H.R. 725 establishes a uniform standard for determining whether a defendant has been fraudulently joined to a lawsuit in order to defeat federal diversity jurisdiction. In addition, the legislation also makes clear that Federal courts may consider evidence outside the pleadings when deciding a motion to remand a case that been removed to Federal Court, as well as whether the plaintiff has shown a good faith intent to pursue a judgment against a non-diverse defendant.
The summary below was written by the Congressional Research Service, which is a nonpartisan division of the Library of Congress, and was published on Mar 9, 2017.
(This measure has not been amended since it was introduced. The expanded summary of the House reported version is repeated here.)
Innocent Party Protection Act
(Sec. 2) This bill amends procedures under which federal courts determine whether a case that was removed from a state court to a federal court on the basis of a diversity of citizenship among the parties may be remanded back to state court upon a motion opposed on fraudulent joinder grounds that: (1) one or more defendants are citizens of the same state as one or more plaintiffs, or (2) one or more defendants properly joined and served are citizens of the state in which the action was brought. Joinder of such a defendant is fraudulent if the court finds:
actual fraud in the pleading of jurisdictional facts with respect to that defendant, state law would not plausibly impose liability on that defendant, state or federal law bars all claims in the complaint against that defendant, or no good faith intention to prosecute the action against that defendant or to seek a joint judgment including that defendant. In determining whether to grant or deny such a motion for remand, the court: (1) may permit pleadings to be amended; and (2) must consider the pleadings, affidavits, and other evidence submitted by the parties.
A federal court finding that all such defendants have been fraudulently joined must: (1) dismiss without prejudice the claims against those defendants, and (2) deny the motion for remand.