February 06, 2012 Articles

New Amendments to Federal Venue, Removal, and Other Rules

The Federal Courts Jurisdiction and Venue Clarification Act of 2011 contains the most expansive changes to the Judicial Code since the Judicial Improvements Act of 1990.

By Charles S. Smith

On January 6, 2012, the Federal Courts Jurisdiction and Venue Clarification Act of 2011, H.R. 394, 112th Cong. (2011) (JVCA), went into effect. The JVCA contains the most expansive changes to the Judicial Code since the enactment of the Judicial Improvements Act of 1990.

Enacted in response to growing disagreement and confusion among the circuit courts on various issues, see H.R. Rep. No. 112-10, at 9, 13 (2011), the JVCA clarifies and simplifies the federal rules on the following: venue; timing of removal for multiple-defendant cases; amount-in-controversy determinations; and citizenship of permanent resident aliens, corporations, and insurers. And it adds a new remand requirement for “separate and independent” claims. These changes are summarized below.

The JVCA contains a complete revision of the general federal-venue provisions, 28 U.S.C. § 1390 et seq. Over time, a circuit split developed regarding residency for venue purposes. See H.R. Rep. No. 112-10, at 20–21. The JVCA adopts the majority view, which is that residency is a natural person’s state of domicile. This is the same standard used in ascertaining citizenship for diversity-jurisdiction purposes.

The JVCA also abrogates the rule established by the Supreme Court in Hoffman v. Blaski, 363 U.S. 335 (1960), that a transfer is permissible only to a district court where the case “might have been brought” originally. Id. at 344. The new rule eliminates this limitation, allowing a transfer to any venue agreed on by all parties for “the convenience of parties and witnesses, [and] in the interest of justice.” 28 U.S.C. § 1404(a) (2011). Excepted from this rule are transfers to the district courts in Guam, the Northern Mariana Islands, and the Virgin Islands.

In addition, the JVCA requires that the proper venue of any action brought in a U.S. district court be determined without regard to whether the action is “local” or “transitory” in nature. Under former 28 U.S.C. § 1392, the venue determination depended on whether the action was “local” or “transitory.”

Finally under this heading, the JVCA repeals the “local action” rule of section 1392, which provided that any civil action of a local nature involving property in different districts in the same state could be brought in any such district.

Removal Period for Cases Involving Multiple Defendants
The JVCA also amends 28 U.S.C. § 1446’s vague requirement that “the defendant” file a notice of removal within 30 days from receipt of the initial pleading.

The circuit courts were split on the meaning of this rule when different defendants had been served at different times. Some courts considered the 30-day period to commence from the date of service on the last-served defendant. See, e.g., Bailey v. Janssen Pharms., Inc., 536 F.3d 1201 (11th Cir. 2008). Other courts interpreted the rule to give each defendant 30 days to file a notice of removal, regardless of when or if other defendants had sought removal. See, e.g., Marano Enters. v. Z-Teca Rests., LP, 254 F.3d 753 (8th Cir. 2001). Still others had ruled that the 30-day period ran from the date of service on the first-served defendant. See, e.g., Getty Oil Corp. v. Ins. Co. of N. Am., 841 F.2d 1254 (5th Cir. 1988). See generally H.R. Rep. No. 112-10, at 13–14.

The new rule settles the dispute by allowing each defendant “30 days after receipt by or service on that defendant of the initial pleading or summons,” regardless of when other defendants were served. As an additional safeguard against confusion, the JVCA codifies the Supreme Court’s century-old “rule of unanimity,” requiring all defendants to join in or consent to removal. See Chicago, Rock Island & Pac. Ry. v. Martin, 178 U.S. 245, 251 (1900).

Also, the JVCA now contains a “bad faith” exception for removal of diversity cases. The “bad faith” exception provides that a defendant may seek removal of a diversity-jurisdiction case more than one year after commencement of the action if the district court finds the non-diverse defendant to have been joined in “bad faith.”

Amount-in-Controversy Changes
The JVCA also effects three modifications to the amount-in-controversy provisions of section 1446. First, if the case stated by the initial pleading is not removable, a defendant may still remove the suit to federal court within 30 days of receipt of a pleading, motion, order, or “other paper” (now explicitly including discovery responses) that indicates that the jurisdictional amount has been met.

Second, the defendant may assert the amount in controversy in the notice of removal if the initial pleading seeks (a) non-monetary relief, or (b) a money judgment, but state court practice neither allows inclusion of a specific monetary demand nor permits recovery of damages in excess of the amount actually demanded.

Finally, the JVCA codifies the majority view requiring the removing party to establish the amount in controversy by a “preponderance of the evidence.”

Determination of Citizenship
With respect to diversity of citizenship, the JVCA narrows the resident-alien proviso of 28 U.S.C. § 1332(a). Unlike the former section 1332, the new provision expressly prohibits the exercise of original jurisdiction over a civil action between citizens of a state and permanent-resident aliens domiciled in that same state.

The JVCA included minor changes regarding citizenship of corporations and insurers having foreign contacts. The JVCA clarifies that a corporation is a citizen of “every State” in which it is incorporated. The former rule simply said “any State.” Further, a corporation with foreign contacts is now a citizen of “the State or foreign state” where it has its principal place of business, whereas the former rule referred only to “the State.”

Similarly, an insurer with foreign contacts is now a citizen of “every State and foreign state” in which the insured is a citizen, “every State and foreign state” in which the insurer is incorporated, and “the State or foreign state” where the insurer has its principal place of business.

Remand of “Separate and Independent” Claims
The JVCA modifies the controversial “separate and independent” claim provision in section 1441(c), which addresses removal of actions that include both federal and unrelated state claims. Previously, the court had discretion to remand the unrelated state claims. Under the new section 1441(c), the court is required to sever and remand all claims not within the original or supplemental jurisdiction of the district court.

Keywords: litigation, pretrial practice and discovery, JVCA, Jurisdiction and Venue Clarification Act of 2011, removal, multiple defendants, amount in controversy, citizenship, separate and independent

Charles S. Smith is an associate with McGlinchey Stafford PLLC in New Orleans, Louisiana.

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