Hearing of the House Judiciary Committee - Opening Statement of Rep. Goodlatte, Markup of H.R. 725, the "Innocent Party Protection Act"

Hearing

House Judiciary Committee Chairman Bob Goodlatte (R-Va.) delivered the following remarks during the House Judiciary Committee's markup of H.R. 725, the Innocent Party Protection Act.

Chairman Goodlatte: America's small businesses are some of the leading victims of frivolous lawsuits and the extraordinary costs that our legal system imposes. Everyday 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. These lawsuits impose a tremendous burden on small businesses and their employees. The Innocent Party Protection Act will help reduce the litigation abuse that regularly drags small businesses into court for no other reason than as part of a lawyers' forum shopping strategy.

In order to avoid the jurisdiction of the federal courts, plaintiffs' attorneys regularly join in-state defendants to the lawsuits they file in state court even if the in-state defendants' connections to the controversy are minimal or non-existent. Typically, the fraudulently joined in-state defendant is a small business or the owner or employee of a small business. Even though these in-state defendants often don't face any liability as a result of being named as a defendant, they nevertheless have to spend money to hire a lawyer and take valuable time away from running their businesses to deal with matters related to a lawsuit to which they have no real connection.

Trial lawyers join these unconnected in-state defendants to their lawsuits because the current rules for determining whether fraudulent joinder has occurred provide little disincentive to adding an in-state defendant, no matter how frivolous the claim is against that defendant.

Currently, a case can be kept in state court by simply joining as a defendant a local party that shares the same local residence as the person bringing the lawsuit. When the defendant moves to remove the case to federal court, the addition of that local defendant will generally defeat removal under a variety of approaches judges currently take to determine whether the joined defendant prevents removal to federal court. One approach judges take is to require a showing that there is "no possibility of recovery" against the local defendant before a case can be removed to federal court, or some practically equivalent standard. Others require the judge to resolve any doubts regarding removal in favor of the person bringing the lawsuit. Still others require the judge to find that the local defendant was added in bad faith before they allow the case to be removed to federal court.

The current law is so unfairly heavy-handed against defendants that federal appeals court Judge J. Harvie Wilkinson of the Fourth Circuit Court of Appeals has publicly supported Congressional action to change the standards for joinder, saying "That's exactly the kind of approach [to federal jurisdiction reform] that I like because it's targeted. And there is a problem with fraudulent jurisdiction law as it exists today, I think, and that is that you have to establish that the joinder of a non-diverse defendant is totally ridiculous and that there's no possibility of ever recovering, that it's a sham, that it's corrupt and everything, that's very hard to do. So I think making the fraudulent joinder law a little bit more realistic … appeals to me because it seems to me the kind of intermediate step that addresses some real problems … One of the problems here is that fraudulent jurisdiction, the bar, is so terribly high."

The Innocent Party Protection Act brings some balance to a federal court's ability to determine whether a case that has been removed from state to federal court should remain in federal court. It does this by allowing judges to review more evidence earlier in a case to determine whether or not a plausible case can be made for the in-state defendant's liability under state law, or that there is no good faith intent on the part of the trial lawyers to continue the case against all defendants.

I urge all my colleagues to support this legislation, and oppose all weakening amendments.

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