Changes to Regulations Governing Federal Removal and Venue

January 31, 2012

Federal courts are often perceived as being stringent in their application of the procedural and substantive laws, exacting in reading motions and enforcing court orders, and intolerant of excuses from counsel for failure to comply with court rules, discovery obligations and ethical and evidentiary rules. In addition, the jury pool in federal court is often more diverse in its geographic, demographic and ideological perspectives since the jury is drawn from many counties, as opposed to solely from the county where the plaintiff is located or the tort occurred. These factors often make federal courts preferred venues for defendants and for all parties in cases involving complex legal issues.

In 2011, there were 367,692 case filings in the federal district courts, a two percent increase from 2010, still a far cry from the millions of cases burdening the state civil courts. Yet, 2012 is sure to be even busier for the federal judiciary, as defendants are poised to enjoy greater access to federal courts thanks to a new law from Congress that took effect on January 6, 2012.

In the Federal Courts Jurisdiction and Venue Clarification Act of 2011 (H.R. 394, P.L. 112-63), Congress clarified several issues related to removal of an action from state court and venue, mostly in favor of defendants. The changes, explained below, address many issues that have often resulted in conflicts between (and sometimes within) the various circuits of the federal courts. The new law applies, prospectively only, to cases commenced in state or federal court on or after January 6, 2012.

Expansion of the Removal Deadline
Under the law as it previously existed removal had to be effected within 30 days after the first defendant was served or the defendant learned that the amount in controversy was $75,000 or more, but no later than one year after the complaint was filed.

In resolving an important dispute among the circuits as to initiation of the 30-day removal deadline, the new law pushes back the start of that period to 30 days for each served defendant in the courts of the Fifth Circuit and others, which interpreted the prior law to require removal within 30 days from the date of service on the first served defendant. Thus, later-served defendants are no longer barred from removal if they were served outside of 30 days from service on the first defendant who chose not to remove. While under the new law the consent of all defendants properly joined and served is still necessary for removal under diversity jurisdiction, now consent from earlier-served defendants may be obtained after removal by a later-served defendant.

The new law also permits removal more than one year after the action is filed if the district court finds that the plaintiff acted in bad faith in preventing the removing defendant from pursuing removal any sooner. This is intended to address a host of situations, including where an ancillary in-state defendant is “strung along” only to be dismissed or settled out after the expiration of the one-year period or where the plaintiff intentionally refuses to provide a settlement demand or discovery as to damages in order to avoid removal to federal court. The revisions specify that a deliberate refusal to disclose the amount in controversy within one year of filing of the state court lawsuit “shall be deemed bad faith” under the new law.

Defendant May Show the Requisite Amount in Controversy
The new law relaxes the requirements for showing the amount in controversy. If the initial pleading is one in which the state’s procedural rules (such as Texas, New York, Connecticut, Michigan) would not permit the pleading of a specific amount in the complaint, or if the state procedure would allow such pleading but also allow a judgment in excess of the pleaded amount, the removing defendant may allege the amount in controversy in the removal papers. The district court must find, however, that the requisite amount in controversy has been shown by a preponderance of the evidence. Using the preponderance of the evidence standard indicates that a removing defendant may rely upon “other paper,” such as a declaration, documentation of a settlement demand, records of damages, responses to discovery or some other evidence in support of removal. The new law also defines “other paper” to include information relating to the amount in controversy in the state court record or in responses to discovery.

Severance and Remand of Certain State Claims in Federal Question Removal
Another restrictive effect of the new regulation is the loss of federal jurisdiction for purely state law claims. If an action is removed on federal question jurisdiction but also contains a claim that is not within the federal court’s original or supplemental jurisdiction or is subject to exclusive state-court jurisdiction by a state statute, the new law requires that those state court claims be severed and remanded to state court. Only those defendants against whom federal questions are asserted are necessary for consent to removal. Those defendants facing non-federal jurisdiction claims need not consent, and their lack of consent will not defeat removal. This new provision may, of course, result in concurrent federal and state court actions. The new law does not appear to effect the federal court's supplemental jurisdiction over state law claims arising from the same transaction or occurrence.

The new venue provision specifies that residency for venue is the natural person’s state of domicile. Parties are permitted to stipulate to the transfer of venue “for the convenience of the parties and witnesses and in the interest of justice” to a district where the lawsuit may otherwise not have originally been brought. The new provision also removes the rule that a case involving property located in different districts in the same state may be brought in any of such districts; now venue may be where a “substantial part of property that is the subject of the action is situated.”

The new law no doubt enlarges defendants’ access to the federal court system in diversity cases and should bring greater uniformity in the practices of the various federal courts with respect to removal and venue.

If you have any questions regarding the new regulation or federal removal or venue in general, please contact:

Beata Shapiro

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