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Litigation Journal

Litigation Journal | Summer 2023: Legitimacy

Legitimate Removal: How to Do It and Traps for the Unwary

Andrew Pauwels and Anna Transit

Summary

  • Removal can be a low-stakes way for defense counsel to gain some control over the course of recently filed litigation.
  • Nevertheless, the process offers abundant opportunities for stumbles, some of them potentially fatal to removal.
  • A clear understanding of why the case belongs in a federal forum is essential for navigating away from easily avoided pitfalls.
Legitimate Removal: How to Do It and Traps for the Unwary
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There comes a time in every litigator’s career where they face a (seemingly) simple but (potentially) daunting task. A client (or maybe a senior partner) calls with a new case. The case is pending in state court. For whatever reason—a desire to avoid the particularities of state procedural rules or maybe a fear (rational or irrational) of being the “road team” in front of an elected state court judge—the client wants to get out of state court as fast as possible. The litigator strains to draw on everything learned in law school Civil Procedure and remembers: a case can be removed to federal court by simply filing a notice of removal. Easy, right?

The process for removing an action to federal court appears to be, and often is, straightforward. In these simple cases, the defendant files a notice of removal identifying, by a short and plain statement, the grounds for federal jurisdiction, and the case proceeds from there without a hiccup. But all too often, the process for removal can present an unexpected minefield, and one that must be negotiated quickly, as a 30-day countdown clock is usually already running when the case comes in the door. Given that removal is often one of the first actions taken on behalf of a client in a newly filed suit, committing an unforced error can be an unfortunate omen for the representation you worked so hard to get. Do something wrong and the case ends up right back in the state court the lawyer and the client wanted so badly to avoid.

Fortunately, the wary litigator can identify and chart the route around these pitfalls in advance. While every state court or federal jurisdiction may have its own particularities with which a lawyer should be familiar, this article offers a road map to avoid some of the most common obstacles to removing a case to federal court.

Determining Eligibility

The first step in every action is to determine whether the case is even eligible for removal. The basic inquiry asks whether the case could have been brought in the federal forum in the first place. The general removal statute, 28 U.S.C. § 1441, lays out the most common bases for removal from a state court to a federal forum: diversity jurisdiction and federal question jurisdiction.

Diversity jurisdiction is by far the trickier proposition. To remove a case, it must satisfy the requirements of 28 U.S.C. § 1332, which establishes the basic requirements for a federal court to have original diversity jurisdiction over the claim—the amount in controversy must exceed the sum of $75,000, and the parties may not be citizens of the same state. While on the surface this looks straightforward, several nuances lurk to ambush the inattentive.

One nuance is that the presence of even a single defendant who is at home in the forum state will defeat removal based on diversity jurisdiction. A plaintiff who files suit in a defendant’s home state can generally rest assured that the defendant will not be able to remove the case to a federal forum on diversity grounds. The potential prejudice against an out-of-state defendant that undergirds diversity jurisdiction will not be at issue if the plaintiff voluntarily files suit in the defendant’s home state. This of course provides little comfort for non-home-state codefendants wanting to remove the action.

Luckily, there is a potential solution: snap removal. At least three federal circuits have concluded that a removal is permissible, even by a home-state defendant, if the defendant files the notice of removal before service of the complaint on the home-state defendant. See Gibbons v. Bristol-Myers Squibb Co., 919 F.3d 699, 706 (2d Cir. 2019) (permitting snap removal); Encompass Ins. Co. v. Stone Mansion Rest. Inc., 902 F.3d 147, 151–52 (3d Cir. 2018); Tex. Brine Co., L.L.C. v. Am. Arbitration Ass’n, 955 F.3d 482 (5th Cir. 2020). But see Woods v. Ross Dress for Less, Inc., 833 F. App’x 754, 756 (10th Cir. 2021) (snap removal not permitted). Snap removal underscores the speed with which defense counsel must make and execute removal decisions. But, of course, it’s not clear that every federal circuit will recognize the practice.

Establishing Complete Diversity

Another trap to be on the lookout for: establishing complete diversity may require some digging, especially in the context of partnerships, limited liability companies (LLCs), or other associations. That is because each “person” on either side of the claim must be diverse. Because LLCs and partnerships are not treated as legal persons in the same way that a corporation or an individual is, determining diversity in the context of these entities requires that membership be traced back until it comprises only legal persons—corporations or natural persons—whose domicile may be determined. Platinum-Montaur Life Scis., LLC v. Navidea Biopharmaceuticals, Inc., 943 F.3d 613, 618 (2d Cir. 2019).

For example, Defendant ABC is an LLC whose members are Suzie; Suzie Q Bakery, LLC; and Suzie’s mom, Pam. Suzie and Pam are natural people and they reside in Nebraska. Suzie Q Bakery, LLC, on the other hand, is an LLC with a baker’s dozen of other members, including both people and corporate entities. To determine whether there is complete diversity of citizenship sufficient for removal, the domicile of each member must be traced back, and none of the members may reside in the same state as the plaintiff or in the state where the suit is filed. If a member of Suzie Q Bakery, LLC, is itself an LLC, then the members of that LLC must also be identified and their citizenship determined. Further complicating the picture, this family tree must be drawn for each plaintiff and defendant.

The residence of corporate entities also merits a note. A corporation is usually considered to be a resident of the state where it is incorporated and the state where its headquarters is located, which may or may not be the same. Thus, a corporation can be a resident in two different states at once for purposes of diversity jurisdiction. But a corporation may also be required to “reincorporate” in a given state in exchange for the privilege of conducting business there. While such a requirement is permissible, it does not actually render the corporation “at home” within the state for purposes of diversity jurisdiction. See Polito v. Molasky, 123 F.2d 258 (8th Cir. 1941). In other words, a state cannot require that a defendant corporation waive its right to remove cases filed against it in that state or by citizens of that state by requiring that a corporation reincorporate there or designate an agent for service of process there.

Finally, the wary remover must properly determine the total amount in controversy and ensure that it exceeds $75,000, exclusive of interest and costs. In determining the amount in controversy, a remover may include punitive damages or attorney fees, but only if those are recoverable on the underlying claim, either because of state law or through a specific provision of the contract. If including attorney fees, be careful to check whether an estimate of the attorney fees that will be incurred in the action is permissible or whether only those fees that have been incurred up to removal may be considered—courts are divided on this issue.

The amount in controversy is a tool in the belt of the plaintiff determined to avoid a federal forum. A plaintiff may stipulate to neither seek nor accept damages and fees in excess of $75,000. Such a stipulation has been held sufficient to prevent removal but only so long as it is binding on the plaintiff and has been made at the time the notice of removal is filed, as that is when the jurisdiction of the federal court is determined. See, e.g., Hunt v. DaVita, Inc., 680 F.3d 775, 777 (7th Cir. 2012). If the plaintiff makes such a binding stipulation, the defendant hoping to remove because of diversity will be out of luck.

A defendant can also remove on the basis of federal question jurisdiction. A federal question exists when the plaintiff’s complaint states a federal claim for relief or when an issue of substantial and contested federal law is involved in the adjudication of the plaintiff’s state law claim. The fact that a defense or counterclaim involves an issue of federal law is insufficient to confer jurisdiction on the federal forum. Instead, the federal question must be rooted in the plaintiff’s claim and appear on the face of the complaint.

When the plaintiff’s complaint states a federal claim for relief, removal on the basis of federal question jurisdiction is clear. But what about in circumstances when the plaintiff’s state law claim for relief involves a determination or application of federal law? The remover need not lose all hope. In this instance, removal may be available if the state law claim necessarily raises an issue of federal law that is actually disputed and substantial and for which a federal forum would be more appropriate. Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 314 (2005). “Actually disputed” here means that the complaint must expressly raise the federal question in connection with the state law claim, and that federal question must be subject to differing interpretations. “Substantial” means that the federal issue cannot be merely collateral or incidental to the state law claim.

If the case is not removable at the time of filing, again not all hope is lost: A case that was not removable at its commencement may subsequently become removable through some voluntary action of the plaintiff, such as amendment of the complaint to add a federal question or through the voluntary dismissal of nondiverse parties. Because the plaintiff is master of the claim, only voluntary actions can create the basis for removal. The involuntary creation of diversity, such as by the granting of a motion to dismiss a non-diverse party, will not suffice.

If a matter becomes removable sometime after the initial complaint is filed, a new 30-day clock starts running. But that clock refreshes only if the case is newly removable when it once was not—if a case could have been removed at the beginning but was not, the clock does not start over, even though a new basis for removal may have been created. In diversity actions, the clock will also only refresh within one year from the commencement of the case, and a case cannot be removed on the basis of diversity jurisdiction more than one year into its adjudication. No such time limitation applies to federal question cases, leaving open the possibility that a case could be removed on the eve of trial if a removable federal claim arises then.

How to Proceed

Once counsel for the defendant decides that removal is available and strategically advantageous to pursue, the obvious next step is figuring out how to proceed. Functionally, the process for effectuating removal is relatively simple: Within 30 days of receipt of the pleading, counsel for a defendant prepares and files a notice of removal. If there are multiple defendants, they all must consent to the removal. The remover then serves the notice of removal on the state court and all other parties.

Breaking that down, the first hurdle to clear is timing. The removal statute provides that the notice of removal “shall be filed within 30 days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading.” 28 U.S.C. § 1446(b). Does “receipt” mean that the timer starts running once plaintiff’s counsel provides a courtesy copy of a soon-to-be-filed complaint or once defense counsel pulls it from a docketing alert system? What about when plaintiff’s counsel requests a waiver of service? To avoid disputes regarding when exactly the 30-day timer starts running, the federal courts have interpreted this portion of the statute as requiring that the defendant (or a person authorized to receive process on the defendant’s behalf) must have been properly served and have knowledge of the basis for federal jurisdiction. Murphy Bros. v. Michetti Pipe Stringing, Inc., 526 U.S. 344 (1999). Generally, to start the clock, “service” occurs (a) when a plaintiff formally serves a defendant with a complaint and summons, (b) when a defendant receives service of a summons and has knowledge of the complaint, or (c) when a defendant waives service voluntarily. In the case of waiver, the 30-day clock starts ticking when the plaintiff files the executed waiver form with the court.

Notice of Removal

Once defense counsel understands the timeline, they must next prepare the notice of removal. This is a fairly easy document to prepare. The applicable statutes and case law set forth some basic requirements of which every litigator should be aware to avoid a fumble. The notice of removal should contain the caption of the court to which the case is being removed, not that of the state court where it was originally filed. The notice should also contain a statement identifying the party that is removing the case, the court from which the case is being removed, and the statutory basis for removal. The body of the notice should contain a brief background of the case, including any procedure that has occurred prior to the notice of removal. The removal notice should make the grounds for federal jurisdiction clear through a short and plain statement, but (of course) such statement should be neither too short nor too plain. Instead, the notice must contain enough specific allegations and information that the basis for jurisdiction may be plainly determined. Conclusory allegations will not suffice if a plaintiff files a motion for remand. See Charter Sch. of Pine Grove, Inc. v. St. Helena Par. Sch. Bd., 417 F.3d 444, 448 (5th Cir. 2005). In cases removed based on the diversity of the parties, this means identifying the domicile of each plaintiff and each defendant. Flashing red light here: If any party is an LLC or similar entity, this requires statements tracing the family tree to each “legal person” end point. The notice must also plausibly aver why the amount in controversy exceeds the jurisdictional threshold. In federal question cases, the notice of removal should clearly identify the federal claim for relief asserted in the complaint. Importantly, the notice of removal may, and often must, contain information that is not apparent from the face of the plaintiff’s complaint.

The defendant must also attach certain documents to the notice of removal. The removing party is required by 28 U.S.C. § 1446 to attach to the notice of removal “a copy of all process, pleadings, and orders served upon defendant or defendants in such action.” The removing party should also include the pertinent civil cover sheet initiating the case in federal court, any notices of appearance, and any required corporate disclosure statements.

The final component of the notice raises an additional potential pitfall in multi-defendant suits: consent. All defendants who have been served must consent to the notice of removal. The notice must state that all properly joined and served defendants consent to the removal and must support such consent by affidavit of the removing party, by concurrence, or by independent written consents to removal signed by the codefendants.

Consent is an area where counsel must be aware of particularities within the applicable federal jurisdiction. While all courts require proof of consent, many courts have relaxed the specific parameters of this requirement so that a notice of removal that states the concurrence of other served defendants is sufficient. Other courts, however, require each defendant to separately indicate its consent. See Charter Sch. of Pine Grove, Inc., 417 F.3d at 448 (statement of concurrence by removing party sufficient). But see Edelman v. Page, 535 F. Supp. 2d 290 (D. Conn. 2008) (requirement not satisfied when other defendants did not file written notice of consent).

There are a few other potential traps regarding consent. A defendant who failed to join in the original notice of removal may nevertheless manifest its consent by opposing remand. A defendant who has not yet been served may be ignored and is not required to join in the notice of removal, lest the time for the other defendants to remove expires before all defendants have been served. While the not-yet-served defendant’s consent is not required, the removing party must explain the absence of consent in the notice. Failure to obtain the consent of all properly served defendants when the notice is filed may be considered a procedural defect meriting remand.

Defendants may freely amend the notice of removal until the 30-day period expires. Such amendments may add or correct information regarding citizenship, elaborate on the grounds for removal, add new grounds for removal, or otherwise correct or modify the notice. But once the 30 days expire, a notice of removal generally may be amended only to clarify or add detail to the grounds previously asserted. If removing before each named defendant has been served, be cautious about making amendments within the 30-day period, as the court may require consent from any defendant served in the interim.

One of the challenges of removal is the sheer length of the checklist involved—there are so many items to complete that, even if an individual item is simple, the process becomes complex as it compounds. A prime example is the filing of the notice of removal: The unwary may think, “I have filed my removal in federal court. I can sit back and wait.” Not so.

The next step to complete the removal is to notify the state court and the other parties who have received service of process. The removal procedure statute, 28 U.S.C. § 1446, requires that these tasks be done “promptly”: Written notice of the removal must be provided to all adverse parties, and a copy of the notice of removal must be filed with the clerk of the court from which the action was removed. While there is no clear standard for what constitutes “prompt” notice, the removing party should not unduly delay providing such notice to the state court or to the other parties. Filing the notice of removal with the state court is essential to divest that court of jurisdiction over the claim. Thus, it is good practice to file with the state court immediately upon receiving time-stamped copies of the federal filing.

What Happens After Removal

When those steps are completed, removal has been effected, and the case proceeds in federal court as if it had been filed there from the beginning. Speiser, Krause & Madole P.C. v. Ortiz, 271 F.3d 884, 887 (9th Cir. 2001). Generally, the federal court is not responsible for looking into the propriety of each removal that comes before it. Instead, the duty primarily belongs to the plaintiff to point out procedural defects in the notice of removal or to highlight for the court why subject matter jurisdiction does not exist. A plaintiff has 30 days from the filing of the notice to move to remand based on procedural defects in the notice. 28 U.S.C. § 1447(c). But the plaintiff may move at any point for remand on the basis that the court lacks subject matter jurisdiction over the claim; and, of course, the court may remand on its own if it concludes it does not have such jurisdiction.

Federal Rule of Civil Procedure 81 creates certain procedural deadlines that arise after effecting removal. The first is the time for filing an answer or initial motion: If a defendant has not filed an answer to the complaint before removing the case, the defendant must answer or move within the longer of (1) 7 days from the filing of the notice of removal or (2) 21 days after being served the summons or complaint.

The second deadline set by Rule 81 is the time for making a jury demand. If a party demanded a jury in the state proceeding or when state law did not require an express demand, there is no need to file a new jury demand once the case has been removed unless the court so orders. If, however, no party demanded a jury while the case was in state court and all pleadings have been filed, the parties will have 14 days after the notice of removal was filed or served to demand one in the federal forum if otherwise so entitled. A jury may also be demanded with the defendant’s answer if filed after the notice of removal.

The 30-day deadline for a remand motion on grounds other than subject matter jurisdiction starts running as soon as the defendant files the notice of removal, regardless of when it is served. Despite the lack of clarity as to the promptness with which service of the notice must be accomplished, a removing party should not try to game the chances of a remand by delaying service. Such a tactic is likely to backfire. An undue delay in serving the removal papers will be viewed poorly by the district court, and the removing party has the burden of showing that it properly complied with all removal procedures.

A party moving for remand may do so on the basis of either procedural or substantive defects. Procedural defects include the timeliness of the removal, the failure to obtain the consent of a codefendant or to explain the lack of a codefendant’s consent, the presence of a forum-state defendant, the failure to timely serve the removal papers on the other parties or the state court, the failure to remove a diversity case within a year after its commencement, or even the failure to sign the removal notice. While many courts allow procedural defects in the removal process to be cured, a party should nonetheless carefully comply with procedural requirements to avoid remand because of a purely technical defect.

Substantive defects, on the other hand, go to whether the court actually has subject matter jurisdiction to hear a case. Such a motion may present either a facial challenge or a factual one. A facial challenge argues that, even accepting all allegations regarding the jurisdictional basis of the court as true, the federal forum still lacks jurisdiction over the claim. A factual attack is one that challenges the allegations of the removing party that underlie the claim for removal jurisdiction. When faced with a motion for remand, the removing party bears the burden of proving that it complied with all removal procedures and that the action properly belongs in a federal forum because it satisfies all jurisdictional requirements.

In determining a motion for remand, the district court will generally review the complaint, the notice of removal, and the state court record. Where the propriety of removal is apparent from the face of these documents, it may decline to hold an evidentiary hearing. Where factual issues are present, however, the court will often conduct such a hearing and review additional materials submitted by the parties.

Factual materials in support of removal may be attached to the notice of removal before it is filed. But the court is not limited to the face of the pleadings and notice of removal in determining removability—the court may also consider evidence submitted by the parties in response to the motion for remand such as affidavits, contracts, or other record evidence. Some courts have framed the evidence reviewed in response to a motion for remand as “summary judgment type” evidence. See Sierminski v. Transouth Fin. Corp., 216 F.3d 945 (11th Cir. 2000). This evidence will be considered when it is relevant to the factual issues critical to the propriety of removal, such as the domicile of the parties, the amount in controversy, or the factual basis for a federal question claim.

The court must assess jurisdiction at the time of removal. Thus, any evidence submitted in support of the removal must speak to the circumstances present when the action was removed. For instance, an affidavit addressing the domicile of a defendant as of the date of the response is ineffective. Instead, the affidavit must speak to the domicile of the defendant at the time the notice of removal was filed.

Conclusion

Removal is most often straightforward and can be a low-stakes way for defense counsel to set the tone and gain some control over the course of recently filed litigation. Nevertheless, the process offers abundant opportunities for stumbles, some of them potentially fatal to removal. Close attention to the procedural and substantive requirements for effecting removal and a clear understanding of why the case belongs in a federal forum are essential for navigating a sure path away from easily avoided pitfalls.