[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]





               FRAUDULENT JOINDER PREVENTION ACT OF 2015

=======================================================================

                                HEARING

                               BEFORE THE

                   SUBCOMMITTEE ON THE CONSTITUTION 
                           AND CIVIL JUSTICE

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                                   ON

                               H.R. 3624

                               __________

                           SEPTEMBER 29, 2015

                               __________

                           Serial No. 114-44

                               __________

         Printed for the use of the Committee on the Judiciary


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      Available via the World Wide Web: http://judiciary.house.gov
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                       COMMITTEE ON THE JUDICIARY

                   BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        JERROLD NADLER, New York
LAMAR S. SMITH, Texas                ZOE LOFGREN, California
STEVE CHABOT, Ohio                   SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California          STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia            HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa                       Georgia
TRENT FRANKS, Arizona                PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas                 JUDY CHU, California
JIM JORDAN, Ohio                     TED DEUTCH, Florida
TED POE, Texas                       LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah                 KAREN BASS, California
TOM MARINO, Pennsylvania             CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina           SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho                 HAKEEM JEFFRIES, New York
BLAKE FARENTHOLD, Texas              DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia                SCOTT PETERS, California
RON DeSANTIS, Florida
MIMI WALTERS, California
KEN BUCK, Colorado
JOHN RATCLIFFE, Texas
DAVE TROTT, Michigan
MIKE BISHOP, Michigan

           Shelley Husband, Chief of Staff & General Counsel
        Perry Apelbaum, Minority Staff Director & Chief Counsel
                                 ------                                

           Subcommittee on the Constitution and Civil Justice

                    TRENT FRANKS, Arizona, Chairman

                  RON DeSANTIS, Florida, Vice-Chairman

STEVE KING, Iowa                     STEVE COHEN, Tennessee
LOUIE GOHMERT, Texas                 JERROLD NADLER, New York
JIM JORDAN, Ohio                     TED DEUTCH, Florida

                     Paul B. Taylor, Chief Counsel
                    James J. Park, Minority Counsel




















                            C O N T E N T S

                              ----------                              

                           SEPTEMBER 29, 2015

                                                                   Page

                                THE BILL

H.R. 3624, the ``Fraudulent Joinder Prevention Act of 2015''.....     3

                           OPENING STATEMENTS

The Honorable Trent Franks, a Representative in Congress from the 
  State of Arizona, and Chairman, Subcommittee on the 
  Constitution and Civil Justice.................................     1
The Honorable Steve Cohen, a Representative in Congress from the 
  State of Tennessee, and Ranking Member, Subcommittee on the 
  Constitution and Civil Justice.................................     5
The Honorable Bob Goodlatte, a Representative in Congress from 
  the State of Virginia, and Chairman, Committee on the Judiciary     6
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, and Ranking Member, Committee on 
  the Judiciary..................................................     8

                               WITNESSES

Elizabeth Milito, Senior Executive Counsel, NFIB Small Business 
  Legal Center
  Oral Testimony.................................................    10
  Prepared Statement.............................................    12
Lonny Hoffman, Professor, University of Houston Law Center
  Oral Testimony.................................................    19
  Prepared Statement.............................................    21
Cary Silverman, Partner, Shook Hardy & Bacon L.L.P
  Oral Testimony.................................................    34
  Prepared Statement.............................................    36

                                APPENDIX
               Material Submitted for the Hearing Record

Response to Questions for the Record from Cary Silverman, 
  Partner, Shook Hardy & Bacon L.L.P.............................    56
Prepared Statement of Arthur D. Hellman, Professor, Sally Ann 
  Semenko Endowed Chair, University of Pittsburgh School of Law..    62

 
                   FRAUDULENT JOINDER PREVENTION ACT 
                                OF 2015

                              ----------                              


                      TUESDAY, SEPTEMBER 29, 2015

                        House of Representatives

                   Subcommittee on the Constitution 
                           and Civil Justice

                       Committee on the Judiciary

                            Washington, DC.

    The Subcommittee met, pursuant to call, at 11:35 a.m., in 
room 2237, Rayburn Office Building, the Honorable Trent Franks 
(Chairman of the Subcommittee) presiding.
    Present: Representatives Franks, Goodlatte, King, Cohen, 
and Conyers.
    Staff present: (Majority) Zachary Somers, Counsel; Tricia 
White, Clerk; (Minority) James Park, Minority Counsel; and 
Veronica Eligan, Professional Staff Member.
    Mr. Franks. The Subcommittee on the Constitution and Civil 
Justice will come to order. Without objection, the Chair is 
authorized to declare recesses of the Committee at any time.
    We call today's hearing in order to consider the Fraudulent 
Joinder Prevention Act. This is legislation aimed at addressing 
an obstacle to the removal of civil litigation from state court 
to Federal court in diversity jurisdiction cases.
    I want to thank Representative Ken Buck, a Member of the 
Judiciary Committee, for introducing this legislation.
    Federal diversity jurisdiction exists when the plaintiff 
and the defendants to a lawsuit are from different states. 
According to the Supreme Court, ``The Constitution has 
presumed, whether rightly or wrongly, that state attachments, 
state prejudices, state jealousies, and state interests might 
sometimes obstruct or control the regular administration of 
justice.'' Thus, the Constitution's framers created diversity 
jurisdiction to preserve national harmony and promote 
interstate commerce by ensuring that a lawsuit involving 
citizens of different states could be litigated in a presumably 
neutral Federal court rather than in a possibly biased state 
court.
    In general, under Federal diversity jurisdiction, if a 
plaintiff from one state files a lawsuit against a defendant 
from another state in state court, the defendant may have that 
litigation moved from state court to Federal court. However, 
for more than a century, plaintiffs have attempted to defeat 
removal in these cases by joining an in-state defendant with no 
real connection to the underlying claim.
    In response to these attempts to wrongfully deprive 
defendants of their right to have their cases heard in Federal 
court, the Supreme Court developed the fraudulent joinder 
doctrine. But the Supreme Court has not clarified or elaborated 
on the doctrine since the early 1900's, nor has Congress 
stepped in to statutorily fill the void. This lack of guidance 
from the Supreme Court and Congress has led to poorly defined 
standards and inconsistent interpretations and application of 
the fraudulent joinder doctrine in the lower Federal courts.
    For instance, some Federal judges require a showing that 
there is no possibility of recovery against a local defendant 
in order to keep the case in a Federal court. Others require an 
even more difficult showing that the claim be wholly 
insubstantial or frivolous. Still other justices or judges 
insist that a defendant demonstrate that there is an obvious 
failure to a state claim against the defendant.
    All of these approaches and the others that are used are 
difficult to meet. In fact, current law is so heavily weighted 
against defendants that Federal Appeals Judge J. Harvie 
Wilkinson recently observed in support of congressional action 
to change the standards for joinder that, ``There is a problem 
with fraudulent jurisdiction law as it exists today, and that 
is that you have to establish that the joinder of a non-diverse 
defendant is totally ridiculous, and that there is no 
possibility of ever recovering. That is a sham. That is 
corrupt. That is very hard to do. The problem is the bar is so 
terribly high.''
    To make the law more fair, the Fraudulent Joinder 
Prevention Act makes a modest change to existing law to ensure 
that defendants who are entitled to a Federal forum do not have 
their cases sent back to state court based on unreasonable or 
inconsistent standards. To accomplish this, the bill simply 
adds two additional sentences to the statute governing removal. 
Embodied in these sentences are two basic concepts: first, that 
Federal courts should evaluate fraudulent joinder under one 
uniform standard, namely whether the plaintiff states a 
``plausible claim for relief'' against the non-diverse 
defendant; and second, that the Federal courts are permitted to 
look at evidence submitted by both the plaintiff and the 
defendants in making this determination.
    This legislation will improve the administration of justice 
in the Federal courts, and it will especially help small local 
businesses and their owners and employees who are currently 
unfairly pooled into costly lawsuits by trial lawyers simply to 
keep cases in state court.
    Small businesses are already over-burdened by litigation as 
it is. They should not be further weighed down by cases to 
which they have no real connection simply so that an 
enterprising attorney can game the system.
    I look forward to the witnesses' testimony and any comments 
and suggestions they may have with regard to this legislation.
    Now I would recognize the Ranking Member for his statement.
    [The bill, H.R. 3624, follows:]
   
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                               __________
    Mr. Cohen. Thank you, Mr. Chair.
    Well, you can't claim that this Committee just deals with 
political issues. We don't get into all those meaty things like 
Planned Parenthood. We take those straight to the floor. We 
deal with these issues that really can bore the viewing 
audience to death.
    Thank you.
    H.R. 3624, the Fraudulent Joinder Prevention Act of 2015, 
not even an acronym, could more properly be named the Corporate 
Defendant Forum Shopping Act, because it does that as well. It 
facilitates that in substance.
    If enacted, this bill could deny plaintiffs the right to 
pursue state law claims in state court and instead allow 
defendants to choose where the plaintiffs' claims are heard. 
Plaintiff would not have the option of choosing their court. 
The bill upends a century--a century; that is a long time--of 
legal doctrine governing how Federal court decides whether to 
remand a case that was removed by an out-of-state defendant on 
diversity grounds and where there is at least one in-state 
defendant in the case.
    Specifically, this bill would require a court to deny a 
motion to remand where the plaintiff cannot show that the 
addition of an in-state defendant to a case is based on a 
plausible state law claim against the in-state defendant or 
that the plaintiff has a good-faith intention to pursue such a 
claim against the in-state defendant or to seek a joint 
judgment. The bill also allows a court to consider affidavits 
or other evidence in making its determination. The bill raises 
a number of concerns.
    Firstly, there is no evidence that Federal courts have 
failed to properly address fraudulent joinders. For 100 years, 
the Federal courts have applied the doctrine of fraudulent 
joinder, which is an exception to the requirement to complete 
diversity. Under this doctrine, a Federal court may retain 
jurisdiction based on diversity of citizenship, even when a 
complaint names an in-state defendant if an out-of-state 
defendant shows that there is no possibility that the plaintiff 
would be able to establish a state law claim against the in-
state defendant in state court.
    The party trying to remove the case to Federal court, the 
out-of-state defendant, has the burden of proving that Federal 
diversity jurisdiction is proper. While the standard has been 
articulated differently by different courts, they all embody 
the same basic principle, that as long as there is any basis 
for pursuing a claim against an in-state defendant, the Federal 
court must remand the case to state court, kind of an 
interesting thing. Normally, some folks on this Committee think 
that the states should come first, that states' rights--that 
things are ruled better at the local level and the state level. 
Not in this particular situation, because business is involved, 
and they prefer that the businesses have the option of getting 
it out of state court and into Federal court.
    This standard is in keeping with the longstanding judicial 
recognition that constitutionally, Federal courts are courts of 
limited jurisdiction and should therefore construe removal 
statutes strictly and narrowly, something you would think would 
be liked by this Committee.
    Tellingly, the Supreme Court has not appeared to consider 
it a problem that different courts articulate the doctrine of 
fraudulent joinder differently, nor has it found it a problem 
with the way the courts have been applying the doctrine to 
address improper joinder. In short, after a century of 
application, the court has not deemed it necessary to alter the 
way the Federal courts deal with fraudulent joinder.
    Secondly, by requiring litigation on the merits at a 
nascent stage of litigation, the bill will increase the 
complexity and costs surrounding remand motions, dissuading 
plaintiffs from pursuing meritorious claims, and add cost to 
our Federal budget, something that our children and 
grandchildren will have to pay for. That is a quote.
    H.R. 3624 shifts the burden of proof from defendants to 
plaintiffs in removal cases based on diversity grounds. It also 
requires the application of vague and undefined standards, 
which invites further litigation over the meaning and scope of 
those standards. For instance, what constitutes a plausible 
claim is not simply self-evident. We know this because courts 
have been struggling to apply the plausibility standard with 
respect to pleadings in Federal courts after the Ashcroft v. 
Iqbal decision applied such a standard to pleadings under the 
Federal Rules of Procedure 8. That decision has produced a 
substantial amount of litigation and has led to increased 
uncertainty, complexity, and litigation costs.
    There is no reason to think the same thing will not happen 
once such a plausibility standard is imported into the remand 
context, as H.R. 3624 proposes to do. Similarly, the bill's 
required inquiry into a plaintiff's subjective good-faith 
intention will result in increased litigation as the bill does 
not define the phrase ``good faith intention,'' and is not used 
anywhere in Title 28. The increase in cost and complexity would 
not only drain limited resources of plaintiffs but would also 
burden already strained Federal judicial resources.
    Finally, this bill offends federalism by denying state 
courts the ability to shape state law. State courts are the 
final authority on state procedural and substance law, and 
state law claims ought to be left to state courts except in 
narrow circumstances. This bill would further deny state courts 
that authority by making it easier for Federal courts to retain 
jurisdiction where only state law claims are at issue.
    H.R. 3624 represents just the latest in a long line of 
attempts to deny plaintiffs access to state courts and to 
extend inappropriately the reach of Federal courts into state 
law matters. But it is good that we are not--what is it?--the 
hobgoblin of simple minds? Consistency. We are not in those 
terms. We get out of that, so that is a wonderful thing. For 
those reasons, I oppose the bill.
    Mr. Franks. And I thank the gentleman.
    And I now recognize the distinguished Chairman of the full 
Committee, Mr. Goodlatte, for 5 minutes.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    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 have 
lawsuits filed against them based on claims for which they are 
ultimately not responsible. These lawsuits impose a tremendous 
burden on small businesses and on our economy as a whole, as 
America's small businesses are major drivers of the U.S. 
economy.
    Just 2 weeks ago the House passed the Lawsuit Abuse 
Reduction Act to help rein in frivolous lawsuits. Enactment of 
that legislation will help eliminate some of the abuses that 
exist in the Federal legal system that harm small businesses in 
particular.
    The bill we are examining today, the Fraudulent Joinder 
Prevention Act, will also help address a litigation abuse that 
regularly drags small businesses into court to answer for 
claims to which they have no real connection.
    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. Ultimately, these in-state defendants may not face 
any liability as a result of being named as a defendant, but 
that does not prevent them from having to spend money to hire a 
lawyer and taking valuable time away from running their 
businesses to deal with matters related to a lawsuit.
    Plaintiffs' attorneys join these basically 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. In fact, the 
system actually encourages plaintiffs to fight to get their 
cases sent back to state court once they are removed to Federal 
court by providing that plaintiffs may have their attorneys' 
fees reimbursed if a case is remanded back to state court.
    The Fraudulent Joinder Prevention Act attempts to bring 
some balance to a Federal court's determination over whether a 
case that has been removed from state to Federal court should 
remain in Federal court. It does this by making a modest change 
to the statute that governs the fraudulent joinder 
determination. The change is modest because it merely requires 
Federal judges to apply concepts to the fraudulent joinder 
determination that they already regularly use in other areas of 
the law.
    The bill provides that the standard judges are to use in 
determining whether a defendant has been fraudulently joined is 
whether the plaintiff states a plausible claim for relief 
against an in-state defendant. This plausible claim for relief 
standard is already used by Federal judges in determining 
whether to grant motions to dismiss.
    Additionally, the bill allows judges to determine whether 
the claims against an in-state defendant were made in good 
faith. Again, judges are already asked in other areas of the 
law to examine a party's good or bad faith.
    Nothing in this bill forces a judge to decide issues in 
favor of a defendant or creates a new standard that Federal 
judges and litigants are not already familiar with.
    I look forward to the witnesses' testimony on this 
commonsense legislative proposal and any suggestions they may 
have for ways this legislation can be improved.
    Finally, I want to thank Representative Buck for 
introducing this bill to help level the playing field for 
defendants when questions regarding fraudulent joinder arise.
    And I yield back.
    Mr. Franks. And I thank the gentleman.
    I would now yield to the Ranking Member of the Committee, 
Mr. Conyers from Michigan.
    Mr. Conyers. I want to thank the Chairman and welcome all 
the witnesses.
    As with the Class Action Fairness Act, once again we 
consider legislation really designed to deny access to justice 
for potentially millions of plaintiffs seeking relief under 
state law in state court.
    This so-called Fraudulent Joinder Prevention Act would flip 
on its head the century-old standard governing when a Federal 
court must remand cases alleging only state law claims back to 
state court where there is at least one in-state defendant in 
the case. Specifically, we amend in this bill Section 1447(c) 
of Title 28 to require a Federal court, when considering a 
motion for remand in a case that was removed from a state court 
to Federal court on diversity grounds, where there is also an 
in-state defendant, to deny such remand motion if the plaintiff 
has not demonstrated that there is a ``plausible claim for 
relief against'' an in-state defendant or that the plaintiff 
had a good-faith intention to prosecute the action against each 
in-state defendant, or to seek a joint judgment.
    There are three problems raised with the measure before us.
    The first, of course, is that the bill attempts to solve a 
non-existent problem. The doctrine of fraudulent joinder which 
Federal courts have been applying, as has been already 
remarked, for more than a century governs when a Federal court 
may ignore, for the purpose of retaining jurisdiction, an in-
state defendant in a state law case that has been removed to 
Federal court solely on diversity grounds.
    The bill's proponents claim that this legislation is 
necessary because the fraudulent joinder doctrine has been 
articulated differently by different courts, yet these are 
basically distinctions without a difference. All courts must 
consider whether there is some basis in law and fact for a 
plaintiff to pursue a claim against an in-state defendant. If 
there is, then the Federal court must remand the case back to 
state court.
    If uniformity were truly the concern of the bill's 
proponents, the legislation would simply pick one of the 
existing articulations of the fraudulent joinder standard and 
codify it into law. Instead, it is clear from the bill's 
radical changes to longstanding jurisdictional practice that 
the true purpose of this measure is simply to stifle the 
ability of plaintiffs to have their choice of forum, and 
possibly even their day in court.
    In addition, the bill would sharply increase the cost of 
litigation for plaintiffs and increase the resource burdens on 
Federal courts. The bill requires a court to engage in a 
substantial merits inquiry at a case's initial procedural stage 
without the benefit of any substantial discovery. This 
requirement would undoubtedly generate more uncertainty, more 
costs, more unnecessary complexity at such an early stage of 
the litigation.
    Moreover, the bill shifts the burden of proof on a motion 
to remand from the defendant to the plaintiff, even though it 
is the defendant that is seeking the remand.
    The bill also applies a vague, open-ended plausible claim 
standard. What constitutes a plausible claim is an open 
question in the remand context and would necessarily require 
substantial litigation and the corresponding development of a 
substantial body of case law.
    Similarly, the bill invites substantial litigation by 
requiring a showing of the plaintiff's subjective good-faith 
intention to pursue a claim against an in-state defendant. Like 
``plausibility,'' the bill does not define the term ``good-
faith intention,'' and such a phrase is not used anywhere else 
in Title 28, where the bill's amendments would be codified.
    All of this will have the cumulative effect of sharply 
increasing litigation costs for plaintiffs, possibly to the 
point where those with meritorious claims could be dissuaded 
from even filing suit, and it will strain the already limited 
resources of the Federal judiciary.
    And finally, the amendments made by this bill would raise 
fundamental federalism concerns. Removal of a state court case 
to Federal court always implicates federalism concerns. That is 
why the Federal courts generally disfavor Federal jurisdiction 
and read removal statutes narrowly. By applying a sweeping and 
vaguely worded new standard to the determination of when a 
state court may be removed to Federal court, the bill will deny 
state courts the ability to decide and ultimately to shape 
state law.
    As with many similar measures, this bill violates our 
fundamental constitutional structure by intruding deeply into 
state sovereignty. So I accordingly look forward to hearing the 
views of our witnesses today with respect to my concerns, and I 
thank the Chair.
    Mr. Franks. And I thank the gentleman.
    Without further objection, other Members' opening 
statements will be made part of the record.
    I will now introduce our witnesses.
    Our first witness is Elizabeth Milito. Ms. Milito served as 
Senior Executive Counsel with the National Federation of 
Independent Business Small Business Legal Center, a position 
that she has held since March of 2004. She is responsible for 
managing cases and legal work for the Small Business Legal 
Center and has testified before Congress on numerous occasions 
on the impact regulations in the civil justice system have on 
small business. Ms. Milito previously worked as a trial 
attorney and has an extensive background in tort, medical 
malpractice, employment, and labor law.
    Welcome.
    Our second witness is Lonny Hoffman. Professor Hoffman is 
the Associate Dean and Law Foundation Professor at the 
University of Houston Law Center. He is a specialist on 
procedural law in Federal courts and state courts and has 
authored numerous Law Review articles. Professor Hoffman has 
testified before Congress and lectured around the world on 
civil litigation subjects. He is a member of the Supreme Court 
of Texas' Rules Advisory Committee and Editor-in-Chief of The 
Advocate, a quarterly journal published by the Litigation 
Section of the State Bar of Texas.
    Welcome, sir.
    Our final witness is Cary Silverman, a partner at the law 
firm Shook, Hardy & Bacon in Washington, D.C. Mr. Silverman's 
public policy work focuses on civil justice reform, and he has 
published over 25 articles in prominent law journals. He 
regularly authors amicus briefs on behalf of national business, 
trade, and other advocacy groups in cases before the U.S. 
Supreme Court and state high courts. Mr. Silverman has 
testified before Congress and most state legislatures, and is 
an adjunct professor at the George Washington University Law 
School.
    Now, each of the witnesses' written statements will be 
entered into the record in its entirety, and I would ask that 
each of you summarize your testimony in 5 minutes or less. To 
help you stay within that time, there is a timing light in 
front of you. The light will switch from green to yellow, 
indicating that you have 1 minute to conclude your testimony. 
When the light turns red, it indicates that the witness' 5 
minutes has expired.
    So before I recognize the witnesses, it is the tradition of 
the Subcommittee that they be sworn. So, if you would please 
stand and be sworn?
    Do you solemnly swear that the testimony that you are about 
to give will be the truth, the whole truth, and nothing but the 
truth, so help you God?
    Please be seated.
    Let the record reflect that the witnesses answered in the 
affirmative.
    I now recognize our first witness, Ms. Milito, and if you 
would make sure that microphone is turned on. Thank you, ma'am.

 TESTIMONY OF ELIZABETH MILITO, SENIOR EXECUTIVE COUNSEL, NFIB 
                  SMALL BUSINESS LEGAL CENTER

    Ms. Milito. Thank you, Chairman Franks, Ranking Member 
Cohen, and distinguished Committee Members. I am happy to 
appear here today on behalf of the National Federation of 
Independent Business, which represents more small businesses 
than any other organization. Because litigation entails angst 
and great expense for small businesses, NFIB is pleased to see 
this Committee's attention focused on the issue of fraudulent 
joinder.
    Fraudulent joinder remains a source of confusion and 
unnecessary litigation in our courts, and impacts far too many 
innocent small businesses. The situation unfolds as follows. 
Plaintiff's attorneys will name a small business such as a 
local pharmacy or insurance agent with little connection to the 
complaint in order to deny the Federal courts of jurisdiction. 
In many instances, the plaintiff has no intention of imposing 
liability on the fraudulently joined party.
    With courts divided over the standard for finding that a 
defendant is fraudulently joined, the small business is forced 
to engage in protracted litigation when all they want is to be 
dismissed from the case entirely. Public policy should 
encourage plaintiffs' attorneys to prudently assess the 
viability of their clients' potential claims before initiating 
a lawsuit and discourage plaintiffs from taking unfounded or 
improvidently cavalier positions. Along these lines, we should 
aim to create strong disincentives against naming a small 
business as a defendant in a case where the claim against the 
business is particularly weak.
    This is especially so where the plaintiff's apparent motive 
in naming the defendant is to use the defendant as a body 
shield against invocation of Federal jurisdiction, or what is 
also referred to as fraudulent joinder.
    But unfortunately, as the law currently stands, plaintiffs 
actually have a perverse incentive to bring weak or attenuated 
claims against small business defendants for the sake of 
defeating Federal jurisdiction. Given the tremendous costs of 
litigation and the inevitable risk that a plaintiff might 
prevail if the case goes before a sympathetic jury or an errant 
judge, we must also address the reality that small business 
defendants are rationally discouraged from vindicating their 
rights, and so long as this remains true, plaintiffs' attorneys 
will inevitably waive the benefit of pursuing a questionable 
defendant as outweighing the risks.
    Accordingly, NFIB supports the Fraudulent Joinder 
Prevention Act, which would provide greater clarity in the law 
on removal, and reduce litigation. It would accomplish these 
things by requiring that a Federal court considering a motion 
for remand determine whether the complaint states a plausible 
claim for relief against the non-diverse defendant. This 
language would eliminate the current legal standards that 
strongly favor plaintiffs' motions for remand. The court would 
also consider whether the plaintiff has a good-faith intention 
to prosecute the action against the non-diverse defendant or to 
seek judgment against the non-diverse defendant.
    This bill is straightforward and offers a simple and 
commonsense fix for a problem that has generated much confusion 
and unnecessary litigation in Federal courts at the expense of 
small businesses.
    On behalf of America's small business owners, I thank this 
Subcommittee for holding this hearing and inviting me to 
testify. I am happy to answer your questions.
    [The prepared statement of Ms. Milito follows:]
   
    
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                               __________
    Mr. Franks. Thank you, Ms. Milito.
    And I would now recognize our second witness, Mr. Hoffman.
    If you would make sure that microphone is on.

            TESTIMONY OF LONNY HOFFMAN, PROFESSOR, 
                UNIVERSITY OF HOUSTON LAW CENTER

    Mr. Hoffman. Chairman Franks and Ranking Member Cohen, 
thank you for inviting me to testify today. I have three brief 
but important points I want to make that I hope everyone on the 
Committee will consider as they are considering this 
legislation. I hope in particular proponents of the bill will 
consider them seriously.
    First, as Representatives Cohen and Conyers have already 
pointed out, there is no need for this bill. Fraudulent joinder 
law is well settled. But I want to expand on that point a bit 
further.
    Under fraudulent joinder law today, while it is certainly 
true that the defendant has a heavy burden to meet to show that 
fraudulent joinder exists, which is as it should be, that 
burden is hardly insurmountable. For every story of a non-
diverse defendant found to have been properly joined, I can 
cite an equal number where the court found the plaintiff's 
claim had no reasonable basis under the substantive law. This 
makes a couple of things clear, and the first I think is that 
we should be wary against legislating by anecdote.
    It also suggests that for those who support the bill, their 
real beef isn't with fraudulent joinder law or with the way 
that judges apply it. Instead, it is with the substantive law 
itself that this Congress and state legislatures have enacted 
to protect citizens. Courts find fraudulent joinder when the 
substantive law allows recovery, they find joinder proper, and 
they find fraudulent joinder when it does not. There is no need 
to change fraudulent joinder law. If opponents are unhappy with 
the substantive law, then that is what they need to be talking 
about.
    Of course, they are not because they know there is not a 
lot of political support for taking away substantive rights. So 
it turns out to be much easier to talk about technical 
procedural reform.
    Which brings me to the second point I want to make. 
Whatever one thinks about current law, this bill would not 
achieve the uniformity that is supposedly desired. One problem 
is, as noted earlier, the bill would force courts to determine 
what the word ``plausible'' means. This is very hard to do, and 
we already know this. We don't have to guess because of the 
Supreme Court's plausibility cases, the Bell Atlantic v. 
Twombly case in 2007, and the Ashcroft v. Iqbal case in 2009. 
These cases have spawned decisions from the lower courts almost 
too numerous to count. Do you know that last week the count on 
Iqbal was that there were 85,000 cases that it cited? It had 
become the number-one most cited case in the history of all 
cases being cited, and that is in less than 6 years. The 
record-holder that it replaced had held that position, but it 
took it 25 years to get there, the Anderson v. Liberty Lobby 
case. And this deluge of cases applying the Court's ambiguous 
plausibility test hasn't brought uniformity to pleading law. 
Instead, what counts as plausible varies, often greatly, from 
circuit to circuit.
    In addition to having to figure out what ``plausible'' 
means, courts would also have to determine what the plaintiff's 
good faith was. But how in the world is a district judge to 
figure out the plaintiff's good or bad faith only 30 days after 
a lawsuit has been filed, which is when the remand hearing 
typically takes place?
    Like plausibility, this good-faith requirement is certain 
to lead to years of litigation, which is only going to make 
litigation more expensive, as Representative Cohen has already 
pointed out, for everyone, though I would highlight in 
particular for plaintiffs.
    Which brings me to the third and final point I want to 
make. Though the bill is only a page-and-a-half long, there 
should be no misunderstanding that the proposed amendments 
would dramatically alter existing law. All other subject-matter 
jurisdiction doctrines that exist today, all others, recognize 
that any merits inquiry at the jurisdictional stage should be 
limited.
    For example, to show that a plaintiff hasn't met the 
minimum amount in controversy, the defendant bears a heavy 
burden of showing ``to a legal certainty'' that the claim is 
really for less than $75,000. This same approach is taken with 
regard to Federal question jurisdiction. Only a showing by the 
defendant that the plaintiff's claim is ``wholly insubstantial 
and frivolous'' will dismissal be warranted. Thus, 
jurisdictional law consistently recognizes that judges are ill-
equipped to conduct the kind of exhaustive merits inquiries at 
the very outset of a case that this bill would urge before 
there has been an opportunity for the facts to come out through 
discovery.
    So, in sum, this legislative body should recognize, I hope, 
the collective judicial wisdom that fraudulent joinder law 
reflects and resist legislating technical procedural reforms. 
Instead, I want to submit, it should recall the advice given by 
a former Solicitor General who, when testifying against a bill 
a few years ago that would have reversed the courts' 
plausibility decisions, the Twombly and the Iqbal decisions I 
mentioned earlier, advised that legislators should ``leave 
procedure to the rulemakers.'' That is what General Garre told 
the Senate Judiciary Committee, and I submit that that advice 
is worth remembering today.
    Thank you, Chairman.
    [The prepared statement of Mr. Hoffman follows:]
    
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    Mr. Franks. And I thank the gentleman.
    And we will now recognize our third witness, Mr. Silverman.

             TESTIMONY OF CARY SILVERMAN, PARTNER, 
                   SHOOK HARDY & BACON L.L.P

    Mr. Silverman. Thank you, Mr. Chairman, Ranking Member 
Cohen, and distinguished Members of the Subcommittee. I 
appreciate the opportunity to testify today on behalf of the 
U.S. Chamber and the Institute for Legal Reform.
    The current process by which courts decide fraudulent 
joinder is in need for reform. The doctrine is intended to 
secure the Constitution's promise of a neutral Federal forum in 
lawsuits involving citizens of different states. Instead, it 
routinely allows for manipulation and gamesmanship. Such 
lawsuits have a toll on people who are sued solely to keep a 
case in state court. It also deprives litigants of an impartial 
forum, sending cases to local courts where the deck may be 
stacked against them. And, for the Judiciary, it has resulted 
in confusion and unnecessary litigation.
    Let me briefly explain how this works. Plaintiffs' lawyers 
typically want to litigate their cases in state court. That is 
understandable. They have an advantage there. They are likely 
familiar with the judges and the trial court's local 
procedures. And as the Founders recognized, there is a danger 
that local courts may inherently favor local plaintiffs, and 
that remains as true today as it did then.
    As you explained, Mr. Chairman, when each of the defendants 
is from a state different from each of the plaintiffs, there is 
complete diversity. A defendant can then remove the case from 
state to Federal court. It is easy, however, for a plaintiff's 
lawyer to destroy complete diversity. All he needs to do is 
name a local person or a business as a defendant, one from the 
same state as the plaintiff.
    The plaintiff typically has no intention of actually 
litigating that claim or seeking a judgment against that person 
when its remand of that person will likely be dismissed. The 
only reason that the person is included is to block the Federal 
court from hearing the case.
    As my prepared testimony shows, this tactic often involves 
naming people such as local managers, salespeople, insurance 
claims adjusters, or others who are not typically personally 
liable as a defendant when the real target is their employer. 
It involves naming local retailers, often family businesses 
that have nothing to do with how a product was designed, when 
the real product was the manufacturer. It involves naming local 
pharmacies that may have sold a drug but had no involvement in 
developing its labeling or warnings, when the real target is 
the pharmaceutical maker.
    Fraudulent joinder provides Federal courts with the ability 
to ignore the presence of a local defendant when it is named in 
a lawsuit only to defeat Federal jurisdiction. There are two 
problems, however, with how courts evaluate fraudulent joinder 
which brings us to this bill today.
    The first is that Federal courts are all over the map as to 
how they decide it. My prepared testimony outlines five 
different approaches courts have taken. There is the ``no 
possibility of a claim or recovery'' approach, which is what 
one Federal circuit refers to as the ``no glimmer of hope'' 
standard. There is the ``wholly and substantial and frivolous'' 
approach, which seems akin to Federal Rule 11, also an 
extremely high standard. There are some courts that consider 
whether there is an obvious failure to state a claim. There are 
others that consider whether there is a reasonable basis for 
the claim, or a reasonable possibility of success. Other courts 
simply consider whether the plaintiff does indeed state a 
claim, taking an approach similar to an ordinary motion to 
dismiss, and that which is provided in the bill.
    The courts also significantly vary on the evidence they 
will consider, and if they will consider at all whether the 
plaintiff has a good-faith intent to seek a judgment against a 
local defendant.
    So the first problem is confusion in the law. The second is 
that these standards range from nearly impossible to very 
difficult to meet. This is the case even when the claim against 
a local defendant is extraordinarily weak.
    The Fraudulent Joinder Prevention Act will help bring 
clarity to the law, reduce gamesmanship and litigation, and 
preserve access to a neutral Federal forum. The bill does so by 
adopting a uniform approach, requiring a plaintiff to state a 
plausible claim against the local defendant. This is a standard 
regularly applied by Federal courts when deciding a motion to 
dismiss. It is a modest tweak to the standard for fraudulent 
joinder. It does not expand diversity jurisdiction. It is 
balanced. A plaintiff still gets the benefit of the doubt. Nor 
does it dictate any results or tilt a judge's discretion on 
removal one way or the other. Rather, the bill will clarify 
that judges have broad discretion to consider evidence when 
deciding fraudulent joinder such as affidavits submitted by 
either party, or whether there is a good-faith intent to seek 
recovery from the local defendant.
    The result will be a more realistic assessment of whether a 
plaintiff has stated a viable claim against a local defendant 
and intends to pursue a judgment against that person. 
Plaintiffs with legitimate claims against a local defendant 
will be able to litigate in state court, and out-of-state 
defendants that show there is no viable claim against the local 
defendant will be able to have the lawsuit decided in a neutral 
Federal forum.
    Thank you again for holding this hearing and inviting me to 
testify today. I welcome your questions.
    [The prepared statement of Mr. Silverman follows:]
    
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    Mr. Franks. Thank you, Mr. Silverman.
    Thank you all for your testimony.
    We will now proceed under the 5-minute rule. I will begin 
by recognizing myself for my 5 minutes.
    My first question is to you, Ms. Milito. In his written 
testimony, Professor Hoffman discusses the cost he argues this 
bill may impose upon plaintiffs and the courts. Could you 
please elaborate further on the very real costs that the 
current fraudulent joinder standard imposes on American small 
businesses?
    Ms. Milito. Yes. Thank you very much for that question. In 
my remarks I noted that litigation brings great angst and 
expense to small business owners. In my time at NFIB, which is 
now well over 10 years, I talk with business owners too often 
who are named as a defendant in a lawsuit, and my discussions 
with them mirror the findings that the Small Business 
Administration found in the study they conducted a few years 
ago to determine what is the real impact of litigation on small 
businesses, and they found there are really four things. There 
is financial expense. There is an emotional expense. There are 
changes to how a business operates, including a wariness, 
unfortunately, that develops with their customers, and I find 
this when I talk with business owners too. It is who do we 
trust anymore? Are they going to target us? Who are the 
customers that I can trust there, too? And then the final 
thing, and this is a very real concern with small businesses in 
this day and age of social media, is damage to the business' 
reputation, and that goes back too to the financial cost, but 
it is kind of a separate thing too. There is real damage to a 
business' reputation when they are named as a defendant in 
litigation alongside of, say, a big pharmaceutical company, and 
then you have the local drugstore named too. It makes the 
papers, and that is a real concern for small business owners.
    Thank you.
    Mr. Franks. Thank you.
    Mr. Silverman, in his testimony Professor Hoffman asserts 
that fraudulent joinder law is applied uniformly, with some 
minor variances based on semantics. Do you agree with that, 
that the standard Federal judges apply to decide the fraudulent 
joinder question is uniform across the Federal courts, and that 
any difference between the standard applied is merely 
semantics?
    Mr. Silverman. Mr. Chairman, I would respectfully disagree. 
What I have seen in my research is that even within a Federal 
circuit, the standard varies significantly from case to case. 
Even as many courts seem to follow the ``no possibility of a 
claim'' approach, those same courts go on to define that 
possibility very differently, whether it is a reasonable 
possibility, absolutely no possibility, or no glimmer of hope, 
and some are looking at it in the plain way of whether there is 
actually a claim at all.
    I don't think it is just semantics. I think there is a 
great amount of variation that leads, I think the evidence 
shows, to different results. My prepared testimony cites at 
least three Law Review articles that recognize these 
significant variations and that they are a problem.
    I also believe that Professor Arthur Hellman of the 
University of Pittsburgh School of Law submitted prepared 
testimony that agrees with that assessment.
    Mr. Franks. Well, let me follow up. The Fraudulent Joinder 
Prevention Act essentially makes three changes regarding the 
Federal courts' fraudulent joinder determination. Number one, 
it permits judges to look at affidavits and other evidence. It 
creates a uniform plausible claims standard. And it requires 
that plaintiffs act in good faith when joining defendants to 
their lawsuits. Do these three changes create new legal 
concepts, or are they all based on concepts that Federal judges 
are familiar with?
    Mr. Silverman. All of these concepts are firmly rooted in 
U.S. Supreme Court jurisprudence, some of which goes back 100 
years. These are concepts from existing law.
    First, as to the plausibility standard, as we have 
discussed today, this is the same standard that Federal courts 
now routinely apply to determine whether the complaint states a 
viable claim when there is a motion to dismiss. It is a 
standard set by the U.S. Supreme Court that is now well 
understood and every day is being applied in cases. It doesn't 
surprise me, as the Professor has stated, that there are 85,000 
cases citing this case because it comes up every single time 
there is a motion to dismiss, and courts know what to do with 
it.
    As to the affidavits and other evidence, this is more a 
clarification or codification of existing law than a change. 
Most courts are already considering these materials when 
deciding fraudulent joinder.
    With respect to good faith, the Supreme Court has said, in 
cases dating back to 1921 and 1931, that courts, when deciding 
fraudulent joinder, can look at the good faith in bringing a 
claim against that local defendant and seeking a judgment. This 
would just codify that and clarify that it applies, because not 
all courts are looking at it.
    Mr. Franks. Well, thank you, Mr. Silverman.
    I am now going to recognize the Ranking Member for 5 
minutes for his questions.
    Mr. Cohen. Thank you, Mr. Chairman.
    Professor Hoffman, you teach at the University of Houston 
Law School?
    Mr. Hoffman. I do. I have recently stepped down as the 
Associate Dean, so I should clarify the Chairman's remarks, a 
happy change. I am no longer the Associate Dean, and now I get 
to return to my regular life and not take care of everybody 
else's.
    Mr. Cohen. You are the John Boehner of Houston, yes.
    When you go back to your class, what will you tell them 
about this hearing and the law that we discussed and the 
reasons why you even think this came to a hearing in the United 
States Congress?
    Mr. Hoffman. So, the issues that we talk about are exactly 
the issues that we talk about every day in my course, subject 
matter removal, pleading standards. I mean, every one of these 
we either have talked about or are on the syllabus to talk 
about. This is very familiar law.
    As I tried to indicate in my remarks specifically on 
fraudulent joinder in terms of how old it is, courts have been 
applying it for a long time, and with thousands of cases it 
should come as no surprise that there are variances in 
language. I quote a Fifth Circuit case, for instance, that even 
goes out of its way to point out that just within that one 
circuit some of the courts say ``no possibility,'' as Mr. 
Silverman pointed out, and others say things like ``no 
reasonable basis'' or ``no reasonable possibility.'' And then 
the Fifth Circuit goes on to say those standards are 
interchangeable.
    So maybe the thing to really drive home here is the same 
thing I drive home with my students, which is that procedure 
drives many outcomes in cases, sometimes positively, sometimes 
negatively. The concern that we should always have whenever we 
reform procedure or try to think about making reforms is 
whether in doing so we are changing the balance of power in 
some way that makes it harder. What I fear is that in a 
circumstance like this where the real issue is the substantive 
law, as I indicated earlier, that we are really focused in the 
wrong place.
    And again, just to make one other point about that to make 
sure that point is clear, regardless of what the semantic 
standard is, Representative Cohen, with fraudulent joinder, 
what really happens is that when courts find that the 
substantive law provides a right for relief, they find there is 
no fraudulent joinder and they send it back. And conversely, 
when they find that there is no reasonable chance of recovery 
because the law doesn't provide a right to recover, they find 
appropriately that fraudulent joinder has occurred. So the 
action is in the substantive law. If you were to read 100 
cases, I would submit that--I don't want to say 100 out of 100, 
but almost all of them are going to break exactly as I say.
    So it raises a nice lesson for students that procedure, 
unfortunately or fortunately, can be important because of the 
power that goes in and goes behind a lot of these procedural 
rules.
    Mr. Cohen. Thank you.
    Ms. Milito, if you were a student in Professor Hoffman's 
class, what would you ask him about this? And when he explains 
that there is really no need for change in the law, that this 
is all based on the substantive law, then why would there even 
be a need to have this law to help small business?
    Ms. Milito. I would ask him about, if you will, vindicating 
the rights of these small business owners, the defendants in 
the case, who are, as I have been told by a member, wrongly 
accused in an action, and how can we more efficiently get to 
that ``no reasonable chance of recovery'' finding? Is there a 
way that we can get to the finding that Professor Hoffman just 
referred to quicker and in a more efficient manner in our 
courts without getting to discovery? Because there is one thing 
you learn in civil procedure: discovery can go on for a long 
time, and it can be very expensive. And the small business 
owners who I hear from who believe they are wrongly accused 
don't want to get to that stage of litigation. They want to get 
out. So that would be my question to the professor.
    Mr. Cohen. And, Professor, would you respond to her now?
    Mr. Hoffman. So, obviously, I don't agree with the 
substance, but I thought she said it very well, and if you were 
in my class I would have given you an A.
    Mr. Cohen. Mr. Silverman said that there are a whole lot of 
differences in the different districts on this issue. Aren't 
there are a lot of differences in districts on other issues as 
well?
    Mr. Hoffman. Certainly, and again----
    Mr. Cohen. How do those normally get resolved?
    Mr. Hoffman. The cases percolate through the system. 
Eventually, enough of them make it to the circuit courts, to 
the intermediate courts of appeals. Sometimes there is 
agreement within those courts, sometimes there isn't. When 
there isn't, once in a blue moon the Supreme Court uses one of 
its very, very few--it only hears about 70 cases a year 
nowadays, so it can't resolve all these issues, but 
occasionally it does.
    I mean, plausibility is a good example of that. I mean, 
this notion that we are doing it a lot, and therefore we know 
what we are doing, really I think, respectfully, misses the 
mark. If you think about it, even if we don't engage in an 
empirical debate about what is or isn't going on in the lower 
courts, just look at the word ``plausible.'' I mean, what does 
it mean for something to be plausible?
    Again, going back to my class, I can tell you that if my 
students were here to testify, they would tell you that they 
are utterly baffled by what this standard is that the Court has 
announced, and it really got announced out of whole cloth. I 
mean, the test that Twombly announced in 2007 was essentially a 
brand-new test, and certainly as a matter of pleading standards 
was new, and the courts are struggling to figure this out. 
There isn't any reason to think that for plausibility, as well 
as for this business about good faith, that it would come out 
any differently if we were to incorporate it into remand law.
    And, by the way, just one other point about good faith. You 
know, there is a nice lesson here. In 2011, Congress passed the 
JVCA, the Jurisdiction and Venue Clarification Act, and one of 
the changes that it made, an interesting point of comparison 
here, is they amended 1446. It used to be that a defendant 
could only remove a diversity case if it was within 1 year of 
when it had been commenced. But then there were some plaintiffs 
who once in a while played games and maybe would dismiss the 
non-diverse defendant 366 days later.
    So the law got amended to say you could look at the 
plaintiff's bad faith after the case had been on file for a 
year, bad faith in keeping the case from being removed, and the 
Congress amended the law to put bad faith in there, but it is 
after a year has gone by. In other words, it gives the district 
judge a chance to sit back and say has the plaintiff been 
pursuing discovery equally against the non-diverse and diverse 
defendant? If they haven't, if they have basically been 
ignoring the non-diverse defendant, it is some pretty good 
evidence that maybe they aren't really targeting them.
    But what this bill does is it says, literally in the first 
inning of the game, but even before the inning has ended, 30 
days into the case, the district judge is supposed to figure 
out what good faith the plaintiff had, and that isn't a 
standard that we know, and it is one that I submit is going to 
cause a great deal of confusion.
    Mr. Cohen. Well, thank you for your testimony, and in spite 
of that fact I am still going to hope that Greg Ward has a bad 
game when he plays Memphis. [Laughter.]
    Mr. Hoffman. So noted.
    Mr. Franks. I thank the gentleman, and I now yield to the 
gentleman from Iowa for his questions.
    Mr. King. Thank you, Mr. Chairman. I appreciate being 
recognized. I appreciate the testimony of the witnesses and the 
trouble you take to help inform this Congress.
    As I listened to the testimony here this morning, I have a 
couple of questions along the way I would direct first to Mr. 
Hoffman. As I listened to your testimony, one of the points you 
made is that we need to be aware of legislating by anecdote. It 
is one of my concerns, too. When I was first elected to state 
office, I fell prey to that myself. And when it was pointed out 
to me that you can't fix every problem by legislation, it was 
one of the few times that I heard someone say something that 
immediately changed my mind on the spot. So, that matters.
    However, you also mentioned that you could show as many 
cases on the opposite side of this argument. So anecdote 
matched up against anecdote, where is the preponderance of the 
anecdotes, in your opinion?
    Mr. Hoffman. So, I think it is right, and I am glad you 
asked me that question. The standard is a high standard, so it 
is certainly more often the case, and depending on the circuit 
sometimes much more often the case, that a defendant, a non-
diverse defendant who has been named is found not to have been 
fraudulently joined, and so the motion to remand is granted.
    My point is to say it is a big litigation system. It is a 
big country. We have lots of cases, and I have no doubt that 
there are cases where judges have made a mistake on one side. 
My point is only that there are just as many, and I am happy to 
give examples. But again to your point, there is a danger if we 
focus only on the examples.
    Mr. King. I think instead I would go this way with it, that 
we are talking about justice here on the Judiciary Committee, 
and when we talk about justice, it is not something we do away 
with as far as the preponderance of the anecdotes that we have. 
It should be what is the best thing we can do to bring out the 
maximum amount of justice and equity, and I am one of those 
people who forbids my staff to use the word ``fair,'' which I 
didn't notice anybody using this morning, because you can't 
define that. It has multiple utilizations and code, but there 
is no consistent definition of ``fair.'' So we should be 
providing justice and equity.
    What provides justice and equity? The other two witnesses 
would argue this bill does. You argue that it is too complex 
and we should trust the collective judicial wisdom. That is a 
little bit harder to swallow here in the aftermath of some of 
the Supreme Court decisions that have come down lately, the 
collective judicial wisdom.
    But I would just make the point that I don't hear anyone 
testifying that there is any reservation about Congress' 
constitutional authority to write these regulations. There is 
no one among the panel that would make that case, is there?
    Mr. Hoffman. No. The only point, to the extent that I have 
made one, Representative King, in my written testimony--I 
didn't say anything today--is I think there are concerns about 
the Federalism issues because of the nature of what happens. 
But I want to be clear in that I don't think there is, for 
example, an Article 3 issue involved here as kind of the scope 
of----
    Mr. King. Okay, and that was my point. I just wanted to 
establish that. We don't have a disagreement on Article 3 
authority.
    Mr. Hoffman. We do not.
    Mr. King. And I certainly agree. But you made another point 
about the definition of the word ``plausible,'' that it is not 
defined. So isn't it true that under current practice, then, 
``plausible'' is defined by each judge? That would be some of 
the essence of your testimony, as I understand.
    Mr. Hoffman. It is. The only thing I will add is, in 
reference to your last remarks, despite perhaps your fear of 
the collective judicial wisdom, the Supreme Court in both 
Twombly and Iqbal advised us that plausibility is determined by 
a judge's judicial wisdom and common sense.
    Mr. King. Which means they know it when they see it.
    Mr. Hoffman. So perhaps proponents of the bill should 
pause----
    Mr. King. I think you get my point on that, Mr. Hoffman. 
[Laughter.]
    Let me make another point, then, while we have an 
opportunity here. I have with me a quote from Fourth Circuit 
Judge J. Harvie Wilkinson, which you are apparently familiar 
with. He recently observed this with regard to the joinder 
issue: ``There is a problem with fraudulent jurisdiction law as 
it exists today, and that is that you have to establish that 
the joinder of a non-diverse defendant is totally ridiculous 
and that there is no possibility of ever recovering, that it is 
a sham, that it is corrupt. That is very hard to do. The 
problem is the bar is so terribly high.''
    Don't we have the presumption in favor of the fraudulent 
defendants that would join this, and isn't the burden too high? 
You said it is complex, and there are anecdotes on either side 
of this. But in the end, if we are after justice and equity and 
it gets to be a burden to litigate through that, the argument 
to simplify our system doesn't argue necessarily in favor of 
justice. Would you agree with that?
    Mr. Hoffman. Thank you for your question. Let me see if I 
can try to answer it this way.
    First of all, in terms of Judge Wilkinson's remarks, I 
don't know when they were made, whether he was speaking to a 
Federalist Society group or whether he was--I suspect it is not 
from a judicial opinion. Obviously, we know there are many, 
many judicial opinions. I just don't know, so I can't speak to 
it.
    In terms of the substantive part of your question, 
Representative King, my answer to you I think, and I will try 
to be very brief on this, is really to track what I said 
before. To the extent that there is an issue, and I submit 
there isn't, but to the extent the Committee or proponents 
think there is an issue, the issue doesn't lie with fraudulent 
joinder law or with how judges are applying it in their 
particular places, but rather it is with the substantive law. 
And again, what I meant by that, to expound that point, 
regardless of how the standard is, whether it is no possibility 
or reasonable possibility, whatever it is for figuring out 
whether a defendant has been improperly joined, the cases turn 
almost exclusively on this question of whether or not the law 
allows recovery.
    This is not to legislate by anecdote, but I will just give 
you one example to try to put some meat on the bones of what I 
am trying to say. So, there was a case out of Mississippi just 
a couple of years ago where there was a woman who was in a 
nursing home and terrible things happened to her. She was 
deprived of water, she had multiple falls and bruises.
    So anyway, she ends up suing the nursing home, and she also 
sues the administrators, the folks who are running the home. 
They are, of course, the non-diverse defendants. So the 
administrators bring a motion saying--you know, they remove it, 
and in response to the motion to remand, they say we were 
fraudulently joined. Their argument is they say we can't be 
held liable unless we actually were the ones who physically 
touched, physically injured the plaintiff.
    What the court ends up ruling is that under Mississippi 
law, physical injury is not the only requirement for holding a 
supervisor liable. So the point is, to the extent there is an 
issue, they may have a beef with Mississippi law--maybe it goes 
too far, maybe it doesn't--but it is not a fraudulent joinder 
issue.
    Mr. King. Well, I am not disagreeing with the point that is 
in the heart of that. I am recognizing that the clock has wound 
down. I have other curiosities about this I will seek to 
examine, but I want to thank all the witnesses and the Chairman 
and yield back the balance of my time.
    Mr. Franks. I thank the gentleman.
    I suppose when it comes to plausibility, we can explain it 
to the judges, but perhaps we can't understand it for them as 
well.
    This concludes today's hearing. Thanks to all of our 
witnesses for attending.
    Without objection, all Members will have 5 legislative days 
to submit additional written questions for the witnesses or 
additional materials for the record.
    And again, I thank the witnesses, I thank the Members, and 
I thank the audience.
    This hearing is adjourned.
    [Whereupon, at 12:35 p.m., the Subcommittee was adjourned.]

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