Third Circuit Becomes First Appellate Court to Greenlight 'Snap Removals'
Colin E. Wrabley, left, and Joshua T. Newborn, right, of Reed Smith.
Last year in this column ("Getting Your Company’s Case Removed to Federal Court When Sued in Your ‘Home’ State" (Dec. 19, 2017)), we told you about a vigorous debate in federal district courts across the country over a controversial federal-court removal tactic called “snap removal,” see Arthur Hellman,"Neutralizing the Stratagem of 'Snap Removal': A Proposed Amendment to the Judicial Code," 9 Fed. Cts. L. Rev. 103 (2016). That tactic involves avoiding the so-called “forum defendant rule,” a statutory bar against removing state-court suits where one of the defendants is a citizen of the state in which the action is filed, but where the suit has not yet been served. How? By filing a notice of removal in federal court after the state-court suit is filed but before the state-court suit has been effectively served, a tactic enabled by modern technology and the ability to electronically monitor more and more state-court dockets on a real-time basis.
Cases too numerous to count have taken a diversity of positions on the legality of these snap removals, evoking questions at the heart of statutory interpretation—How strictly must courts follow the literal text of a statute? When is a reading of the statute’s literal text too absurd or bizarre to pass muster? Can legislative history or a statute’s perceived purpose overcome its literal text and, if so, when?
Until very recently, no federal court of appeals had definitively resolved the lawfulness of snap removals or wrestled with the statutory-interpretation questions it implicates. Some had nibbled around the edges—one suggesting courts had discretion to reject snap removals, as in Goodwin v. Reynolds, 757 F.3d 1216 (11th Cir. 2014) (indicating that “because the likely purpose of the phrase ‘properly joined and served’ is to prevent gamesmanship by plaintiffs, ... we cannot believe that it constrains the district court’s discretion under Rule 41(a)(2) to undo the defendants’ gamesmanship in the circumstances at bar”)—but none had squarely decided the question. There is good reason for this appellate court reticence—the law generally precludes immediate appeals from orders granting or denying motions to remand to state court. See 28 U.S.C. Section 1447(d) (barring most appeals from orders remanding to state court); Caterpillar v. Lewis, 519 U.S. 61, 74 (1996) (“An order denying a motion to remand, ‘standing alone,’ is ‘obviously … not final and immediately appealable’ as of right.”). Additionally, as for orders denying remand motions based on the forum defendant rule, the weight of authority considers the forum defendant rule a procedural rule, not a jurisdictional one, see, e.g., Korea Exchange Bank, New York Branch v. Trackwise Sales, 66 F.3d 46, 50 (3d Cir. 1995), and the Supreme Court made clear in Caterpillar that a procedural defect in removal cannot furnish the basis to later reverse a final judgment entered when the district court had jurisdiction, see Caterpillar, 519 U.S. at 64 (holding that “a district court’s error in failing to remand a case improperly removed is not fatal to the ensuing adjudication if federal jurisdictional requirements are met at the time judgment is entered”). In the rare instances when a challenge to snap removal is raised in an appeal from a final judgment, therefore, it is unlikely to prevail since the district court ordinarily would have had diversity jurisdiction at the time of judgment, thus triggering the broad rule of Caterpillar.
Significantly, the absence of appellate court precedent changed in late August of this year when a unanimous U.S. Court of Appeals for the Third Circuit panel became the first court of appeals to approve snap removals, see Encompass Insurance v. Stone Mansion Restaurant, 902 F.3d 147 (3d Cir. 2018). (The propriety of snap removals also is presented in a case set for argument in late November 2018 in the U.S. Court of Appeals for the Second Circuit, as in Mumford v. Bristol-Myers Squibb, Nos. 17-2495 et al. (2d Cir.)). This article will discuss the Third Circuit’s decision, the analysis the court undertook, and what it might mean for the reception snap removals will receive from courts going forward.
Overview of Snap Removals
First, an overview of the snap removal issue and how district courts have tackled it. When a plaintiff files a suit in state court, 28 U.S.C. Section 1441(a) allows a defendant to remove the case to federal court if the case could have been filed in federal court originally. Section 1441(b) then provides rules that are specific to removal based on diversity of citizenship, including the “forum defendant rule” in Section 1441(b)(2). Section 1441(b)(2) states that a civil action cannot 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,” 28 U.S.C. Section 1442(b)(2); see also Lively v. Wild Oats Markets, 456 F.3d 933, 939 (9th Cir. 2006) (explaining that the forum defendant rule “confines removal on the basis of diversity jurisdiction to instances where no defendant is a citizen of the forum state”).
Section 1442(b)(2)’s “forum defendant” rule long was thought to be ironclad. But starting in the early 2000s, defendants began having increasing success with snap removals. They argued, and many courts began to agree, that the plain language of the statute—which forbids removal by an in-state defendant, but only when the in-state defendant has been “properly joined and served”—means what it says: a complaint naming such a defendant can be removed on the basis of diversity if removal is sought before the complaint is served. And this is true, these courts found, despite whatever tactics defendants might engage in to engineer a snap removal. See, e.g., Cheung v. Bristol-Myers Squibb, 282 F. Supp. 3d 638, 642-43 (S.D.N.Y. 2017) (acknowledging that snap removals can lead to gamesmanship, but nonetheless concluding it was bound by the plain language of the statute, which was not ambiguous and which did not produce an absurd result).
Many district courts have rejected snap removals, however, driven principally by the perceived purposes of the forum defendant rule and the absurd outcome they find from enforcing snap removals, see Little v. Wyndham Worldwide Operations, 251 F. Supp. 3d 1215, 1221-22 (M.D. Tenn. 2017) (finding that the purpose of the forum defendant rule, and diversity jurisdiction in general, is “protecting out-of-state defendants from homegrown, local juries,” so snap removals in cases involving in-state defendants do not effectuate these purposes); DHLNH v. International Brotherhood of Teamsters, Local 251, 319 F. Supp. 3d 604, 606 (D.R.I. 2018) (noting the “prohibition on forum-defendant removal makes sense because, ‘when the defendant seeking removal is a citizen of the forum state,’ the ‘protection-from-bias rationale behind the removal power evaporates.’”
A third group of district courts allow snap removals but only if at least one nonforum defendant has been served. The thinking here is that it allows plaintiffs to preserve their choice of a state-court forum by serving the forum defendant first. See Gentile v. Biogen Idec, 934 F. Supp. 2d 313, 314 (D. Mass. 2013) (“Removal is improper until at least one defendant has been served. A plaintiff thus may preserve its choice of state forum by serving the forum defendant before any others.”); Hawkins v. Cottrell, 785 F. Supp. 2d 1361, 1369 (N.D. Ga. 2011) (adopting reading of removal “that statute necessarily restricts removal to cases where at least one defendant has been served”). Notably, under this line of authority, snap removal is unavailable in cases where a forum defendant is the only defendant.
Decision in 'Encompass Insurance'
Along comes Encompass Insurance. The case arose from a fatal car accident involving an intoxicated driver allegedly overserved by a Pittsburgh restaurant, Stone Mansion. The accident killed the driver and seriously injured the only passenger. Encompass, as insurer of the vehicle, settled a claim brought against the driver’s estate by the passenger and then brought suit in state court seeking contribution from Stone Mansion, an in-state company and the only named defendant. Stone Mansion’s counsel initially agreed to accept electronic service of process of Encompass’s complaint but later emailed that it had not yet returned the acceptance of service form because it planned to remove the case based on the snap removal theory. It later did so, prompting a motion to remand, which the district court denied. The district court later granted Stone Mansion’s motion to dismiss, thus allowing Encompass to appeal both rulings following final judgment.
The Third Circuit reversed the dismissal ruling but affirmed the remand ruling, finding snap removals permissible under the statute’s plain text. The court of appeals hardly broke a sweat on its textual analysis, moving swiftly to its finding that the “plain meaning” of Section 1441(b)(2) “precludes removal on the basis of in-state citizenship only when the defendant has been properly joined and served.” That left the court with two remaining questions—whether the plain statutory meaning contradicted a “most extraordinary showing of contrary intentions” on the part of the Congress that enacted the forum defendant rule or would lead to “absurd or bizarre results.” The court answered both in the negative.
On the first question, the court found “no guidance” in the legislative history on the purpose behind the “properly joined and served” clause. But “courts and commentators,” the court observed, “have determined that Congress enacted the rule ‘to prevent a plaintiff from blocking removal by joining as a defendant a resident party against whom it does not intend to proceed, and whom it does not even serve,’” (quoting "Neutralizing the Stratagem of 'Snap Removal,'" 9 Fed. Cts. L. Rev. at 108). Based on these court and commentator interpretations of legislative intent, the court in turn concluded that “Congress’ inclusion of the phrase ‘properly joined and served’ addresses a specific problem—fraudulent joinder by a plaintiff—with a bright-line rule.” And the court found that “permitting removal on the facts of this case does not contravene the apparent purpose to prohibit that particular tactic”—that is, fraudulent joinder of defendants.
The court proceeded to find that its reading did “not defy rationality or render the statute nonsensical or superfluous” for three reasons: “it abides by the plain meaning of the text; it envisions a broader right of removal only in the narrow circumstances where a defendant is aware of an action prior to service of process with sufficient time to initiate removal; and it protects the statute’s goal without rendering any of the language unnecessary.”
One point the Third Circuit did not address would appear to bolster its interpretation. Keying removal in a forum-defendant scenario to service is consistent with the structure of the removal statutory framework, which uses service as a trigger for a number of events (such as the time limit for removal under 28 U.S.C. Section 1446(b)). It also aligns with the law’s settled view that service “is fundamental to any procedural imposition on a named defendant,” as in Murphy Bros. v. Michetti Pipe Stringing, 526 U.S. 344, 350 (1999).
Takeaways and the Future of Snap Removals
Encompass Insurance’s significance cannot be overstated. It is the first court of appeals ruling on the subject of snap removals—in this case, by a unanimous panel—and it endorses the tactic based on a reasoned plain-text construction of the forum defendant rule. It also makes a finding on the legislative intent behind the “properly joined and served” clause that, if followed by other courts, likely will short-circuit plaintiffs’ efforts to get around the plain text. And it almost surely will spur on the practice of snap removals by defendants and influence courts in their consideration of its legality.
Whether courts will follow Encompass Insurance, however, remains to be seen. It is difficult to argue with the Third Circuit’s plain-text interpretation, and its legislative-intent and no-absurdity findings are sensible on their face. One should expect courts that are faithful to the unambiguous statutory text and that, consistent with established Supreme Court precedent, refuse attempts to circumvent it with pleas of legislative intent and absurd outcomes, see, e.g., Trump v. Hawaii, 138 S. Ct. 2392, 2412 (2018) (“Given the clarity of the text, we need not consider such extra-textual evidence” as “statutory background and legislative history”) to follow Encompass Insurance’s lead.
For courts more willing to depart from text and look to broader notions of legislative intent and the rule against absurd interpretations, however, questions may linger after Encompass Insurance. For example, how solid is the Third Circuit’s legislative-intent finding, which, as the court itself acknowledges, has no basis in any legislative history and flows from the views of other “courts and commentators”? Although the Third Circuit does not get into it, those views are based on the surmise that since, prior to Congress’s enactment of the “properly joined and served” clause, the Supreme Court, in a 1939 decision (Pullman v. Jenkins, 305 U.S. 534), appeared to countenance plaintiff gamesmanship in the form of fraudulent joinders of in-state defendants, Congress must have intended the clause to block this practice. Perhaps this is correct, but there appears to be no indication from Congress itself that it is. Consider too whether, if preventing fraudulent joinders of in-state defendants really is the intent behind the “properly joined and served” clause, allowing snap removals by the only named defendant really is consistent with the legislative intent—by naming only one defendant, can a plaintiff be said to have engaged in some fraudulent joinder contrary to the asserted spirit of the clause?
In the end, there is no denying Encompass Insurance’s significance. Defendants sued in state courts within the boundaries of the Third Circuit now have a clear path to pursue snap removals where circumstances permit and they should take advantage of the tactic if they wish to litigate in federal court. And defendants sued outside the Third Circuit now have a persuasive appellate court precedent to support snap removals even in jurisdictions where they were previously disallowed. But how influential Encompass Insurance ultimately will be in future snap removal disputes outside the Third Circuit remains to be seen. We’ll be watching.
Colin E. Wrabley is a partner in Reed Smith’s appellate group. He has extensive counseling, litigation and appellate experience spanning a broad range of substantive legal issues in state and federal courts across the country. He can be reached at cwrabley@reedsmith.com
Joshua T. Newborn is an associate in the firm’s appellate group. He has drafted briefs in federal and state appellate courts, and has also participated in trial court litigation to develop trial strategy in anticipation of an appeal and to petition for discretionary appellate review. He can be reached at jnewborn@reedsmith.com
