March 21, 2012 – Attorneys analyzing whether a case can be removed from state court to federal court, or which federal court is the proper venue for a case, must now consider revised rules. Effective Jan. 6, 2012, the Federal Courts Jurisdiction and Venue Clarification Act of 2011 (the Act) amended federal removal, venue, and citizenship determination statutes in some key respects.1 The Act applies to any case commenced on or after that effective date, or if the case is removed to federal court, applies if the underlying state case was commenced on or after the effective date.2
Removal changes
The Act alters the rules for removal of civil cases to federal court in several ways.
The first change concerns the timing of removal. In cases with multiple defendants, when does the 30-day clock for removal begin? Before the Act, some federal appeals courts began counting when the first defendant was served, while others allowed removal for 30 days after the final defendant was served. Under the Act, “[e]ach defendant shall have 30 days after receipt by service on that defendant … to file the notice of removal” regardless of when the other defendants were served.3
The Act also codifies the “rule of unanimity” in current case law to require that all defendants who have been served must join in or consent to removal of an action from state to federal court.4 If defendants are served at different times, and a later-served defendant files a notice of removal, then any earlier-served defendant may still consent to the removal even though it did not previously initiate or consent to removal.5 Thus, after these revisions, a plaintiff that adds a defendant after an action has been commenced runs the risk of removal, even if the original defendant failed to remove within 30 days.
Although the one-year limit on removal of a case based on diversity jurisdiction remains, the Act creates a limited exception if the district court finds that the plaintiff acted in bad faith to prevent removal. An example of bad faith would be the plaintiff failing to disclose the amount in controversy to avoid removal.6
The Act also addresses the uncertainty of the amount in controversy when removal is sought in a diversity case. In some jurisdictions (such as Wisconsin7) the amount of damages cannot be alleged in a state-court tort complaint. Under the Act the notice of removal can state the amount in controversy.8 The district court is to use a preponderance-of-the-evidence standard to evaluate the amount in controversy.9 Therefore, even if the complaint demands a sum below the statutory minimum of $75,000, a defendant may assert a greater amount in the notice of removal. The Act also provides that information collected during state-court discovery may be used to support removal.10
Another revision eliminates the district court’s discretion to hear state law claims made in a case removed to federal court on the basis of federal question jurisdiction. Under the Act, the district court “shall sever and remand” such state law claims.11 This sever-and-remand provision appears to apply only to “separate and independent” state law claims, allowing a federal district court under supplemental jurisdiction12 to hear state law claims that form part of the same case or controversy as the federal claims.
Citizenship determinations
For diversity cases, the Act also clarifies how to determine citizenship for foreign persons admitted for permanent residence, as well as for corporations and insurance companies with significant foreign operations.
The Act provides that federal courts cannot exercise jurisdiction over claims asserted between a citizen of a state and citizens of a foreign state who are lawfully admitted for permanent residence in the U.S. and who are domiciled in the same state.13 The effect is to apply the “complete diversity” requirement to claims involving foreign permanent residents.
If a corporation or insurance company has significant foreign operations, the Act clarifies that the corporation or insurer is a citizen of both the state in which it is incorporated and any other state (including any foreign state) where it maintains its principal place of business.14 This revision may have the effect of limiting diversity jurisdiction by increasing the number of states of which such corporations and insurers are considered citizens.
Venue changes
The Act clarifies, rather than substantively changes, federal venue provisions. It creates a new provision that describes venue generally.15 The venue statute formerly separated diversity and federal question cases. The Act combines the venue requirements for both types of cases, and lists them as: “(1) a judicial district in which any defendant resides, if all defendants are residents of the State in which the district is located, (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated, or (3) if there is no district in which an action may otherwise be brought as provided [above], any judicial district in which a defendant is subject to the court’s personal jurisdiction with respect to such action.”16
Conclusion
As a result of these changes, defendants may be able to remove more cases from state to federal court, and at later times during the course of a case. Those cases will be streamlined by not including state law claims that do not qualify under the supplementary jurisdiction statute. But in cases involving foreign persons, or corporations or insurers with significant foreign operations, close examination will be necessary to determine if federal jurisdiction does exist.17
About the author
Michael B. Brennan, Northwestern 1989, is a trial and appellate lawyer with Gass Weber Mullins LLC in Milwaukee. He can be reached at brennan@gasswebermullins.com.
Endnotes
