U.S. House Passes Bills That Would Change the Standards for Federal Class Actions and Fraudulent Joinder

By Debra Bogo-Ernst, Christopher Comstock, Lucia Nale & Thomas V. Panoff on March 10, 2017

Posted in Class Action, Consumer Litigation

The U.S. House of Representatives on Thursday passed two bills that would reform the standards for bringing federal class actions and raise the bar for keeping lawsuits in state courts.

The first bill, the Fairness in Class Action Litigation Act of 2017 (HR 985), would impose several new requirements on class action and multidistrict litigation proceedings in federal courts. Among other things, the new requirements would include:

Class action plaintiffs seeking to recover monetary relief for personal injury or economic loss would be required to demonstrate that each class member suffered the “same type and scope of injury” as the named class representatives;
An attorney would be prohibited from representing a class in which any of the attorney’s relatives is a member;
Class counsel would be prohibited from recovering fees until after any monetary recovery to class members has been distributed;
“[A]ll discovery and other proceedings” in class actions would be automatically stayed during the pendency of any motion to transfer, motion to dismiss, motion to strike class allegations, or other motion to dispose of the class allegations, except to the extent the court finds it necessary that the parties take “particularized discovery” to preserve evidence or prevent undue prejudice;
Class counsel would be required to disclose any third-party funding agreement; and
Courts of appeal would be required to permit appeals from orders granting or denying class certification.

The second bill, the Innocent Party Protection Act (HR 725), would amend the standards for courts to find that a defendant that shares citizenship with one of the plaintiffs has been fraudulently joined to the case to prevent removal to federal court on the basis of diversity jurisdiction. Under the bill, the joinder of such a defendant would be found to be fraudulent if, among other things, the claims against the defendant are clearly barred by state or federal law or “objective evidence clearly demonstrates that there is no good faith intention to prosecute the action against that defendant.”

The House is likely to vote on a number of other proposed tort reform measures in the coming weeks. Notably, on Friday, March 10, 2017, the House is due to vote on the Lawsuit Abuse Reduction Act of 2017 (HR 720), which would require judges to impose monetary sanctions against attorneys who file frivolous cases in federal courts.