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Major Changes to Removal Jurisdiction in 2012

Written by James P. Goslee, Esquire

With surprisingly little coverage or commentary, on Dec. 7, 2011, President Obama signed new legislation that will significantly change the rules for removing cases to federal court. The Federal Courts Jurisdiction and Venue Clarification Act of 2011, which went into effect on Jan. 6, represents a major shift in the availability and scope of federal removal jurisdiction.

Because these changes go to the heart of how and when cases may be removed to federal court, they are sure to have substantial impact on civil litigation in 2012 and beyond. This article summarizes for practitioners some of the more significant changes to removal jurisdiction. Although not the topic of this article, lawyers should also be aware that the act makes some noteworthy changes to transfer and venue.

Timing of Removal

The revised statute’s most significant change involves the timing of removal in cases involving multiple defendants. Section 1446(b) of the old statute mandated that “removal of a civil action or proceeding shall be filed within 30 days after receipt by the defendant … of the initial pleadings.” Because the statute referred to “defendant” in the singular, there was considerable confusion as to whether the 30-day clock started ticking for all defendants when the first defendant is served (the First-Served Rule), or whether each defendant has 30 days from the date that it is individually served to remove the action (Later-Served Rule). This confusion led to a circuit split, with the 4th and 5th circuits adopting variations of the First-Served Rule and the 3rd, 6th, 8th, 9th and 11th circuits adopting the Later-Served Rule.

The act resolves this circuit split by formally adopting the Later-Served Rule. Under the new rule, each individual defendant has 30 days from the date they were served to remove the case. Moreover, where multiple defendants are served at different times, the defendants who were served earlier may join a petition to remove filed by a defendant who was served later, even if those earlier served defendants did not file their own petition within 30 days.

Bad-Faith Exception

Prior to the revisions, the removal statute required state court actions susceptible to diversity jurisdiction to be removed no later than one year after the filing of a complaint. This repose limitation has not changed under the revised statute. However, there is now a bad-faith exception to the rule. If a court finds that a plaintiff acted in bad faith to prevent removal, the one-year limit no longer applies.

The practical effect of this change may be significant. For instance, a ploy of suing a nominal nondiverse defendant and then voluntarily dismissing him after one year in order to avoid removal may be considered a bad-faith attempt to avoid federal court. In that case, a judge may allow removal years after a suit was initiated in state court. In addition, the revised statute specifically deems it bad faith for a plaintiff to “deliberately fail to disclose the actual amount in controversy.”

Amount in Controversy

The revised statute also addresses issues concerning the amount in controversy in cases removed based on diversity. If the amount in controversy is not clear from the face of the complaint, then under the new rule a defendant seeking removal must prove by preponderance of the evidence that the amount exceeds $75,000.

Similarly, if the complaint does not specify an amount in controversy, but later discovery responses by the plaintiff indicate that or damages exceed $75,000, then the defendant has 30 days from receipt of the discovery response to remove the case to federal court. This new rule is tempered however by the one-year limitation on removal. Thus, if a defendant receives a discovery response that indicates that the amount in controversy exceeds the jurisdictional amount, but more than one year has passed since the action was initiated, then, absent bad faith on the part of the plaintiff, the case cannot be removed.
Severing Unrelated State Claims

When federal question jurisdiction provides the basis for removal, the changes also revise how unrelated state court claims are treated under the statute. Under the old rule, where an action removed to federal court contained a mix of removable and nonremovable claims, the district court had discretion as to whether it would remand the nonremovable claims back to state court.

This discretion was highly controversial and many courts and commentators questioned its constitutionality. The revised statute moots this issue and requires district courts to sever and remand unrelated state claims that fall outside its supplemental jurisdiction.

Unanimity

There is also a new codification to the unanimity requirement. There is a long-standing judicial rule that all defendants in a diversity action must consent to removal to federal court.

The revised statute codifies this judicial rule. The statute now requires all defendants to consent to removal.

‘Forum Defendant’ Exception

Finally, there is an interesting question as to whether the revised statute supports an exception to the “Forum Defendant Rule” when an in-state defendant has not been properly served at the time of removal. The language of the old statute allowed removal of cases “only if none of the parties in interest properly joined and served is a citizen of the state in which the action is brought.”

Although case law on this issue has been uneven, the majority of courts so far have interpreted the “properly joined and served” language to mean that a nonforum defendant may remove a case where a plaintiff has joined, but has not served, a forum defendant. Because the revised statute did not change the “properly joined and served” language, a suggestion can be made that Congress intended to support this statutory exception to the Forum Defendant Rule. Therefore, as a matter of caution, plaintiffs concerned with having their actions removed to federal court should be expeditious in serving forum defendants.
Rules Altered

The revised removal jurisdiction statute is the first significant change to federal jurisdiction in recent years. Because these revisions substantively alter the rules for removal, civil litigation attorneys should be aware of these changes and take the time to familiarize themselves with the new statute.

This article was written by James P. Goslee, an associate at Cohen Placitella & Roth and a former law clerk to Judge Timothy J. Savage.

This article originally appeared in The Legal Intelligencer and is republished here under author one time permission.

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