One of the benefits of being a plaintiff is having the ability to select the forum for bringing suit. The removal statute, 28 U.S.C. Section 1441, permits a defendant, in certain situations, to transfer a case from state court to federal court. Defense counsel may have a number of different reasons for wanting to remove a case to federal court, such as obtaining a different jury pool, more active case management by a magistrate judge or to avoid perceived prejudices from litigating in certain state courts.
For example, an insurance company sued in Louisiana state court on a Hurricane Katrina claim may feel more comfortable knowing that if the case is in federal court, the Fifth Circuit Court of Appeals is sitting in the background. While a defendant in a personal injury case in West Virginia state court would have a comfort level knowing that the Fourth Circuit Court of Appeals is available to remedy a runaway jury’s verdict.
Procedurally, there are two bases to remove a case to federal court: (1) federal question and (2) diversity of citizenship. Federal question jurisdiction, 28 U.S.C. Section 1441(b), allows for the removal of any action based on a “claim or right arising under the Constitution, treaties or laws of the United States.” While jurisdiction pursuant to diversity of citizenship, 28 U.S.C. Sections 1332, 1441(a), permits the removal of claims between citizens of different states when a claim is in excess of $75,000.
Once a case has been removed, the plaintiff has 30 days to seek the remand of a case back to state court for either a procedural or other defect in the removal petition, other than lack of subject matter jurisdiction. 28 U.S.C. Section 1447 (c). Defects in removal include late notice of removal, late consent to remove by co-defendants, and the local defendant rule. If a plaintiff fails to file a motion to remand within this 30-day period, then plaintiff waives the right to seek remand on these grounds. An objection to removal based on a jurisdictional defect can be raised at any time, i.e., lack of complete diversity or no federal question jurisdiction.
The local defendant rule, 28 U.S.C. Section 1441(b), provides that even if there is complete diversity among the parties, removal is improper if one of the defendants is a citizen of the state where the suit was filed. Determining whether a violation of the local defendant rule is a procedural or jurisdictional defect hinges on whether the case could have been filed originally in federal court. Korea Exchange Bank v. Trackwise Sales Corp ., 66 F.3d 46 (3d Cir. 1995); Woodward v. D.H. Overmyer Co., Inc., 428 F.2d 880 (2d Cir. 1970).
If the case could have been filed originally in federal court, then the removal defect is procedural and any objection must be made within 30 days of removal. Therefore, when a claim is in excess of $75,000 and there is complete diversity among the parties, or federal question jurisdiction is available, a violation of the local defendant rule is a procedural defect that can be waived.
When removing based upon diversity of citizenship, there must be complete diversity between the parties. This means that the citizenship of the plaintiff must be different from the citizenship of the defendant. Being able to determine the citizenship of a party becomes critically important to the removal process.
The removal petition must contain the identification of the state of citizenship for each party, not the residency of each party. Federal courts routinely remanded cases back to state court for alleging a party’s residency instead of citizenship. Seven Resorts, Inc. v. Cantlen , 57 F.3d 771 (9th Cir. 1995); Tanzymore v. Bethlehem Steel Corp . , 457 F.2d 1320 (3d Cir. 1972); and Meltzer v. Continental Ins. Co., 163 F.Supp.2d 523 (E.D. Pa. 2001).
Determining the citizenship of natural persons is fairly straightforward in that you look to factors such as where the individual receives mail, owns a home, etc. The test for citizenship for corporations and limited liability companies differs from this analysis.
A corporation’s citizenship is determined by looking to the state of incorporation and the state where the corporation’s principal place of business is located. 28 U.S.C. Section 1332 (c)(1). Pursuant to 28 U.S.C. 1332 (c) (1), “a corporation shall be deemed to be a citizen of any state by which it has been incorporated and of the State where it has its principal place of business.” Consequently, a corporation can simultaneously be a citizen of two states. Meltzer v. Continental Ins. Co., 163 F.Supp.2d 523 (E.D. Pa. 2001). Section 1332 (c)(1) has been construed by the courts to require strict compliance by the removing party.
In Meltzer , the defendant’s notice of removal stated that it was “incorporated under the laws of New Hampshire and has a principal place of business in Chicago, Illinois.” The plaintiff filed a remand petition based on defendant’s failure to plead where “its” principal place of business is located as opposed to where “a” principal place of business is located.
Defendant argued that the court should reject the remand petition as the deviation was a “difference without a distinction.” The court remanded the action based on Third Circuit precedent holding that the “replacement of ‘its’ with ‘a’ renders the notice of removal ‘technically defective’” and fails to “properly plead diversity jurisdiction.”
The court noted that the defendant, instead of challenging Third Circuit precedent, could have filed an amended notice of removal or provided admissible evidence that the defendant’s principal place of business was located in Chicago and avoided the remand of the case. The Meltzer case illustrates the pitfalls that can arise during the removal process and that sometimes form does take precedent over substance.
Limited liability companies are treated differently from corporations. Unlike corporate citizenship, 28 U.S.C. Section 1332 does not address the citizenship of LLCs. It is not uncommon for practitioners to believe that the citizenship of LLCs is based on the state where the LLC is formed or the LLCs principal place of business.
However, the case law regarding citizenship of LLCs is much different. For purposes of diversity, LLCs are treated like partnerships. This means that when determining whether parties are diverse, the removal petition must set forth the citizenship for each member of the LLC, and each member of the LLC’s citizenship must be diverse from the adverse party. Arabesque v. Capacity, LLC , 2008 WL 681459 (S.D.N.Y. Mar. 10, 2008); Thomas v. Guardsmark, LLC , 487 F.3d 531 (7th Cir. 2007); Handelsman v. Bedford Vill. Assocs. Ltd . , 213 F.3d 48 (2d Cir. 2000).
Removal to federal court presents a defendant with the opportunity to change the plaintiff’s forum choice and avoid perceived local biases in state courts. When choosing to remove, a party must confirm whether a federal court has federal question or diversity jurisdiction. In making the decision to remove, counsel should be mindful of the different tests for a party’s citizenship depending on whether the defendant is an individual, partnership, corporation or LLC and the local defendant rule. Take caution when deciding to remove, as improperly removing a claim can result in the award of fees and expenses as against the removing party.
DeAngelis is a member of Mound Cotton Wollan & Greengrass and is resident in the firm’s Newark office.