The U.S. Court of Appeals for the Third Circuit issued an important decision last month in Encompass Insurance Co. v. Stone Mansion Restaurant, __ F.3d __, 2018 WL 3999855 (3d Cir. Aug. 22, 2018), holding that the presence of a defendant who is a resident of the state where litigation is filed will not prevent the removal of a case that satisfies diversity jurisdiction from state court to federal court if the removal is effectuated prior to service on the forum defendant—a practice that is frequently referred to as “snap removal.” The applicable rule, known as the forum-defendant rule, provides that a state court civil action may not be removed to federal court 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. §1441(b)(2) (emphasis added). Defendants have increasingly sought to remove otherwise diverse state court cases where a defendant is a citizen of the forum state to federal court prior to service being effectuated on that defendant on the grounds that the plain text of 28 U.S.C. §1441(b)(2) does not apply to cases where the forum defendant has not yet been served. The Third Circuit’s decision, which is the first from an appellate court to directly address the practice of snap removal, will give defendants additional support in seeking to remove cases to federal court outside of the Third Circuit and will increase incentives for defendants to closely monitor electronically available state court dockets to employ snap removal in order to avoid litigating in a potentially less favorable forum.
The Practice of Snap Removal
Snap removal is only available in cases where complete diversity exists and the only impediment to the case being brought in federal court is the presence of an unserved forum defendant. The practice of snap removal has greatly increased over the last several years as the number of electronic court dockets has increased, which has enabled defendants to learn about litigation against them prior to being served and then promptly remove the case to federal court. See Breitweiser v. Chesapeake Energy, 2015 WL 6332625, at *6 (N.D. Tex. Oct. 20, 2015); Valido-Shade v. Wyeth, 875 F. Supp. 2d 474, 478 (E.D. Pa. 2012), summarily aff’d, No. 14-4608 (3d Cir. April 29, 2015). The increase in snap removals also followed Congress’s revisions to 28 U.S.C. §1441(b) in 2011, which emboldened defendants to pursue snap removals because Congress left the operative phrase “properly joined and served” unchanged, which is the basis for snap removals.
Prior to the Third Circuit’s recent decision, numerous district courts addressed whether snap removal is permissible and reached inconsistent results. Two basic approaches to snap removal emerged in the district courts: (1) permitting snap removal based on a textual analysis of 28 U.S.C. §1441(b)(2)’s requirement that a forum defendant be “properly joined and served as defendants” (Munchell v. Wyeth LLC, 2012 WL 4050072, at *3-4 (D. Del. Sept. 11, 2012)) and (2) rejecting snap removal on the grounds that snap removal “produces a result that is at clear odds with congressional intent” (Swindell-Filiaggi v. CSX, 922 F. Supp. 2d 514, 521 (E.D. Pa. 2013)) or that “a literal application of [the] plain meaning … creates absurd results.” Phillips Constr. v. Daniels Law Firm, 93 F. Supp. 3d 544, 553 (S.D. W. Va. 2015). Some district courts further distinguish between cases where the forum defendant itself sought removal, which some courts have found to be impermissible. See Breitweiser, 2015 WL 6332625, at *6. In that vein, some other courts have held that removal cannot occur prior to service on at least one defendant because the forum-defendant rule is conditioned on the service of at least one defendant. See Gentile v. Biogen Idec, 934 F. Supp. 2d 313, 322 (D. Mass. 2013). This approach serves to prevent removal where a forum-defendant is the only defendant in the litigation. If a district court determines that snap removal is inappropriate, the matter is remanded to state court, and that remand is unreviewable by a federal court of appeals pursuant to 28 U.S.C. §1447(d).
District courts in New York have also reached conflicting results regarding the practice of snap removal. In Confer v. Bristol-Myers Squibb Co., 61 F. Supp. 3d 305 (S.D.N.Y. 2014), the court rejected the practice and remanded the matter to state court on the grounds that that the forum-defendant rule “serves only to prevent a plaintiff from blocking removal by joining a resident party against whom it has no serious plan to proceed.” Id. at 306. The court supported its holding by noting that the forum-defendant rule “expresses the policy that the defendant who lives in the state where the action is brought has no prima facie reason to fear local prejudice or discrimination against out-of-towners, and thus to seek the protection of federal diversity jurisdiction.” Id.; see also In re: Propecia (Finasteride) Prods. Liab. Litig., 2016 WL 5921070, at *2 (E.D.N.Y. Oct. 11, 2016); Torchlight Loans Servs. v. Column Fin., 2013 WL 3863887, at *3 (S.D.N.Y. July 24, 2013).
However, other district courts in New York have denied motions to remand where the matter was removed before the forum defendant was served. See Cheung v. Bristol Myers, 282 F. Supp. 3d 638, 644 (S.D.N.Y. 2017). In Cheung, the court rejected the arguments that it should “ignore the plain reading of the statute to discourage what they term as ‘gamesmanship’ by the defendants,” and that plaintiffs should have “a meaningful chance” to serve a defendant. Id. at 642. The court instead found that the plaintiffs’ policy arguments were insufficient to overcome the plain meaning of the forum-defendant rule because the plaintiffs failed to identify an ambiguity in the statute or any legislative history supporting their position, and could not demonstrate an absurd result. Id. at 643; see also Petit v. Bristol-Myers Squib Co., 2012 WL 11893525, at *12 (S.D.N.Y. March 23, 2012); Deveer v. Gov’t Employees Insurance Co., 2008 WL 4443260, at *4 (E.D.N.Y. Sept. 26, 2008).
The Third Circuit Supports Snap Removal
In Encompass Insurance, Encompass Insurance settled claims arising from a car crash against all possible parties, including Stone Mansion, which had allegedly served alcohol to the driver of the automobile while he was visibly intoxicated. 2018 WL 3999885, at *1. After settling those claims, Encompass Insurance commenced an action in Pennsylvania state court against Stone Mansion for contribution, which Stone Mansion removed to federal court where the case was dismissed on the grounds that Pennsylvania Dram Shop Law did not extend to insurance companies and the estate of the restaurant’s customer. Id. Before the Third Circuit, Encompass asserted, among other things, that the district court committed reversible error in failing to remand its case to state court. Id. at *3. The Third Circuit rejected that argument and held the forum-defendant rule only “precludes removal on the basis of in-state citizenship when the defendant has been properly joined and served.” Id. at *4.
The Third Circuit concluded that there was no contrary legislative intent to override the statute’s plain language. Id. at *5. Specifically, the court noted that the legislative history “provides no guidance” regarding “[t]he specific purpose of the ‘properly joined and served’ language in the forum-defendant rule … .” Id. at *4. The Third Circuit also noted that “Congress’ inclusion of the phrase ‘properly joined and served’ addressed a specific problem—fraudulent joinder by a plaintiff—with a bright-line rule.” Id. The Third Circuit further stated that its interpretation of the statutory language “does not defy rationality or render the statute nonsensical or superfluous” because its interpretation comported with the plain meaning of the statute, “protect[ed] the statute’s goal without rendering any of the language unnecessary,” and only allowed a “a broader right of removal … where a defendant is aware of an action prior to service of process with sufficient time to initiate removal.” Id. Finally, the Third Circuit acknowledged that neither party addressed the policy issues related to “a race-to-the-courthouse removal scenario,” but suggested that the proper forum to address that concern is through Congress, which is “well-suited to address the issue.” Id. at *4 n.4.
Implications of the Third Circuit’s Decision
Based on the Third Circuit’s decision in Encompass Insurance, it is entirely proper for defendants to electronically monitor state-court dockets to identify new lawsuits, and to preemptively remove diverse cases to federal court before the plaintiffs can serve in-state defendants whose presence would otherwise preclude removal under §1441(b)(2) in state court cases filed in Delaware, New Jersey, Pennsylvania and the Virgin Islands. The Third Circuit’s decision also provides new incentives for defendants in other states such as New York that permit electronic filing and are divided at the district court level on the practice of snap removal, to continue to monitor new case filings and consider undertaking snap removal where applicable. Given the paucity of appellate court authority addressing the practice of snap removal, the Third Circuit’s decision may prove to be quite influential in further bolstering the arguments for snap removal.
Justin J. Santolli is a special counsel in the litigation department of Fried, Frank, Harris, Shriver & Jacobson.