On Tuesday, the Fifth Circuit Court of Appeals, joining the Second and Third Circuits, adopted the plain-meaning approach to the removal statute holding that the forum-defendant rule does not prohibit a defendant from removing a case from state court to federal court on the basis of diversity jurisdiction before the plaintiff formally serves the forum state defendant. The U.S. Courts of Appeals that have addressed this issue are now three for three on recognizing the viability of pre-service "snap" removal.
Under 28 U.S.C. § 1441(a), a defendant is permitted to remove a case from state court to federal court where the federal court has diversity jurisdiction. Removal pursuant to diversity jurisdiction is permitted when the amount in controversy is over $75,000 and the parties are "diverse" in citizenship, where no plaintiff is a citizen of the same state as any defendant. However, there is a limit to a defendant's ability to remove a case and a civil action may not be removed on the basis of diversity jurisdiction "if any of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.1" This provision is commonly known as the "forum-defendant" rule and has led to a divide among district court judges as to whether they should apply a plain-meaning approach or a more policy-based approach to interpret the statute. The plain-meaning approach allows removal any time before the forum-defendant has been "properly joined and served" (snap removal). The policy-based approach does not allow for removal in these circumstances as a way to discourage gamesmanship and a race to remove prior to service because it would run contrary to the policy of allowing a plaintiff to litigate in its chosen forum and keeping certain groups of cases in state courts. In 2018 U.S. Court of Appeals for the Third Circuit became the first circuit court of appeals to recognize and endorse the viability of pre-service (snap) removal2. In 2019, the Second Circuit became the second circuit court of appeals to weigh-in on this issue and also affirmed the pre-service (snap) removal practice3. Yesterday, the Fifth Circuit became the third circuit court of appeals to weigh-in on the issue.
In Texas Brine Company, LLC v. The American Arbitration Association, Inc., et. al.4, the plaintiff filed a motion in Louisiana state court seeking damages and equitable relief against the defendants for intentional and fraudulent conduct in connection with prior arbitration proceedings. The plaintiff, a citizen of Texas and North Carolina, sued three defendants, one was a citizen of New York and the other two defendants were citizens of Louisiana. The plaintiff served the New York defendant and prior to the service of the Louisiana defendants (the forum-defendants), the New York defendant removed the case to federal court. The plaintiff moved to remand and challenged the snap removal by the non-forum defendant. The district court, adopting a plain meaning approach to the removal statute as not baring the snap removal, denied the motion to remand. The plaintiff appealed.
The Fifth Circuit panel upheld the district court's denial of the motion to remand. Adopting a plain-meaning approach to the statute, the Court stated that the case would not have been removable had the forum-defendant been "properly joined and served" at the time of removal, (the Louisiana defendants had not been served at the time of removal). When the New York defendant filed its notice of removal, the case was "otherwise removable" as required by Section 1441(b) because the "forum-defendant rule's procedural barrier to removal was irrelevant" because the only defendant "properly joined and served" was the New York defendant, who was not a citizen of Louisiana, the forum-state. The Court agreed with the Second Circuit that Section 1441(b)(2) is "inapplicable until a home-state defendant has been served in accordance with state law; until then, a state court lawsuit is removable under Section 1441(a) so long as a federal district court can assume jurisdiction over the action"5.
The Fifth Circuit addressed the plaintiff's absurdity argument by holding that allowing for snap removal does not, and would not, create a result that is absurd and defeats Congress' intent. The Court stated that the absurdity bar is high and the result must be a "preposterous one that no reasonable person could intend". While there may have been a flaw in drafting the statute and a "failure to appreciate the effect of certain provisions" that did not constitute an absurdity and a reasonable person could intend the results of the plain language. In addressing the plaintiff's abuse of statute argument, the Court stated that they did not have "any doubt about the propriety of removal" because the text of the statute was unambiguous. Therefore, a non-forum defendant may remove an otherwise removable case even when a named defendant who has not been "properly joined and served" is a citizen of the forum-state (a forum-defendant).
The Fifth Circuit is the third circuit court of appeals to weigh-in on this issue of snap removal. All of the circuit courts of appeals that have addressed this issue, Fifth, Second, and Third, have all recognized the viability of snap removal by taking a plain-meaning approach to the removal statute, finding that the language is unambiguous and only prohibits a defendant from removing a case after the forum-defendant has been "properly joined and served". Therefore, in terms of best practice, defendants should continue to monitor state court dockets and quickly file notices of removal in a cases prior to service of a forum-defendant. Given the Texas Brine opinion, defendants who remove state court actions prior to service of the forum-defendant will likely be able to remain in federal court in the Fifth Circuit in addition to the Second and Third Circuits. The states covered by these three circuits include Louisiana, Mississippi, Texas, Connecticut, New York, Vermont, Delaware, New Jersey, and Pennsylvania.
Some current and former partners at Duane Morris LLP are, or have have been, AAA arbitrators.
Footnotes
1 28 U.S.C. §§ 1441(b)(2)
2 Encompass Insurance Co. v. Stone Mansion Restaurant, Inc., 902 F.3d 147 (3d Cir. 2018)
3 Gibbons v. Bristol-Myers Squibb Co., 919 F.3d 699 (2d Cir. 2019)
4 Texas Brine Co., L.L.C. v. Am. Arbitration Ass’n, Inc., No. 18-31184, 2020 WL 1682777 (5th Cir. Apr. 7, 2020)
5 Gibbons, 919 F.3d at 705.
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