WASHINGTON (Legal Newsline) - Legislation that aims to protect innocent small businesses from being fraudulently added to lawsuits by trial lawyers may be up for a vote this week.
According to the U.S. House of Representatives website, the Innocent Party Protection Act, or IPPA, is among a handful of legal reform bills that may be considered by the House this week. The House Committee on Rules was expected to review the bill Tuesday.
The office of House
Majority Leader Kevin McCarthy, R-Calif., did not return messages
seeking comment on when, exactly, a vote would be taken on the legislation. In
the House, majority party leadership decides which bills the House will
consider and in what order.
U.S. Rep. Ken Buck, R-Colo., reintroduced the bill, H.R. 725, in January.
Buck’s bill already has passed the House Judiciary Committee, with a vote of 17-4 on Feb. 2. A similar bill was introduced last Congress and passed the House 229-180, but there was no Senate vote.
“When our small businesses are tied up in fraudulent lawsuits, their ability to create jobs and grow the economy is significantly reduced,” Buck said in a statement following the panel’s vote last month.
“The Innocent Party Protection Act guards the integrity of our judicial system by protecting small businesses from these bad-faith lawsuits.”
Buck, a former district attorney, contends trial lawyers use what’s called “fraudulent joinder” to keep lawsuits in their preferred local courts as opposed to a federal court. To achieve this, they join innocent small businesses to a lawsuit in the local jurisdiction where they want the trial to be held.
When they’ve successfully moved the case to a state court, the trial lawyers typically end up dropping the small business from the case, but not before the small business incurs significant legal costs defending itself, he explained.
Buck argues his bill gives judges more discretion to release local defendants from a case if it’s not plausible to conclude that local state law imposes liability on the local defendant or if it’s determined that the plaintiff does not have a good-faith intention of ultimately seeking a judgment against the local defendant.
According to the Congressional Budget Office, which provides non-partisan analysis for Congress, H.R. 725 would require federal courts to deny a motion to transfer a case to state court under certain circumstances, but also would amend the procedures under which federal courts consider a motion to remove a case to state court by permitting parties to amend their pleadings.
Under current law, plaintiffs can choose to bring certain claims in federal or state court.
In some cases, plaintiffs may view state courts as more favorable because of litigation strategy or timing, whereas, defendants may view federal courts as more desirable. In such cases, courts must determine which jurisdiction is proper.
According to the CBO, H.R. 725 could have an effect on litigation strategies and lead to changes in the number of cases filed in state and federal courts.
“However, based on information from the Administrative Office of the U.S. Courts, CBO expects that any change in the number of claims filed in federal courts would not have a substantial effect on the workload of the federal courts,” it wrote in a Feb. 10 summary prepared for the judiciary committee.
Cary Silverman, a partner at Shook Hardy & Bacon LLP, testified on behalf of the U.S. Chamber’s Institute for Legal Reform on the bill’s previous version, the Fraudulent Joinder Prevention Act of 2015. ILR owns Legal Newsline.
“When a defendant believes that a plaintiff has named a local person or business solely to eliminate complete diversity and avoid federal court jurisdiction, the defendant can still remove (transfer) the case from state to federal court,” Silverman told the House Judiciary’s Subcommittee on the Constitution and Civil Justice in September 2015. “The plaintiff will then ask the federal court to remand the case to state court based on the lack of complete diversity. The out-of-state defendant will counter by raising the fraudulent joinder exception.
“Courts agree that the standard for fraudulent joinder is incredibly difficult to meet. They describe the burden placed on the party asserting fraudulent joinder as ‘a heavy one.’”
A driving factor for the legislation are cases such as Gaynor v. Marriott Hotel Servs. Inc.
In Gaynor, a person who tripped and fell on a sidewalk outside of a Marriott Residence Inn in Philadelphia sued the hotel chain and also named the hotel’s general manager at the time, William Walsh, as a defendant.
The plaintiff did not allege that Walsh personally participated in any of the negligent conduct alleged to have caused her injury -- as required to hold a corporate agent personally responsible under Pennsylvania law -- and Walsh submitted an affidavit stating he had no involvement in the inspection, repair or maintenance of the sidewalk.
The U.S. District Court for the Eastern District of Pennsylvania refused to consider the affidavit and found a “reasonable inference” of personal participation in the complaint. It also found that Marriott failed to meet the heavy “wholly insubstantial and frivolous” claim standard. It remanded the case to the Court of Common Pleas of Philadelphia County.
Walsh filed his preliminary objections when the plaintiff filed her third amended complaint in December 2013 in the common pleas court.
The judge quickly agreed and dismissed, with prejudice, Walsh as a defendant in the case.
The case against Marriott was eventually settled, in September 2015, right before trial.
From Legal Newsline: Reach Jessica Karmasek by email at email@example.com.