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Oh Snap! Federal Circuit Court Recognizes Viability of ‘Snap’ Removal by In-State Defendant

On August 22, 2018, the United States Court of Appeals for the Third Circuit recognized the viability of “snap removal,” a litigation tactic whereby a defendant (in-state or otherwise) removes a state court claim to federal court based on diversity of citizenship before any forum defendants are served.

Federal courts possess only the power authorized by the United States Constitution and federal statute. The Constitution and the U.S. Code provide “diversity jurisdiction” to federal courts in civil cases when the amount in controversy exceeds $75,000 and the parties are from different states. Diversity jurisdiction is included in our Constitution because the Framers were concerned that state courts might be biased in favor of “home state” parties. In order for diversity jurisdiction to apply, “complete diversity” is required, meaning, none of the plaintiffs can be from the same state as any of the defendants. Thus, if a plaintiff files suit in a Texas state court forum, the inclusion of any “forum defendants” (individuals or businesses from Texas) would destroy diversity of citizenship. Accordingly, plaintiffs frequently try to name diversity-destroying forum defendants from whom they have no intention of recovering, in an effort to have their case heard in a forum they believe to be most favorable. This practice has led to what is referred to as “forum shopping” or “litigation tourism.”

A defendant can utilize 28 U.S.C. § 1441 to remove a state court case to federal court where diversity of citizenship exists. But the statute includes restrictions that limit a defendant’s ability to remove a case to federal court, including what is known as the “forum defendant rule” set out in 28 U.S.C. § 1441(b)(2). Section 1441(b)(2) provides that an action “may not be removed 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.” The language “properly joined and served” has been hotly contested. Parties have debated over whether a defendant should be able to remove a case to federal court before a named forum defendant has been served. Based on the plain meaning of “properly joined and served,” many courts have allowed for this practice, called “snap removal.”

In Breitweiser v. Chesapeake Energy Corporation, No. 3:15-CV-2043-B, 2015 WL 6322625, at *1 (N.D. Tex. Oct. 20, 2015), the Northern District of Texas recognized the legitimacy of snap removal by a non-forum defendant before a forum defendant has been served, based on the “plain meaning” of Section 1441. However, Breitweiser pointed out that it would be “absurd” to allow for a forum (in-state) defendant to utilize the “properly joined and served” loophole to remove a case to federal court before that forum defendant had been served.

Just a few weeks ago, the Third Circuit took this concept a step further, allowing a forum defendant to remove a case to federal court prior to being served. See Encompass Insurance Co. v. Stone Mansion Restaurant, Inc., ___ F.3d ___, 2018 WL 3999885 (3d Cir. Aug. 22, 2018). In Encompass, defense counsel for an in-state defendant had initially agreed to accept service but then notified plaintiff he would not do so until after he had removed the case to federal court. Although the Third Circuit called this evasion of service “unsavory,” the court ultimately upheld the removal. Plaintiff argued it would be an “absurd result” to apply the plain language of the statute to allow an in-state defendant who had not yet been served to remove a case to federal court based on diversity of citizenship. The Third Circuit rejected Plaintiff’s “absurd result” argument, finding that the outcome of applying the plain meaning of Section 1441 is not so outlandish as to constitute an absurd or bizarre result. Plaintiff also argued that advancements in electronic filing allow defendants to monitor dockets electronically to identify and remove cases before being served. The court also rejected this argument, finding it was more appropriate for Congress to consider. While recognizing that “[r]easonable minds might conclude that the procedural result demonstrates a need for a change in the law,” the court pointed out that such change would need to be made by action of Congress and not the Judiciary.

The Third Circuit is the first of the federal appellate courts to tackle this issue. The Third Circuit’s jurisdiction covers appeals from the U.S. District Courts of Delaware, New Jersey, and Pennsylvania. However, because this is the first appellate decision, this opinion will likely be persuasive in other jurisdictions. Although district courts in other jurisdictions have previously applied factors in considering whether snap removal leads to absurd outcomes, the Third Circuit has effectively deemed these considerations irrelevant. The Encompass case represents the most extreme of circumstances – an in-state defendant who evaded service and effectuated federal court removal. Because this case involves this extreme, it seems to cut off debate regarding the distinctions courts have previously drawn.

Given this holding, frequently sued parties may want to invest in electronic monitoring of state court dockets to identify suits pre-service and consider removing these cases to federal court before being served. The decision in Encompass could be a big step in preventing “litigation tourism.”