Friday, March 4, 2016

U.S. House of Representatives Make it Difficult to Fraudulently Attach Local Parties

The U.S. House of Representatives passed a bill that will make it more difficult to fraudulently attach local parties to lawsuits to avoid a lawsuit being litigated in federal court, ignoring the White House’s threat to veto the bill.
H.R. 3624, the Fraudulent Joinder Prevention Act passed, even though several Republicans joined Democrats to vote against the bill. The bill sets out a nationwide standard for fraudulent joinder, where a local party is joined to a lawsuit only too prevent the case from being removed to federal court. The bill allows for a broader range of evidence to be used by a judge when deciding whether to keep the lawsuit in federal court.
The notion of fraudulent joinder has been around since a U.S. Supreme Court decision in the early 1900’s, but it has not been clarified since then, according to the bill’s sponsors. More clarity is needed to avoid forum shopping. Forum shopping is when a plaintiff files a lawsuit in a court he believes will provide him with a more favorable outcome, even if it is not the most appropriate venue, House Judiciary Committee Chairman Bob Goodlatte, Republican from Virginia argued.
“Hardworking Americans are some of the leading victims of frivolous lawsuits and the extraordinary costs that our legal system imposes,” Goodlatte said. “Every day local business owners routinely have lawsuits filed against them based on claims they have no substantive connection to, as a means of forum shopping on the part of the lawyers filing the case.”
But Michigan Democratic Representative John Conyers, the Judiciary Committee’s Democratic ranking member, argued the bill was not intended to protect against fraud, but instead was meant to “tilt the civil justice system in favor of corporate defendants,” urging his colleagues to vote against the bill.
Specifically, the bill sets out a uniform standard for federal courts to decide when a plaintiff filing a lawsuit has targeted a local defendant only in an attempt to keep a case that was removed to federal court under diversity jurisdiction, in state court, and not because of any legitimate claim against the local party. Diversity jurisdiction covers cases between parties from different states, that exceed $75,000.
The bill allows federal courts to consider evidence beyond the case record when determining whether a case should be kept in federal court and whether the party that filed the suit has made a good faith effort to pursue state law claims against the local defendant. The bill also allows claims to be dismissed against defendants found to have been joined in bad faith.
Lawmakers rejected a proposed Democratic amendment that would have exempted cases seeking compensation resulting from the alleged bad faith of an insurer from the standard applied under the bill.
Plaintiffs forum shop for many reasons. The bill is designed to target a specific form of forum shopping which is when a plaintiff believes he is more likely to benefit from his litigation strategy in state court and makes unwarranted efforts to keep the lawsuit in state court when it should be in federal court, according to the bill’s supporters.
Cases against defendants in different states are heard in federal court, but can be kept in state court if another defendant from the same state as the plaintiff is joined to the lawsuit. This is a tactic used by unscrupulous trial attorneys, the bill’s sponsors claim.
Using tactics such as the one above can harm both the intended target of the lawsuit, who may be disadvantaged by procedural requirements, local knowledge, or other factors that do not apply in federal court, as well as fraudulently joined defendants, dragged into court despite little or no actual connection to the case.
The White House issued a policy statement threatening to veto the bill, describing it as a “solution in search of a problem” that will add “needless complexity” to civil litigation and make it harder for legitimate claims to be pursued in state courts.
“Existing federal law already provides federal courts with ample tools to address this problem, and the proponents of H.R. 3624 have offered no credible evidence that the federal courts are failing to carry out their responsibility to prevent fraudulent joinder,” the administration said.
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