Federal Act Makes Sweeping Changes to Laws Regarding Removal, Venue, and Transfer

The Federal Courts Jurisdiction and Venue Clarification Act of 2011 (the “Act,” Public Law No.112-63) recently amended the federal removal statutes, specifically 28 U.S.C. §§ 1441, 1446.  The amendments apply to all actions commenced on or after January 6, 2012. 

The Act passed with little fanfare despite making numerous changes to the laws governing removal, venue, and transfer.  Of particular note for federal litigators and corporate litigants, the Act  (i) resolves a circuit court split over timing of removal in cases involving multiple defendants served at different times, (ii)codifies the rule of unanimity, which requires all defendants to consent in removal for the case to be properly removed, (iii) strips federal district courts of removal jurisdiction over state law claims not within the court's original or supplemental jurisdiction, (iv) clarifies new procedures for establishing the amount in controversy in diversity cases, (v) provides a mechanism for defendants to avoid the one-year bar for filing a notice of removal based on diversity jurisdiction, and (vi) clarifies the procedure for transferring venue.

First, the amendments provide that where multiple defendants are served at different times pursuant to a state court action, each defendant has 30 days to file a notice of removal, starting from the date that defendant was served, not from the date the first defendant was served, as some circuits previously held. See 28U.S.C. § 1446(b)(2)(B). This curbs the incentive for those plaintiffs who, wishing to remain in state court, first serve a defendant indifferent to removal, and wait until later to serve other defendants likely to desire removal.

Second, Section 1446 further codifies the judicially created rule of unanimity by providing that “all defendants who have been properly joined and served must join in or consent to the removal of the action.” 28 U.S.C. § 1446(b)(2)(A).  If a later-served defendant files a notice of removal where an earlier-served defendant has chosen not to, the amendments also allow the earlier-served defendant to consent to the removal even though it did not previously initiate or consent to the removal. See 28 U.S.C. § 1446(b)(2)(C).

Third, the amendments divest federal district courts of their jurisdiction to hear state law claims in a removed action if they are not within the original or supplemental jurisdiction of the court.  Specifically,§ 1441(c)provides that when a case includes a removable federal claim and “a claim not within the original or supplemental jurisdiction of the district court or a claim that has been made non-removable by statute,” a defendant may remove the action “if the action would be removable without the inclusion of the[non-removable] claim.” Once the case is removed, the district court is required to sever the non-removable claims and “shall remand the severed claims to the State court from which the action was removed,” as opposed to the old rule allowing for all claims, including those non-removable, to be decided by the district court. 28 U.S.C. § 1441(c).

Fourth, new procedures for establishing the amount in controversy for diversity jurisdiction have been included. Generally, the amount “demanded in good faith in the initial pleading shall be deemed to be the amount in controversy.” See 28 U.S.C. § 1446(c). But a notice of removal may establish the amount if the “initial pleading seeks (1) nonmonetary relief; or (2) a money judgment, but the state practice either does not permit demand for a specific sum or permits recovery of damages in excess of the amount demanded.”  Deleted from the Act are provisions allowing a plaintiff to avoid removal based on diversity by filing a declaration reducing the amount in controversy below the minimum specified in § 1332(a).  Finally, information collected during discovery in state court may be used to support removal, even if removal would have been inappropriate based on the initial pleading. See 28 U.S.C. § 1446(c)(3)(A).

Fifth, the general rule that a notice of removal based on diversity must be filed no later than one year after the action begins has been amended. A defendant may now avoid this one year bar by demonstrating that a “plaintiff has acted in bad faith in order to prevent a defendant from removing the action.” This is useful where a plaintiff deliberately fails to disclose the actual amount in controversy to prevent a removal.

Sixth, the Act clarifies existing law on venue. Significantly, a new procedure was approved for transferring venue to a forum that the parties have consented to. See28 U.S.C. § 1404.This allows transfer to an agreeable district even if venue would not otherwise have been proper in that district.

So far, citations to the Act merely clarify that it applies only to cases filed after January 6, 2012,and not to those filed before that date. See, e.g., MicrospherixLLC v. Biocompatibles, Inc., 2012 WL 243764, *2 n.2 (S.D.Fla. Jan. 25, 2012)(case filed before January 6, 2012).  Eventually, however, federal courts will be tasked with interpreting and applying these new amendments.