The Federal Courts Jurisdiction and Venue Clarification Act of 2011, H.R. 394, quietly went into effect this month. This Act may be titled a "clarification" of federal jurisdiction and venue provisions, but it deserves attention because it will significantly increase the number of cases that a defendant may remove from state court to federal court by eliminating procedural roadblocks to federal jurisdiction.
The previous jurisdiction and removal statutes, 28 U.S.C. §§ 1332, 1441, and 1446 et. seq., left unanswered several procedural questions that affect a defendant's ability to remove a case to federal court. The United States Supreme Court had resolved only a few of these important issues, leaving many differences among the United States Courts of Appeals on important questions such as the standard of proof, the relevant evidence, and whether a plaintiff may prevent a defendant from removing a case by delay tactics. This Act resolves many of these differences in favor of removal:
- Timing of Removal. In a multi-defendant case,
the new statute allows any defendant to file a notice of removal
within 30 days of service. Earlier-served defendants still must
join in the removal, but the later-served defendant's deadline
to remove is not tied to service on other defendants. This rule
prevents a plaintiff from serving an individual defendant that is
unlikely to remove the case and then waiting 30 days to serve a
larger defendant, potentially giving that defendant no opportunity
to file removal papers. This resolves a split between the Courts of
Appeals for the Fourth and Fifth Circuits — which began
the 30-day time period upon service of the first defendant
— and other Courts of Appeals that adopted rules similar
to the one in the new Act.1
- Bad-faith Litigation. The new statute relaxes
the one-year deadline to remove a case upon a finding of bad-faith
concealment of federal jurisdiction by the plaintiff, codifying
some decisions finding an equitable exception to the one-year
bar.2 Deliberate concealment of the amount in
controversy now constitutes bad faith and an exception to the
one-year bar.
- Amount in Controversy. Under the new statute,
the amount in controversy is established by the amount demanded in
the complaint, unless (a) the plaintiff seeks non-monetary relief,
or (b) the defendant can prove by a preponderance of evidence that
the plaintiff seeks — and that state law permits
— the recovery of more damages. The Courts of Appeals
previously applied different standards of proof to overcome a
plaintiff's allegation of the amount in controversy. For
example, the Court of Appeals for the Ninth Circuit had held that
if a plaintiff pleads an amount in controversy less than the
jurisdictional limit, the defendant must establish that the amount
in controversy exceeds the jurisdictional limit to a "legal
certainty."3
- Trigger for Removal. Where the initial
complaint does not indicate a basis for federal jurisdiction, the
new statute expands the type of documents that commence a new
30-day removal deadline to include anything in "the
record" of a state court proceeding. Several Courts of Appeals
had previously concluded that only documents created by the
plaintiff could trigger the duty to remove. It remains to be seen
whether courts will interpret the new rule to include all documents
in the record or only documents in the record created by the
plaintiff.4
- Venue Restrictions. The new statute no longer defines a corporation as a resident of any judicial district in which it is subject to personal jurisdiction. Corporations are now defined as residents only of those judicial districts where they would be subject to personal jurisdiction if that district were a separate state. Corporations are now less likely to be sued in remote or unfamiliar judicial districts like the Eastern District of Texas if they are subject to personal jurisdiction in Texas due to headquarters or major operations in Houston or Dallas.
The Act should curb the common plaintiff's practice of remaining silent or deliberately underestimating the amount in controversy to prevent removal and then seeking higher damages at trial, especially in states that have adopted some version of Federal Rule of Civil Procedure 54(c), which entitles plaintiffs to all the damages they can prove at trial.5
These changes went into effect on January 6, 2012, and apply to all new cases filed after that day.
Footnotes
1 Compare Barbour v. Int'l Union, 640 F.3d 599 (4th Cir. 2011); Getty Oil Corp. v. Ins. Co. of N. America, 841 F.2d 1254 (5th Cir. 1988) (first-served rule); with Destfino v. Reiswig, 630 F.3d 952, 956 (9th Cir. 2011); Bailey v. Janssen Pharmaceutica, Inc., 536 F.3d 1202 (11th Cir. 2008); Marano Enters. of Kansas v. Z-Teca Rests., L.P., 254 F.3d 753, 757 (8th Cir. 2001) (last-served rule).
2 See, e.g., Elsholtz v. Taser Int'l., Inc., 410 F. Supp. 2d 505 (N.D. Tex. 2006); Rauch v. Rauch, 446 F. Supp. 2d 432 (D.S.C. 2006); Cabibbo v. Einstein/Noah Bagel Partners, L.P., 181 F. Supp. 2d 428 (E.D. Pa. 2002); Hattaway v. Engelhard Corp., 998 F. Supp. 1479 (M.D. Ga. 1998); Cofer v. Horsehead Research and Dev. Co., Inc., 805 F. Supp. 541 (E.D. Tenn. 1991); Kite v. Richard Wolf Med. Instruments Corp., 761 F. Supp. 597 (S.D. Ind. 1989).
3 See Lowdermilk v. U.S. Bank Nat'l Ass'n, 479 F.3d 994 (9th Cir. 2007).
4 See S.W.S. Erectors, Inc. v. Infax, Inc., 72 F.3d 489, 494 (5th Cir. 1996) ("We find that an affidavit created by the defendant and based on the defendant's subjective knowledge cannot convert a non-removable action into a removable one.").
5 See Back Doctors Ltd. v. Metro. Prop. & Cas. Ins. Co., 637 F.3d 827 (7th Cir. 2011) (holding purported damages cap ineffective under state law).
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