Throughout the course of litigation, there are certain facts and circumstances that favor one side or the other. The venue and presiding judge in a given matter can significantly impact the outcome. All too often, insurance carriers find themselves before a judge, or in a county, that is favorable to the plaintiff. Unlike the facts that develop through the case, the venue and presiding judge will remain static throughout the litigation. One way, though, to even the playing field in a first party no-fault case may be to remove the matter to federal court. In the right circumstances, removal can be beneficial in obtaining a favorable outcome for the carrier.
Why Consider Removal?
Removal of a claim to federal court may be an opportunity for an insurance carrier to even the playing field. When a matter is filed in state court, it is important to assess the venue where the case is pending. If the jurisdiction or judge is favorable, then removal of the matter may not be the best course of action. However, in an instance where the state court jury pool is considered to be adverse, a federal jury pool will pull from a wider geographical region and may provide a better opportunity to select a more favorable jury. In addition, the judge presiding over the state court action may, either by experience or reputation, be more likely to give the benefit of the doubt to the opposing side. Removal of the matter to federal court may provide an opportunity to draw a jurist who will be more favorable to your position.
The complexity of the issues involved in the case should also be considered. There are state court venues that have more knowledge of no-fault cases. If the case involves a matter of complex statutory interpretation, or a complicated coverage issue that is germane to cases under the No-Fault Act, a state court judge with experience in such matters may be beneficial to the defense. On the other hand, there are also state court venues where, regardless how experienced, the judges have congested dockets with limited time and resources to devote to each case. In that instance, a complex matter may be more appropriate in federal court, where more time and resources can be utilized to bring the matter to a favorable conclusion.
Another consideration is your opposing counsel. There are aggressive attorneys that masterfully utilize the broad discovery rules in the state of Michigan to their advantage. The Federal Rules of Civil Procedure are narrower and can be utilized to shield the insurance carrier from extensive and far reaching discovery. In addition, motion hearings in federal court are frequently only permitted by leave of the court, and are not on a weekly scheduled docket. Once again, this can potentially limit the outlay of defense costs as well as limiting discovery disputes since there could be a delay in the court's addressing of the issue.1 Lastly, there are certain attorneys who are better known to judges and juries in a certain jurisdiction by way of routinely practicing in the venue and being otherwise well known in the community. Removal of a claim can neutralize the advantage opposing counsel may have by selecting a jurisdiction with a larger jury pool and appointed judge.
The Basics of Federal Jurisdiction
A case can be removed from state court to federal court if the case could originally have been filed in federal court.2 As most of us recall from our civil procedure course in law school, there are two primary bases for federal court jurisdiction over a civil action: federal question and diversity. The Michigan No-Fault Insurance Act3 controls claims for personal injury protection benefits. Therefore, claims for such benefits do not involve a federal question. Accordingly, the primary basis to seek federal jurisdiction over a claim for no-fault benefits is by way of diversity.
In the instance of diversity jurisdiction, federal courts have original jurisdiction over all civil actions between citizens of different states if the amount in controversy exceeds $75,000.4 The general rule is that a corporation is deemed a citizen of the state in which it is incorporated and the state here it has it principal place of business.5
Diversity jurisdiction is broader for "any direct action against the insurer of a policy or contract of liability insurance, whether incorporated or unincorporated, to which the action the insured is not joined as a party-defendant." In that instance, an insurer is also a citizen of "every State and foreign state of which is the insured is a citizen."6 In Ljuljdjuraj v State Farm Mut Auto Ins Co, 774 F3d 908 (6th Cir 2014), the Sixth Circuit held that this exception does not apply to a claim for first party no-fault benefits.7
It should also be noted that, even in instances where diversity requirements are otherwise met, a case is not removable on the basis of diversity when any defendant is a resident of the state in which the suit is brought.8 For example, if a plaintiff who resides in Florida files an action in state court in Michigan, and the defendant is a citizen of Michigan, the claim cannot be removed to federal court.
Therefore, for a no-fault carrier to remove a state court action filed in Michigan, the carrier must be incorporated and have a principal place of business outside of the state of Michigan. From time to time, a Michigan based carrier is sued for No-Fault benefits in another state. Such an action would be removable as long as all other requirements are met.
The Timing for Removal
If a defendant wishes to remove the case to federal district court, it must file a notice of removal within 30 days after being served with the complaint.9 However, it is important to note that this is not the only opportunity to remove a case to federal court. If it is not evident based upon the initial pleadings that a case is removable, a case may also be removed to federal court within 30 days after receipt "by the defendant, through service or otherwise, of a copy of an amended pleadings, motion, order, or other paper from which it may first be ascertained that the case is one which is or has become removable."10
The Sixth Circuit has never fully expounded the meaning of "other paper" for purposes of removal. The court has indicated that, as a general matter, documents such as deposition transcripts, answers to interrogatories and request for admissions, amendments to ad damnum clauses of complaints, and correspondence between the parties and their attorneys or between attorneys may constitute "other papers" for the purposes of removal.11 If the initial pleading lacks solid and unambiguous information that the case is removable, the defendant must file a notice of removal within 30 days of receipt an amended pleadings, motion, order, or other paper that contains sold and unambiguous information that the case is removable.12 Several courts have interpreted that "other paper" for the purposes of removal to apply to papers and documents involved in the case being removed.13
At the initial pleadings stage, it is not unusual for a carrier to be unaware of the total amount of benefits claimed by a plaintiff in a lawsuit for no-fault benefits. It may not be until the plaintiff responses to written discovery requests that it is first learned that the plaintiff is seeking an amount that exceeds $75,000. Therefore, an attorney representing a diverse insurance carrier should be vigilant in reviewing the plaintiff's discovery responses, and should timely file a notice of removal if appropriate.
A question may arise as to whether documentation submitted within the claim file, prior to the filing of a lawsuit, constitutes information sufficient to give notice that a claim is removable. Case law in the Sixth Circuit would suggest that information compiled before the filing of the lawsuit would not necessarily be considered an "other paper" for the purposes of removal.14 Therefore, just because documentation was submitted to a carrier prior to the filing of a lawsuit does not necessarily mean that a case is removable.
Ideally, counsel obtains a copy of the claim prior to the filing of responsive pleadings, but that is not always the case. If the claim file materials suggest that the amount in controversy would exceed $75,000 at the time of filing responsive pleadings, then counsel should strongly consider filing a notice of removal at that time. However, if the amount in controversy is not clear from the claim file materials, a failure to remove the matter at the time responsive pleadings were due may not be fatal to a successful removal of the matter to federal court at a later date, upon receipt of additional documents. An argument can be made that, regardless of what was contained in the claim file, it does not constitute "other paper" for purposes of the removal statute, and that the claims and/or damages Plaintiff is claiming entitlement to in a lawsuit is not discernible until assertions are made through required disclosures in the discovery process.
The Amount in Controversy Requirement
As referenced above, the minimum jurisdictional amount for a civil action based on diversity jurisdiction in federal court is $75,000. As a general rule, the court considers whether it had jurisdiction at the time of removal, not whether it has jurisdiction based on post-removal events.15 Therefore, because no-fault benefits are not payable until they are incurred under MCL 500.3107, any expenses incurred after removal for which the plaintiff may seek reimbursement are not considered in determining whether the $75,000 diversity jurisdictional requirement is met.16
There are circumstances where federal courts have departed from the general rule. In Herring v State Farm Mut Auto Ins Co,17 the plaintiff sought $30,096 in attendant care benefits already incurred, ongoing benefits without any end date, and a declaratory action seeking future damages. In that circumstance, the court found that the amount in controversy was met. But in other cases with similar facts, this argument was rejected.18
The Michigan No-Fault Act provides for statutory interest and attorney fees pursuant to MCL 500.3142 and MCL 500.3148. A plaintiff's claim for interest and attorney fees can be considered as part of the amount in controversy for purposes of the amount in controversy requirement19. A defendant must prove that the amount of interest and attorney fees more likely than not makes up any difference between the claimed benefits and the jurisdictional requirement of $75,00020.
An interesting wrinkle involves the assignment of claims to providers in the wake of the Michigan Supreme Court's opinion in Covenant v State Farm Mut Auto Ins Co.21 In that case, the court found that there is only one cause of action for no-fault benefits and it belongs to the injured claimant. While carriers continue to challenge whether a claim for no-fault benefits can be lawfully assigned to a medical provider, the Covenant decision suggested and subsequent Court of Appeals decisions have operated as though such a right exists. The question then becomes whether an expense that is assigned prior to or subsequent to removal can be considered as part of the amount in controversy requirement. At this point, there is no clear direction on this issue and room to argue for or against jurisdiction.
Another consideration relevant to the $75,000 threshold is whether an action by a claimant and a provider, or multiple providers can be aggregated together to meet the amount in controversy requirement. Current case law would suggest that the claims can be aggregated to meet the requirement. Two or more claims asserted by a single plaintiff against a single defendant may be aggregated for the purposes of determining whether the amount in controversy requirement is met.22 Considering that the Covenant decision found that there is one claim for benefits, there is an argument that medical providers are merely assigned a portion of a claimant's overall claim as a whole.
Notice of Removal
A defendant seeking to remove a claim must file a notice of removal in the federal district court "containing a short and plain statement of the grounds for removal."23 In Michigan, a plaintiff need only state that a claim seeks damages in excess of $25,000 to be within the jurisdiction of the circuit court. Therefore, in such circumstances, the amount stated in the initial pleadings is not deemed to be the amount in controversy.24 In that case, the notice of removal may assert the amount in controversy and removal is appropriate on that basis if the district court finds, by the preponderance of the evidence, that the amount in controversy exceeds $75,000.25
Federal judges recommend that the notice of removal be as detailed as possible to avoid an order from the court requesting that the defendant show cause as to why the matter should not be remanded26. In the instance of diversity jurisdiction, that includes identifying the citizenship of the parties, and every basis on which removal is sought. That also includes referencing all information that supports the defendant's assertion that the amount in controversy exceeds $75,000. A defendant's notice of removal, though, need include only a plausible allegation that the amount in controversy exceeds the jurisdictional threshold. Evidence establishing the amount is required by 1446(c)(2)(B) only when the plaintiff contests, or the court questions, the defendant's allegation.27
There are circumstances where a plaintiff may approve of removing the matter to federal court. If that is not the case, though, a plaintiff can challenge the removal by way of a motion to remand. A motion to remand based on a defect other than lack of subject-matter jurisdiction must be made within 30 days after filing of the notice of removal28.
A common basis for challenging the removal of an action is that the notice was not timely filed. As referenced above, a defendant must remove a case within 30 days after service of the complaint, or within 30 days of receipt of certain information which allows the party to ascertain that the case is or has become removable. The argument in this instance is that the defendant had sufficient information at the time of initial responsive pleadings and should have removed the case at that time based on allegations in the complaint. In the instance of where case subsequently becomes removable, the argument is that the defendant did not act timely when sufficient information was received.
Another common basis for challenging the removal is that the amount in controversy does not exceed the minimum jurisdictional limit, i.e. $75,000. A plaintiff can argue that, at the time of removal, the outstanding claim does not exceed $75,000, and argue that the court cannot consider ongoing incurred benefits. A plaintiff can also argue that, while there may be a large amount of benefits anticipated, such as future home modifications, van modifications, or attendant care, the claim is not incurred and should not be considered as part of the amount in controversy. It should be noted, though, that the court can always remand a case if it discovers at any time before the final judgment that it lacks subject matter jurisdiction.29 Therefore, a plaintiff can argue that if certain benefits are no longer being claimed, or cannot be claimed, the case can be remanded30.
Generally, with exceptions that do not apply to no-fault cases, a remand order cannot be appealed.31 Therefore, the district court has sole authority as it relates to whether the remand a claim for no-fault benefits to state court.
In certain circumstances, removal of a no-fault claim to federal court can be a favorable maneuver that ultimately proves beneficial to the defense of the claim. There are certain strategic considerations to take into account. There are also strict procedural requirements that require diligence and forethought. A plaintiff, though, is not without recourse if state court is the desired venue. The removal of a no-fault case to federal court can completely alter the course of the litigation, and even the playing field for the insurance carrier. Therefore, defense attorneys, consider removing your next no-fault case to federal court.
Originally published in The Journal of Insurance and Indemnity Law, July 2018.
1. This, obviously, goes both ways. If the defense is seeking discovery, or otherwise has an objection, there will be a delay in resolution.
2. 28 USC 1441(a)
3. MCL 500.3101, et seq.
4. 28 USC 1332(a)(1)
5. 28 USC 1332(c)(1)
7. The Court specifically found that the direct action provision "on its face does not apply where a suit is brought under an insurance policy provision that does not provide for liability insurance." 774 F3d at 911. The provision for no-fault benefits in this case "provides benefits on the basis of plaintiff's having been a passenger in the primary insured's automobile, and not on the basis of the primary insured's liability to the plaintiff." Id.
8. 28 USC 1441(b)(2)
9. 28 USC 1446(b)
10. 28 USC 1446(b)(3)
11. Brerea v. Mesa Medical Group, PLLC, 779F.3d 352, 365 (6th Cir 2015)
12. Id at 364
13. Dahl v. R.J. Reynolds Tobacco Co., 478 F.3d 965, 969 (8th Cir 2007), citing Chaganti & Assocs., P.C. v. Nowotny, 470 F.3d 1215, 1220–21 (8th Cir.2006) (motion response which states federal cause of action is "other paper") and Addo v. Globe Life & Accident Ins. Co., 230 F.3d 759, 761–62 (5th Cir.2000) (post complaint demand letter seeking an amount greater than $75,000 is "other paper").
14. See Holston v. Carolina Freight Carriers Corp., No. 90-1358, 1991 WL 112809 (6th Cir 1991)(Even if a "defendant may have the papers in its possession as of the filing of the suit," a defendant "does not receive notice of the facts contained therein until it reviews those papers in connection with the suit."), as cited by Berera, supra
15. Rogers v. Wal-Mart Stores, Inc, 230 F.3d 868, 872-873 (6th Cir 2000), cert denied, 532 US 953 (2001).
16. JD v. ABM Amtech, Inc., No. 05-40393, 2006 US Dist LEXIS 7056 (ED Mich Jan 31, 2006).
17. No. 05-CV-73556, 2005 US Dist LEXIS 29648 (ED Mich Nov 16, 2005).
18. Spawr v. Encompass Ins Co, No 1:08-CV-614, 2008 US Dist LEXIS 77087 (WD Mich Oct 2, 2008)
19. Haggard v. Allstate Prop and Case Ins Co, No. 13-12779 (ED Mich Sept 12, 2013), citing Williamson v. Aetna Life Ins Co, 481 F3d 369, 376 (6th Cir 2007)
20. Michigan Head and Spine Institute, Inc. v Safeco Ins Co of Illinois, No. 18-10902 (ED Mich June 1, 2018), citing Everett v. Verizon Wireless, Inc, 460 F3d 818, 822 (6th Cir 2006)
21. 500 Mich 191 (2017)
22. Everett v. Verizon Wireless, Inc, 460 F3d 818, 822 (6th Cir 2006)
23. 28 USC 1446(a)
24. Under 28 USC 1446(c)(2), "the sum demanded in good faith in the initial pleading shall be deemed to be the amount in controversy, except that-- (A) the notice of removal may assert the amount in controversy if the initial pleading seeks-- (i) nonmonetary relief; or (ii) a money judgment, but the State practice either does not permit demand for a specific sum or permits recovery of damages in excess of the amount demanded;"
25. 28 USC 1446(c)(2)(B)
26. Per Judge David Lawson's presentation at the Insurance and Indemnity Law Section's Spring Meeting & Program on May 21, 2018.
27. Dart Cherokee Basin Operating Co., LLC v. Owens, 135 S. Ct. 547, 554 (2014); 28 USC 1446(c)(2)(B).
28. 28 USC 1447(c)
29. Anusbigian v. Trugreen/Chemlawn, Inc, 72 F3d 1253, 1254 (6th Cir 1996); 28 USC 1447(c)
30. See Kibler v. Luiso, No 06-13215, 2007 US Dist LEXIS 2018 (ED Mich Jan 11, 2007) (Because (1) Plaintiff never sought to bring this action in federal court, (2) Plaintiff never specifically sought damages exceeding $75,000, and (3) Plaintiff has agreed to seek damages not greater than $74,000, the case should be remanded to state court once plaintiff files an amended complaint).
31. 28 USC 1447(d)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.