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By: Jacob E. Daly
Generally speaking, at least in personal injury cases, plaintiffs prefer to litigate in state courts while defendants prefer to litigate in federal courts. Federal law has long permitted defendants to remove cases filed in state court to federal court based on diversity of citizenship, but only if there is complete diversity and no defendant is a citizen of the forum state. Plaintiffs often take advantage of these rules by naming an in-state person or entity as a defendant in order to defeat removal, but sometimes there is no valid claim against the in-state defendant or the plaintiff has no intention of pursuing the claim against the in-state defendant. To prevent plaintiffs from abusing the complete-diversity rule and the forum-defendant rule, the U.S. Supreme Court established the doctrine of fraudulent joinder. This doctrine allows the citizenship of the in-state defendant to be disregarded if there is no possibility of it being liable. This is a very demanding standard, and because it is so difficult to satisfy in many instances, some believe that the current law unfairly restricts defendants’ right of removal, especially because most remand decisions cannot be appealed.
Enter the Fraudulent Joinder Prevention Act of 2016. According to the House Report, the FJPA “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,” and it “will give out-of-state defendants a better opportunity to secure the neutral Federal forum that they would be entitled to if sued alone.” In addition, the FJPA “will help to protect individuals and small businesses from being dragged into court when their involvement in the controversy is peripheral at best.” To achieve these ends, the FJPA would add a new subsection (f) to 28 U.S.C. § 1447 to govern motions to remand in which (1) the plaintiff argues that the case should be remanded because of a violation of the complete-diversity rule or the forum-defendant rule; and (2) the defendant argues that the joinder of the defendant at issue is fraudulent. The joinder of a defendant would be deemed fraudulent if (1) there is actual fraud in the pleading of jurisdictional facts; (2) the claim against the defendant is not plausible under state law based on the pleadings, affidavits, and other evidence; (3) state or federal law clearly bars all claims against the defendant (e.g., because of an affirmative defense); or (4) objective evidence clearly demonstrates that the plaintiff does not have a good-faith intent to pursue the claim against the defendant. If the district court finds that the defendant was fraudulently joined, it must dismiss without prejudice the claims against the defendant and deny the motion to remand.
The House of Representatives passed the FJPA earlier this year, but the Senate has not yet acted. Given how important removal is to litigation strategy, we will continue to track the progress of this bill.
For any questions you may have, please contact Jake Daly at [email protected].