House Panel Debates Tool to Keep Suits Federal

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By Martina Barash

Sept. 29 — A tool used by business defendants to keep product liability and other suits in federal court should be changed by statute because it's inconsistently applied and is tilted in favor of plaintiffs, the chairman of a House subcommittee said at a hearing Sept. 29.

But a law professor testified that the proposed legislative fix wouldn't offer the uniformity of application its proponents tout, and a leading committee Democrat said the proposal would shut the door on more injured plaintiffs.

Defendants often argue they would prefer to litigate in federal court to avoid inconsistent state-court rulings; but plaintiffs may view state courts as better positioned to enforce state law protections.

Fraudulent Joinder

Suits normally can't be removed from state court to federal court on the basis of diversity jurisdiction when a defendant resides in the same state as the plaintiff.

But an exception applies when a plaintiff improperly joins an in-state defendant to the suit. When defendants can show the plaintiff fraudulently joined such a defendant to defeat the federal court's jurisdiction, the suit can proceed in federalcourt.

The Fraudulent Joinder Prevention Act (H.R. 3624) would add two sentences to the statute governing the removal of suits from state court to federal court, said Rep. Trent Franks (R-Ariz.), chairman of the Judiciary Committee's Subcommittee on the Constitution and Civil Justice.

The bill would prescribe a single, uniform standard for the federal courts to use in determining whether the joinder is proper, Franks said: whether the plaintiff has a “plausible claim for relief” against the non-diverse defendant.

Courts would also be entitled to look at information, such as affidavits, from both plaintiffs and defendants, he said.

And the bill would add a requirement for proper joinder that plaintiffs act with a “good-faith intention” in naming in-state people or businesses as defendants, according to several speakers at the hearing.

How Big a Change?

The change is modest, Judiciary Committee Chairman Bob Goodlatte (R-Va.) said.

But Professor Lonny Hoffman of the University of Houston Law Center told the panel, “The proposed amendments would dramatically change existing law.”

Rep. John Conyers Jr. (D-Mich.) said, “As with the Class Action Fairness Act, this legislation is designed to deny access to justice.”

“It would flip on its head the century-old standard” for fraudulent joinder, he said. Conyers is the ranking member of the Judiciary Committee.

Standards

Attorney Cary Silverman, who testified before the committee on behalf of the business-friendly U.S. Chamber and the Institute for Legal Reform, said one of the problems is that “federal courts are all over the map,” pointing to six different standards for determining the viability of a plaintiff's claim. Silverman is with Shook, Hardy & Bacon LLP, a firm that has represented many companies in product liability and other cases.

The standards include “no possibility of a claim,” “wholly insubstantial” claims, an “obvious failure to state a claim,” a “reasonable basis for a claim,” a “reasonable possibility of success” on a claim, and whether a plaintiff states a claim, Silverman said.

“The standards range from nearly impossible to very difficult to meet,” he said.

But Hoffman said that to the extent there's an issue in a particular case, “it doesn't lie with fraudulent joinder or its application—it's with substantive law.”

“The cases turn on whether the law allows recovery,” he said.

And use of the “plausible claim” standard “would not achieve the uniformity” the bill's supporters desire, he said.

Small-Business Issue

In-state defendants sued by plaintiffs in suits against product makers typically include local managers, salespeople, retailers and, when the defendants are drug makers, pharmacies, Silverman said.

Elizabeth Molito, senior executive counsel at the National Federation of Independent Businesses, said plaintiffs sometimes use the local small business “as a body shield against federal jurisdiction.”

Being a defendant in such as suit can have a financial, emotional and reputational impact on a small business, and can prompt changes in how the business relates to its customers, she said.