diverse defendant.\40\ Consistent with Supreme Court precedent,
courts continue to find fraudulent joinder requiring denial of
a motion to remand when objective evidence clearly demonstrates
there is no good faith intention to prosecute the action
against all defendants or seek a joint judgment against them.
As the Federal court in Faulk v. Husqvarna Consumer Outdoor
Products N.A., Inc.\41\ said, ``Where the plaintiff's
collective litigation actions, viewed objectively, clearly
demonstrate a lack of good faith intention to pursue a claim to
judgment against a non-diverse defendant, the court should
dismiss the non-diverse defendant and retain jurisdiction over
the case.'' That is what Federal courts mean when they describe
``objective evidence'' in the context of fraudulent joinder,
namely ``collective litigation actions.'' The Federal court
decision in In re Diet Drugs Prods. Liab. Litig.,\42\ also
illustrates how a court can find a lack of good faith intention
based on a careful analysis of objective evidence.
---------------------------------------------------------------------------
\40\See Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 98 (1921)
(``[T]he joinder was a sham and fraudulent--that is, . . . without any
purpose to prosecute the cause in good faith against the [defendant]''
and ``with the purpose of fraudulently defeating the [other
defendant's] right of removal.'').
\41\849 F.Supp.2d 1327, 1331 (M.D. Ala. 2012).
\42\220 F.Supp.2d 414, 420-22 (E.D. Pa. 2002).
---------------------------------------------------------------------------
The language of this provision is taken almost verbatim
from an often-cited decision of the Third Circuit. In In re
Briscoe,\43\ the court said that joinder is fraudulent if
``there is . . . no real intention in good faith to prosecute
the action against the defendant or seek a joint judgment.''
This language has been quoted in decisions throughout the
country, and prong (C) codifies it, with added language to make
clear that the court should not inquire into the subjective
intent of the plaintiff or his or her lawyer, but rather look
to objective evidence.
---------------------------------------------------------------------------
\43\448 F.3d 201, 216 (3rd Cir. 2006).
``(3) In determining whether to grant or deny a motion under
paragraph (1)(B), the court may permit the pleadings to be
amended, and shall consider the pleadings, affidavits, and
---------------------------------------------------------------------------
other evidence submitted by the parties.''
Paragraph (3) codifies the widely followed judicial
practice of considering affidavits and other materials outside
the pleadings when determining whether joinder is
fraudulent.\44\ As one court aptly put it, ``In analyzing a
claim of fraudulent joinder, a court is not held captive by the
allegations in the complaint.''\45\ For example, in Legg v.
Wyeth,\46\ the Eleventh Circuit ruled that a district court
erred in refusing to consider affidavits submitted by local
sales representatives supporting the assertion that the
representatives were fraudulently joined as defendants.
---------------------------------------------------------------------------
\44\See, e.g., Herkenhoff v. Supervalu Stores, Inc., 2014 WL
3894642, at *3 (E.D. Mo. Aug. 18, 2014) (citing authorities).
\45\Mills v. Allegiance Healthcare Corp., 178 F.Supp.2d 1, 5-6 (D.
Mass. 2001) (citing cases).
\46\428 F.3d 1317, 1320-23 (11th Cir. 2005).
---------------------------------------------------------------------------
Paragraph (3) also makes it clear that the district court
may allow the plaintiff to amend the complaint to meet
objections to remand. This provision addresses any concern that
the plaintiff, having filed a complaint in state court under
state procedural rules, may not have anticipated application of
a ``plausibility'' or other Federal standard.
The two provisions of paragraph (3) work in tandem. Thus,
in Legg v. Wyeth, supra, the court said:
The determination of whether a resident defendant has
been fraudulently joined must be based upon the
plaintiff's pleadings at the time of removal,
supplemented by any affidavits and deposition
transcripts submitted by the parties.'' The proceeding
appropriate ``for resolving a claim of fraudulent
joinder is similar to that used for ruling on a motion
for summary judgment under Fed.R.Civ.P. 56(b).\47\
---------------------------------------------------------------------------
\47\Id. at 1322-23 (internal quotations, citations, and emphasis
deleted).
H.R. 3624 codifies this approach, with one important
modification: the determination need not be based on the
plaintiff's pleadings at the time of removal; the plaintiff may
amend the pleadings to meet objections to remand. However, the
bill does not authorize any discovery beyond that which is
---------------------------------------------------------------------------
permitted by existing rules and court decisions.
``(4) If the courts finds fraudulent joinder under paragraph
(2), it shall dismiss without prejudice the claims against the
defendant or defendants found to have been fraudulently joined
and shall deny the motion described in paragraph (1)(B).''
Paragraph (4) makes clear that when a district court
determines that a defendant has been fraudulently joined, the
court should dismiss the claims against that defendant without
prejudice, thereby allowing for a refiling of those claims in
state court, to be decided on the merits. In providing that the
claims against the in-state or non-diverse defendants should be
dismissed without prejudice, paragraph (4) adopts the position
of all but one of the courts of appeals that have addressed the
issue.\48\ Only one court of appeals has ruled otherwise, in a
single sentence without explanation.\49\ That decision should
no longer be regarded as authoritative.
---------------------------------------------------------------------------
\48\See Wivell v. Wells Fargo Bank, N.A., 773 F.3d 887, 896 (8th
Cir. 2014) (citing cases from Third and Tenth Circuits).
\49\Walton v. Bayer Corp., 643 F.3d 994, 1000-01 (7th Cir. 2011).
---------------------------------------------------------------------------
With the dismissal of the fraudulently joined defendants,
the district court can and should deny the motion to remand
described in paragraph (1)(B).
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (new matter is
printed in italics and existing law in which no change is
proposed is shown in roman):
TITLE 28, UNITED STATES CODE
* * * * * * *
PART IV--JURISDICTION AND VENUE
* * * * * * *
CHAPTER 89--DISTRICT COURTS; REMOVAL OF CASES FROM STATE COURTS
* * * * * * *
Sec. 1447. Procedure after removal generally
(a) In any case removed from a State court, the district
court may issue all necessary orders and process to bring
before it all proper parties whether served by process issued
by the State court or otherwise.
(b) It may require the removing party to file with its
clerk copies of all records and proceedings in such State court
or may cause the same to be brought before it by writ of
certiorari issued to such State court.
(c) A motion to remand the case on the basis of any defect
other than lack of subject matter jurisdiction must be made
within 30 days after the filing of the notice of removal under
section 1446(a). If at any time before final judgment it
appears that the district court lacks subject matter
jurisdiction, the case shall be remanded. An order remanding
the case may require payment of just costs and any actual
expenses, including attorney fees, incurred as a result of the
removal. A certified copy of the order of remand shall be
mailed by the clerk to the clerk of the State court. The State
court may thereupon proceed with such case.
(d) An order remanding a case to the State court from which
it was removed is not reviewable on appeal or otherwise, except
that an order remanding a case to the State court from which it
was removed pursuant to section 1442 or 1443 of this title
shall be reviewable by appeal or otherwise.
(e) If after removal the plaintiff seeks to join additional
defendants whose joinder would destroy subject matter
jurisdiction, the court may deny joinder, or permit joinder and
remand the action to the State court.
(f) Fraudulent Joinder.--
(1) This subsection shall apply to any case in
which--
(A) a civil action is removed solely on the
basis of the jurisdiction conferred by section
1332(a);
(B) a motion to remand is made on the
ground that--
(i) one or more defendants are
citizens of the same State as one or
more plaintiffs; or
(ii) one or more defendants
properly joined and served are citizens
of the State in which the action was
brought; and
(C) the motion is opposed on the ground
that the joinder of the defendant or defendants
described in subparagraph (B) is fraudulent.
(2) The joinder of the defendant or defendants
described in paragraph (1) (B) is fraudulent if the
court finds that--
(A) there is actual fraud in the pleading
of jurisdictional facts;
(B) based on the complaint and the
materials submitted under paragraph (3), it is
not plausible to conclude that applicable State
law would impose liability on each defendant
described in paragraph (1)(B);
(C) State or Federal law clearly bars all
claims in the complaint against all defendants
described in paragraph (1)(B); or
(D) objective evidence clearly demonstrates
that there is no good faith intention to
prosecute the action against all defendants
described in paragraph (1)(B) or to seek a
joint judgment.
(3) In determining whether to grant or deny a
motion under paragraph (1)(B), the court may permit the
pleadings to be amended, and shall consider the
pleadings, affidavits, and other evidence submitted by
the parties.
(4) If the court finds fraudulent joinder under
paragraph (2), it shall dismiss without prejudice the
claims against the defendant or defendants found to
have been fraudulently joined and shall deny the motion
described in paragraph (1)(B).
* * * * * * *
Dissenting Views
H.R. 3624, the ``Fraudulent Joinder Prevention Act of
2016,'' is the latest attempt to tilt the civil justice playing
field in favor of corporate defendants by making it more
difficult for plaintiffs to pursue state law claims in state
courts.\1\ H.R. 3624 would dramatically alter existing law by
overriding the century-old doctrine of fraudulent joinder,
under which Federal courts must remand a diversity case to
state court if one defendant that is a citizen of the same
state as the plaintiff (hereinafter ``in-state defendant'') was
joined and where there is a reasonable basis under state law
for a claim against that defendant. The bill also effectively
repeals a statutory exception to diversity jurisdiction where a
properly-joined out-of-state defendant is a citizen of the
state in which the suit is originally brought, known as the
``local defendant'' exception. The bill would impose new
requirements on a Federal court when considering a motion to
remand in a case that was removed to Federal court solely on
the basis of diversity of citizenship and where there is both
an in-state and an out-of-state defendant present or where
there is a local defendant. Specifically, before a Federal
court can grant a motion to remand, the bill would require the
court to find, among other things, that there is no actual
fraud in the pleading of jurisdictional facts, that the
addition of the in-state or local defendant to a case is based
on a ``plausible'' state law claim against that in-state or
local defendant, and that the plaintiff has a good faith
intention to pursue the action against the in-state or local
defendant or to seek a joint judgment.
---------------------------------------------------------------------------
\1\The Committee on the Judiciary considered and passed an
amendment in the nature of a substitute to H.R. 3624 during the
February 3, 2016 markup. The description and analysis contained herein
reflect the reported version of H.R. 3624 as amended by the amendment
in the nature of a substitute.
---------------------------------------------------------------------------
H.R. 3624 threatens to delay and possibly deny justice for
plaintiffs with meritorious state law claims. First, as with
many civil justice measures that the Committee has considered,
the bill is a solution in search of a problem. Current law
already establishes a standard for courts to determine when a
party has been improperly joined, a standard that has been in
place for a century. Tellingly, the Supreme Court has not seen
fit to change this standard, and H.R. 3624's proponents offer
no objective evidence that Federal courts have routinely failed
to properly address fraudulent or otherwise improper joinder.
Moreover, a defendant may be able to move to dismiss a claim in
state court against an in-state defendant before removing the
remaining claims to Federal court.
Second, H.R. 3624 will generate tremendous uncertainty,
complexity, and additional cost to the consideration of motions
to remand, which are ordinarily common procedural matters
considered at a nascent stage of a diversity case. The bill
applies a vague and undefined ``plausibility'' standard to
state law claims. Similarly, the bill requires a court to
inquire into the ``good faith'' of the plaintiff's subjective
intentions, providing no guidance as to what constitutes ``good
faith intention.'' These various requirements would effectively
mandate a trial on the merits of a state law claim against a
state defendant at an early procedural stage of the case when a
court is ill-equipped to make such determinations and could
even involve a defendant over which a Federal court may not
have jurisdiction. In addition to adding burdens on litigants,
these new requirements will strain already-limited Federal
judicial resources.
Finally, H.R. 3624 deeply intrudes on state sovereignty by
denying state courts the ability to decide, and thereby shape,
state procedural and substantive law and by shifting that power
to Federal courts. Indeed, it is out of respect for federalism
and recognition that Federal courts are supposed to be courts
of limited jurisdiction that the Supreme Court added the
requirement of complete diversity and Congress added a minimum
amount in controversy requirement in order for a state case to
be removed to Federal court. Respect for federalism is also why
Federal courts developed the practice of construing removal
statutes narrowly, as reflected in the current fraudulent
joinder doctrine, which favors remand to state courts except in
very limited circumstances. H.R. 3624 runs counter to this
fundamental constitutional value, while also denying plaintiffs
the prerogative to choose a state forum for the adjudication of
state law claims.
Given the bill's serious flaws, a broad coalition
consisting of 21 groups, including the Alliance for Justice,
the Asbestos Disease Awareness Organization, the Center for
Justice & Democracy, the Consumer Federation of America, the
National Association of Consumer Advocates, the National
Consumer Law Center, the National Disability Rights Network,
the National Employment Lawyers Association, oppose H.R.
3624.\2\ They warn that the bill ``would upend long established
law in the area of Federal court jurisdiction, place
unreasonable burdens on the Federal judiciary, and make it more
difficult for Americans to enforce their rights in state
courts.''\3\
---------------------------------------------------------------------------
\2\Letter from 21 consumer groups to Rep. Bob Goodlatte (R-VA),
Chairman, and Rep. John Conyers, Jr.(D-MI), Ranking Member, H. Comm. on
the Judiciary (Feb. 2, 2016), on file with the Democratic Staff of the
H. Comm. on the Judiciary.
\3\Id.
---------------------------------------------------------------------------
For the foregoing reasons, and those discussed below, we
strongly oppose H.R. 3624.
BACKGROUND AND DESCRIPTION
BACKGROUND
Diversity jurisdiction refers to the jurisdiction of
Federal courts over cases where the underlying claims arise
solely under state law, but the parties are citizens of
different states. A plaintiff may file a case in Federal court
on diversity grounds or a defendant may remove a case filed in
state court to Federal court on such basis.
The diversity jurisdiction of Federal courts is rooted in
Article III, section 2 of the Constitution, which provides, in
pertinent part, that the ``judicial Power [of the United
States] shall extend to . . . Controversies . . . between
Citizens of different States. . . .''\4\ Congress's statutory
grant of diversity jurisdiction is narrower than the scope of
this constitutional provision, requiring, for example, a
minimum amount in controversy.\5\ The Supreme Court has further
limited the scope of diversity jurisdiction by requiring
``complete'' diversity--i.e., that no defendant can be a
citizen of the same state as any plaintiff.\6\
---------------------------------------------------------------------------
\4\U.S. Const. art. III, Sec. 2, cl. 1.
\5\28 U.S.C. Sec. 1332(a) (2016).
\6\Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806).
---------------------------------------------------------------------------
The Federal diversity statute is codified at 28 U.S.C.
Sec. 1332 and provides, among other things, that Federal
district courts shall have jurisdiction over all civil actions
where the amount in controversy exceeds $75,000 and is between
citizens of different states.\7\ Section 1332(c)(1) provides
that for purposes of the diversity statute and the Federal
removal statute, a corporation is deemed to be a citizen of
every state and foreign state where it is incorporated and
where it has its principal place of business.\8\ For class
actions, section 1332(d)(2) requires at least $5 million amount
in controversy and recognizes diversity where any class member
is a citizen of a different state than any defendant, among
other things, making it relatively easier to remove class
actions from state to Federal court.\9\
---------------------------------------------------------------------------
\7\28 U.S.C. Sec. 1332(a)(1) (2016).
\8\28 U.S.C. Sec. 1332(c)(1) (2016).
\9\28 U.S.C. Sec. 1332(d)(2) (2016).
---------------------------------------------------------------------------
Under 28 U.S.C. Sec. 1441(b), a defendant may seek to
remove any civil action filed in a state court to a Federal
court in the district where the state action is pending based
solely on diversity jurisdiction, but the court must disregard
the citizenship of defendants sued under fictitious names, and
a case may not be removed if any of the parties properly joined
and served as defendants is a citizen of the state in which the
action is brought (the ``local defendant'' exception).\10\
Section 1447 of title 28, United States Code, outlines
procedures for the Federal courts to follow after removal.\11\
---------------------------------------------------------------------------
\10\28 U.S.C. Sec. 1441(b) (2016).
\11\28 U.S.C. Sec. 1447 (2016).
---------------------------------------------------------------------------
The judicially-created doctrine of fraudulent joinder is an
exception to the requirement for complete diversity. Under the
doctrine, a case may be removed to Federal court even if there
is an in-state defendant in the case because the plaintiff
failed to state a case against the in-state defendant. \12\ In
seeking to remove a state case to Federal court, defendants
often assert that a plaintiff has fraudulently joined an in-
state defendant solely to defeat diversity jurisdiction.
---------------------------------------------------------------------------
\12\H.R. 3624, the Fraudulent Joinder Prevention Act of 2015:
Hearing Before the Subcomm. on the Constitution and Civil Justice of
the H. Comm. on the Judiciary, 114th Cong. 3 (2015) (written statement
of Lonny Hoffman, Law Foundation Professor of Law, University of
Houston Law Center) [hereinafter ``Hoffman Statement''].
---------------------------------------------------------------------------
The test for determining whether joinder is improper under
this doctrine is whether the defendant has demonstrated that
there is no possibility of recovery by the plaintiff against
the in-state defendant or no reasonable basis for a claim
against such defendant, an extremely difficult and often
impossible standard for a defendant to meet.\13\ If the Federal
court finds, upon removal, that the fraudulently joined party
was not properly joined to the case, it must dismiss that party
from the case.
---------------------------------------------------------------------------
\13\Id.at 3-4.
---------------------------------------------------------------------------
The Supreme Court has recognized that federalism issues are
always implicated in the removal context and, therefore, has
made clear that removal statutes should be strictly and
narrowly interpreted to resolve all doubts and ambiguities
against removal.\14\ The doctrine of fraudulent joinder
reflects this general policy.\15\
---------------------------------------------------------------------------
\14\Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09
(1941).
\15\Hoffman Statement at 5.
---------------------------------------------------------------------------
DESCRIPTION
H.R. 3624, as amended, would impose a number of new
requirements on courts considering motions to remand in certain
types of diversity cases. As a general matter, all of these
requirements will make it harder for plaintiffs to successfully
have cases solely raising state law claims remanded back to
state court.
Section 2 would add a new subsection (f) to 28 U.S.C.
Sec. 1447, the Federal statute governing remands of cases that
have been removed to Federal court from state court. New
section 1447(f)(1) specifies that the bill's requirements apply
in cases where: (1) a civil action has been removed only on the
basis of diversity jurisdiction (i.e., all plaintiffs are
citizens of different states from all defendants); (2) a motion
to remand the case back to state court is made on the ground
that at least one of the defendants is a citizen of the same
state as at least one of the plaintiffs (i.e., that there is no
complete diversity of citizenship between the parties, as
required by the diversity statute) or that one of the
defendants is a citizen of the state in which the state court
action was brought (such cases are currently an exception to
diversity jurisdiction, provided for in 28 U.S.C.
Sec. 1441(b)(2)); and (3) the motion to remand is opposed on
the ground that the joinder of an in-state or local defendant
is fraudulent.
New section 1447(f)(2) specifies the circumstances pursuant
to which a court can find that joinder was fraudulent. These
circumstances include a case where the court finds that there
is actual fraud in the pleading of jurisdictional facts or
where state or Federal law clearly bars all claims against in-
state or local defendants. A court can also find that joinder
of a party was fraudulent, based on evidence, if ``it is not
plausible'' to conclude that state law would impose liability
on an in-state or local defendant or where objective evidence
``clearly demonstrates'' that the plaintiff lacked the ``good
faith intention'' to pursue the civil action against such a
defendant or to seek a joint judgment.
The plausibility standard for determining whether remand
would be appropriate appears to import the heightened pleading
standard articulated in Ashcroft v. Iqbal\16\ into the remand
context. Additionally, the bill fails to define ``good faith
intention,'' a term that is not used in any other provision in
title 28 of the U.S. Code. Such a determination would
inherently require a subjective inquiry into the plaintiff's
intention in adding the in-state or local defendant, rather
than the objective inquiry under current law, which asks
whether the plaintiff had a reasonable basis for pursuing such
a claim.
---------------------------------------------------------------------------
\16\556 U.S. 662 (2009).
---------------------------------------------------------------------------
New section 1447(f)(3), among other things, requires a
court to consider pleadings, affidavits, and other evidence
submitted by the parties in assessing whether joinder was
fraudulent when considering a motion to remand.
CONCERNS WITH H.R. 3624
I. H.R. 3624 IS A SOLUTION IN SEARCH OF A PROBLEM
While seeking to further stack the deck against plaintiffs
by making it harder to pursue state law claims in state court,
the bill does not address any actual existing problem. H.R.
3624's proponents offer no credible evidence that Federal
courts are systematically ignoring improper joinder of in-state
defendants in diversity cases or that the fraudulent joinder
doctrine is ineffective. Ostensibly, the bill's proponents seek
a uniform fraudulent joinder standard. Nevertheless, all
articulations of the current century-old standard embody the
same principle that unless there is no reasonable basis or
possibility of recovery against an in-state defendant, the
court should allow the party to be added and remand the case to
state court. The fraudulent joinder doctrine is well-settled
and is the same standard in substance in every circuit,
whatever the semantic variances among different courts.
Moreover, proponents offer no evidence that there is any
problem with the way that Federal courts have applied the
``local defendant'' exception to diversity jurisdiction,\17\
which H.R. 3624 effectively repeals. Additionally, a defendant
might have the option of seeking to dismiss a non-meritorious
claim against an in-state defendant in state court prior to
removal to Federal court.\18\ In short, H.R. 3624 does not
address an actual problem, but would instead create problems by
upending longstanding rules and potentially wreak havoc on the
Federal courts.
---------------------------------------------------------------------------
\17\28 U.S.C. Sec. 1441(b)(2) (2016).
\18\See 28 U.S.C. Sec. 1446(b)(3) (providing that a case is
removable within 30 days after initial pleadings if case has become
removable within that time period).
---------------------------------------------------------------------------
II. H.R. 3624 WILL DRAMATICALLY INCREASE UNCERTAINTY, COMPLEXITY, AND
COSTS RELATED TO THE CONSIDERATION OF REMAND MOTIONS
A. LThe application of a vague and undefined ``plausibility'' standard
will require a determination on the merits of a state law claim
at a point in the case when a court is ill-equipped to do so.
H.R. 3624 requires that, prior to granting a motion to
remand, a court must find that it is ``plausible to conclude
that applicable State law would impose liability'' on an in-
state or local defendant. This plausibility standard is
inherently vague and the bill fails to define ``plausible'' or
provide any guidance as to how a court should apply the term.
As Professor Lonny Hoffman, the Minority witness who testified
at the Constitution Subcommittee hearing on this bill warned,
this vague term ``would force courts to struggle with
determining what `plausible' means for purposes of deciding
whether to grant remand.''\19\ Professor Hoffman further noted
that in addition to being ambiguous, the ``plausibility''
requirement is a new one, making it even more problematic by
making it hard for courts to apply the standard in a consistent
and coherent way.\20\
---------------------------------------------------------------------------
\19\Hoffman Statement at 6.
\20\Id. at 7.
---------------------------------------------------------------------------
The drafters of H.R. 3624 appear to import the Federal
plausibility pleading standard into the bill's new standards
for granting remand motions. In 2009, the U.S. Supreme Court
issued its decision in Ashcroft v. Iqbal\21\ whereby the Court
established a new standard for judging the sufficiency of facts
alleged in a civil complaint. Prior to Iqbal, the Court had
made clear that, in interpreting Federal Rule of Civil
Procedure 8,\22\ which governs pleadings in civil cases, a
civil action should not be dismissed ``unless it appears beyond
doubt that the plaintiff can prove no set of facts in support
of his claim which would entitle him to relief.''\23\ According
to commentators, the pre-Iqbal view was that Rule 8 should be
``interpreted liberally'' because ``until the plaintiff can
remain in court long enough to have an opportunity to examine
those files and to question defendants and others, the merits
of a case cannot be determined.''\24\
---------------------------------------------------------------------------
\21\556 U.S. 662 (2009).
\22\Rule 8 requires, among other things, that a complaint must
contain ``a short and plain statement of the claim showing that the
pleader is entitled to relief. . . .'' Fed. R Civ. P. 8(a)(2).
\23\Conley v. Gibson, 355 U.S. 41, 46 (1957)
\24\Herman Schwartz, The Supreme Court Slams the Door, The Nation,
Sept. 30, 2009.
---------------------------------------------------------------------------
The Court's holding in Iqbal reflected a decision to
abandon more than half a century of established civil
litigation practice. Justice Ruth Bader Ginsberg, who dissented
from the Iqbal decision, said, ``the court's majority messed up
the federal rules.''\25\ In Iqbal, the Court put forward a new
test under which Federal judges are to determine which civil
complaints will withstand a motion to dismiss. First, a
complaint must contain factual allegations, rather than legal
conclusions, and second, the factual allegations must be
plausible, with plausibility ``a context-specific task that
requires the reviewing court to draw on its judicial experience
and common sense.''\26\ Not surprisingly, Iqbal has spawned
much litigation over what constitutes a ``plausible'' claim for
purposes of pleading under Rule 8.\27\
---------------------------------------------------------------------------
\25\Adam Liptak, 9/11 Case Could Bring Broad Shift on Civil Suits,
N.Y. Times, July 21, 2009.
\26\556 U.S. at 679.
\27\The Supreme Court first established the notion of a
``plausibility'' pleading requirement in 2007 in the antitrust case of
Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). But it was in
Iqbal that the Court expanded the ``plausibility'' pleading requirement
to all civil suits. This new pleading requirement has been described as
``an open door to judicial bias'' and a ``padlock on the courthouse
door.'' Tony Mauro, Plaintiffs Groups Mount Effort to Undo Supreme
Court's `Iqbal' Ruling, The Nat'l L. J., Sept. 21, 2009. It is a
significant departure from the ``bare-bones complaint'' and
``mechanical'' approach that had been established in the previous 50
years. Adam Liptak, 9/11 Case Could Bring Broad Shift on Civil Suits,
N.Y. Times, July 21, 2009.
---------------------------------------------------------------------------
The experience of Federal courts in attempting to apply a
vague ``plausibility'' standard to pleadings foreshadows the
difficulties that would arise in applying a similar standard to
remand motions. Iqbal has spawned numerous inconsistent and
incoherent decisions attempting to define what constitutes a
``plausible'' pleading. As Professor Hoffman noted, the
``attempt to incorporate plausibility into jurisdictional law
would raise identical difficulties to those that now plague the
cacophony of Rule 12(b)(6) decisional law [addressing whether
pleadings raise ``plausible'' claims]. Yet, the proposed
amendments [in H.R. 3624] are oblivious to this danger and
silent on how district courts are to determine whether the
claims asserted against a non-diverse defendant are
plausible.''\28\ Seven years after the Supreme Court required
that a ``plausibility'' standard be applied to Federal
pleadings, Federal courts still struggle with its application,
and there is little reason to think that the same difficulties
would not arise with respect to the application of such a
standard in the context of remand motions, with tremendous time
and money spent litigating the question of plausibility.
---------------------------------------------------------------------------
\28\Id.
---------------------------------------------------------------------------
In addition to being vague and difficult to apply, H.R.
3624's plausibility standard would force courts to conduct a
mini-trial on the merits of a plaintiff's state law claims at a
jurisdictional stage of the case, in the absence of discovery
or the opportunity to fully develop the factual record and
before the court's jurisdiction (i.e., the court's power to
decide the case in the first place) is even established. These
factors will spawn a tremendous amount of litigation over the
application of what currently is a simple procedural motion,
potentially making many state law cases cost-prohibitive for
many plaintiffs to pursue.
For these reasons, current fraudulent joinder law does not
impose such a requirement for merits review and instructs
courts to avoid merits determinations. The fraudulent joinder
doctrine requires a court only to take a limited look outside
the pleadings and to avoid crossing the line from
jurisdictional inquiry to a decision on the merits. Thus, in
yet another way, H.R. 3624 would dramatically change current
law and practice.
B. LH.R. 3624's subjective ``good faith intention'' and ``actual
fraud'' standards are ambiguous, difficult to apply, and
represent a significant departure from current law.
As with its plausibility requirement, H.R. 3624's mandate
that a court find that a plaintiff had a ``good faith intention
to prosecute the action against'' an in-state or local
defendant or to seek a joint judgment is vague and undefined.
The bill provides absolutely no guidance as to the meaning of
``good faith intention'' or how such a standard is to be
applied. The term ``good faith intention'' is not used anywhere
in Title 28 of the United States Code. Moreover, like the
plausibility requirement, the requirement that a court inquire
into a plaintiff's subjective intentions is one that a court is
ill-equipped to apply at a jurisdictional stage of the case.
In addition, the ``good faith intention'' requirement is a
significant departure from current law. Under the fraudulent
joinder doctrine, the term ``fraudulent'' is a term of art that
does not require the presence of fraudulent intent on the
plaintiff's part.\29\ ``Fraudulent'' joinder typically refers
to any improper joinder, regardless of the plaintiff's intent,
and the court's inquiry is limited to whether there was some
basis in law for the plaintiff's claim against the in-state
defendant. Yet, H.R. 3624 mandates that a court determine that
a plaintiff joined an in-state or local defendant with the
``good faith intention'' of pursuing a claim against such a
defendant, changing longstanding law and introducing additional
uncertainty into the consideration of remand motions.
---------------------------------------------------------------------------
\29\Hoffman Statement at 7.
---------------------------------------------------------------------------
Similarly, H.R. 3624's requirement that a court find no
``actual fraud in the pleading of jurisdictional facts''
misdirects the court's attention toward a plaintiff's
subjective intent when determining whether to grant a remand
motion. As noted, current law requires a court only to look at
whether there was a reasonable basis for the plaintiff's claim,
regardless of the plaintiff's intent in naming a particular
defendant. The ``actual fraud'' standard, like the ``good faith
intention'' standard, is a major change to current fraudulent
joinder law, one that would be very cumbersome to implement.
As with the plausibility requirement, the ambiguity and
novelty of the ``good faith intention'' and ``actual fraud''
standards will spawn increased litigation over their meaning
and application, leading to increased uncertainty and costs for
litigants and unnecessary and harmful delay in resolving
threshold jurisdictional questions.
C. LThe bill's requirements open the door to dilatory tactics by
defendants to further delay resolution of a case, deny
plaintiffs the prerogative to choose the forum for their
claims, and strain Federal judicial resources.
Justice delayed is justice denied, and H.R. 3624's various
requirements, taken individually and collectively, will have
the effect of significantly delaying the ultimate resolution of
many plaintiffs' state law claims against in-state or local
defendants. This factor may further incentivize out-of-state
defendants to remove cases to Federal court and to prolong
proceedings on motions to remand, knowing that the burden of
sharply increased costs and length of litigation will fall
disproportionately on plaintiffs, who typically have fewer
litigation resources than the average out-of-state corporate
defendant. This potential outcome may even have the effect of
dissuading plaintiffs from filing suit in state court in the
first place.
H.R. 3624 also denies plaintiffs the prerogative to select
the forum in which their claims will be heard by making it much
easier for an out-of-state defendant to remove a case to
Federal court, leaving the choice of forum in the defendant's
hands in many more cases than under current law. Additionally,
the bill could result in a significant increase in the workload
of Federal courts, straining already limited judicial
resources. As Representative Hank Johnson (D-GA) noted during
the Committee markup, there are currently 72 Federal judicial
vacancies, so ``our [federal] trial courts, where the makers of
this bill would like to see cases go is backlogged, so you do
not get justice.''\30\
---------------------------------------------------------------------------
\30\Unofficial Tr. of Markup of H.R. 3624, the ``Fraudulent Joinder
Prevention Act of 2015,'' by the H. Comm. on the Judiciary, 114th
Cong., at 65 (Feb. 3, 2016).
---------------------------------------------------------------------------
H.R. 3624 must be seen as part of a longstanding effort to
make it easier for defendants to remove purely state law
matters to Federal court. For instance, more than a decade ago,
Congress passed the Class Action Fairness Act of 2005
(CAFA).\31\ Among other things, CAFA expanded Federal diversity
jurisdiction for class actions, including eliminating the
requirement for complete diversity in class actions, making it
easier for defendants to remove class and ``mass actions'' from
state to Federal courts. CAFA opponents--including Ranking
Member John Conyers, Jr. (D-MI) and Representative Jerrold
Nadler (D-NY)--argued that it was a blatant attempt to tilt the
playing field in favor of defendants. They opposed expansion of
Federal diversity jurisdiction as an unwarranted effort to make
it ``far more burdensome, expensive, and time-consuming for
groups of injured persons'' to use the class action mechanism
to vindicate their rights under state law.\32\ They expressed
concern that CAFA would undermine state law by divesting state
courts of the ability to interpret and develop state procedural
and substantive law and that it would increase the workload of
already over-burdened Federal courts.\33\ H.R. 3624 simply
continues to exacerbate this problem.
---------------------------------------------------------------------------
\31\P.L. 109-2, 119 Stat. 4 (Feb. 18, 2005).
\32\See H. Rep. 108-144 at 157-76, 108th Cong. (dissenting views to
Committee report accompanying H.R. 1115, Class Action Fairness Act of
2003, which the House passed by a vote of 253-170).
\33\Id. at 166-70.
---------------------------------------------------------------------------
III. H.R. 3624 OFFENDS FEDERALISM AND REPRESENTS A SERIOUS INTRUSION
INTO STATE SOVEREIGNTY
H.R. 3624 raises serious federalism concerns by denying
state courts the ability to shape state substantive and
procedural law and instead transfers that power to Federal
courts. Removal of a state court case to Federal court always
implicates federalism concerns, which is why the Federal courts
generally disfavor Federal jurisdiction and read removal
statutes narrowly. As noted earlier, this is why the fraudulent
joinder doctrine places a very high burden on a defendant
opposing a remand motion to show that there was no reasonable
basis for the addition of an in-state defendant, thus favoring
remand to state courts except under very limited circumstances.
By replacing this well-settled doctrine with sweeping and
vaguely-worded new standards for the determination of when a
state case may be remanded to state court, H.R. 3624 will deny
state courts the ability to decide and, ultimately, to shape
state law in many cases.
H.R. 3624 infringes state sovereignty by giving Federal
courts the power to shape state pleading law. This is
particularly true with respect to the application of the bill's
``plausibility'' standard. When a suit is maintained in state
court, the applicable pleading standard may not be the
plausibility pleading standard articulated in Iqbal. Yet when a
Federal court is required to review a state law claim in the
context of a remand motion, it will effectively be applying the
heightened Iqbal pleading standard to the plaintiff's claims
against an in-state or local defendant, progressively
undermining the authority of state courts to set their own
pleading standards for state court cases.
Finally, by effectively repealing the local defendant
exception to diversity jurisdiction provided for in 28 U.S.C.
Sec. 1441(b)(2), H.R. 3624 further chips away at state
sovereignty, expanding the power of Federal courts to decide
state law matters. This is particularly egregious in the case
of repealing the local defendant exception because the
principal concern justifying diversity jurisdiction--the risk
of prejudice against an out-of-state defendant by a state
court--is not present in the case of a defendant that is a
citizen of the state where the suit was filed, as Congress
clearly recognized by putting the local defendant exception
into statute.
CONCLUSION
As with so many civil justice measures that the Committee
has considered in the last three Congresses, H.R. 3624 is an
attempt to tilt the playing field in favor of corporate
wrongdoers by making it far more burdensome, expensive, and
time-consuming for injured people to obtain justice from such
wrongdoers. The bill's proponents have failed to offer any
credible evidence that there is a need to replace the well-
settled fraudulent joinder doctrine. Moreover, the bill will
impose novel, highly ambiguous, and difficult-to-apply
requirements on Federal courts considering remand motions in
certain circumstances. These new requirements will create
tremendous uncertainty and introduce unnecessary complexity
into the remand process. They will also increase the length and
cost of litigation, delaying adjudication of potentially
meritorious claims and burdening plaintiffs to the point where
future plaintiffs may even be dissuaded from filing suit.
Finally, the bill represents a serious intrusion into state
sovereignty by denying state courts the ability to shape state
law and inappropriately shifting that power to Federal courts.
For the foregoing reasons, we strongly oppose H.R. 3624 and
urge our colleagues to do the same.
Mr. Conyers, Jr.
Mr. Nadler.
Ms. Jackson Lee.
Mr. Cohen.
Mr. Johnson, Jr.
Ms. Chu.
Mr. Deutch.
Mr. Gutierrez.
Mr. Richmond.
Ms. DelBene.
Mr. Jeffries.
Mr. Cicilline.
[all]