• New Jurisdiction and Venue Clarification Act Provides Defense-Friendly Changes To Federal Court Removal Procedures
  • January 18, 2012 | Authors: David N. Anthony; Nicholas R. Klaiber; Alan D. Wingfield
  • Law Firm: Troutman Sanders LLP - Richmond Office
  • On Dec. 7, 2011, President Obama signed the Federal Courts Jurisdiction and Venue Clarification Act of 2011, H.R. 394, P.L. 112-63, which became effective on January 6, 2012. While the Act brings changes to federal statutes governing jurisdiction, venue, and removal, the focus of this advisory is on the Act’s impact on removal, and specifically, how three changes in the Act make removal easier for defendants in general and class action defendants in particular.

    Along with creating several new rules, the Act also codifies the most defense-favorable positions from several areas in which federal circuit courts of appeal had split over the interpretation of the previous removal statutes.

    First, the Act does away with the “first-served” defendant rule, an interpretation of the venue statutes to which some federal circuit courts of appeal had adhered that required defendants to remove an action within thirty days of services on the first defendant to be served. The Act now provides each defendant with thirty days to remove after it is served even if other defendants had been served earlier.

    Second, the Act also bolsters a defendant’s ability to assert the amount in controversy, which in order to invoke diversity jurisdiction must be greater than $75,000. If the complaint seeks non-monetary relief, or seeks monetary relief but either (1) the state court does not permit demands of specific sums or (2) permits recovery in excess of such a demand, a removing party may assert the amount in controversy and, if the court finds the amount sufficient by a preponderance of the evidence, removal is proper. The defendant is entitled to take discovery, if necessary, to ascertain the amount in controversy.

    Third, the Act softens the previously rigid language of 28 U.S.C. § 1446(b) absolutely requiring removal based on diversity to occur within one year of commencement of the action. The Act now allows removal past the one year deadline if the removing party can show that the plaintiff “acted in bad faith in order to prevent a defendant from removing the action.” Bad faith includes instances in which “the plaintiff deliberately failed to disclose the actual amount in controversy to prevent removal[.]”

    Although some of these changes may seem at first blush to more closely resemble subtle tweaks than a dramatic overhaul of federal removal procedures, the aggregate result is likely to make removal demonstrably easier for defendants. Doing away with the “first-served” rule will facilitate the effective organization of removal, especially in the case of putative class actions in which multiple defendants are often involved.

    Providing defendants more freedom to assert the amount in controversy will also allow defendants to escape artful pleading that in the past may have trapped them in state court. Allowing discovery and requiring findings of fact as to the amount in controversy also will help class action defendants facing injunctive relief, which often is difficult to quantify. Finally, the Act’s softening of the rigid one year deadline will make it more difficult for plaintiffs to add in-state defendants solely for purposes of retaining the action in state court, only to then cut that defendant loose after the deadline expires to deprive foreign defendants of a local face at trial.

    The relevant date for determining whether the new removal procedure in the Act applies is the date on which the removed action commenced in state court. For actions commenced after January 6, 2012, defendants are likely to find removal under the Act a much smoother process than that to which they were previously accustomed.