On September 29, 2015, the House Judiciary Committee held a hearing on a bill entitled "The Fraudulent Joinder Prevention Act of 2015." This pending legislation addresses a longstanding problem in the American judicial system: plaintiffs' joinder of a nondiverse defendant solely to defeat federal diversity jurisdiction and to keep otherwise removable cases in state court.
The bill's two-sentence addition to the general removal statute, 28 U.S.C. § 1447, addresses fraudulent joinder in several ways. First, the bill replaces the various common law fraudulent joinder tests with a uniform statutory test that requires courts to deny remand if the complaint fails to state a "plausible" claim against a nondiverse defendant. In effect, the bill directs courts to apply the Twombly/Iqbal plausibility standard to fraudulent joinder as opposed to the looser "no possibility" standard often employed by courts in fraudulent joinder cases. Second, the bill requires courts to deny remand if the plaintiff lacks a good faith intent to prosecute the action against a nondiverse defendant. This language codifies an alternative theory of fraudulent joinder that some jurisdictions have recognized. Finally, the bill clarifies that courts may consider affidavits and other evidence to assess whether the plaintiff lacks good faith.
These changes would be beneficial for out-of-state defendants who desire to litigate in federal court as well as for small businesses whom plaintiffs often name even though they have little or no desire to obtain a judgment against them. The legislation would ease defendants' very high burden to establish fraudulent joinder. It also may discourage plaintiffs from naming bogus in-state defendants in the first instance.
By enacting this bill to clarify and reinforce the fraudulent joinder doctrine, Congress could curb plaintiffs' abusive tactics in this area and increase the likelihood of removal when the real focus of plaintiffs' claims is outof-state defendants. Defendants should monitor developments regarding this bill and should consider expressing their support for this statutory solution.