Tuesday, May 07, 2013

The Finer Points of Removal

            You know we love removal – 63 posts and counting.  But, before you cast this post aside as another discussion of fraudulent joinder, removal before service, or principal place of business, we chose to blog about Franklin v. Codman & Shurtleff Inc., 2013 U.S. Dist. LEXIS 61307 (N.D. Tex. Apr. 30, 2013) because it deals with some of the less often explored aspects of removal; at least less often explored by us.  First – the one year time limit for removal.  Second – the amount in controversy.  

            But, before we get to the opinion, we have a caveat.  The case was decided based on 28 U.S.C. §1446 before it was amended in December 2011.  The amendments apply to cases filed after January 6, 2012 and Franklin was originally filed in May 2011.  As to these two issues, we believe the result would be the same regardless, so the court’s analysis is still useful (for a discussion of the 2011 amendments see our post here).

            When plaintiffs first filed their lawsuit in state court in Texas, they sued only diverse, non-Texas resident defendants.  So, defendants removed the case.  A year later, plaintiffs amended their complaint to add the local hospital where Mr. Franklin’s surgery took place.  The hospital’s motion to remand was granted.  Once back in state court and faced with multiple dispositive motions by the hospital, plaintiffs dismissed the hospital with prejudice.  Complete diversity being restored, defendants removed the case for a second time.  Id. at *2-3.  Wanting to keep this ping-pong match going, plaintiffs moved to remand. 

            Argument number 1 – defendants are out of time.  Both the former and current §1446(b) provide that a case many not be removed “more than 1 year after commencement of the action.”  But, plaintiffs didn’t read the statute carefully enough.  The one year time limit only applies “if the case stated by the initial pleading is not removable.”  28 U.S.C. §1446(b)(3); §1446(c)(1) (emphasis added).   There is no dispute that the initial pleading in this case allowed for removal – there was complete diversity.  It wasn’t until plaintiff started adding and dismissing the hospital, that diversity even became an issue.  So, the one year limitation didn’t apply and defendants’ removal, following the dismissal of the non-diverse defendant, was timely. 

            While this result is the same under both statutes, there is a new aspect to the one year time limit.  Let’s flip the situation around.  What if plaintiffs had named the hospital in their original complaint?  The case could not have been removed (putting aside fraudulent joinder, removal before service, etc.) because it would lack complete diversity.  Then assume more than one year later plaintiffs dismissed the hospital.  Under the old statute, presumably, the one year limitation would apply and defendants could not remove the case.  The new statute provides an escape.  If the court finds that the plaintiff acted in “bad faith” in any way to prevent removal, the one-year limit doesn’t apply.  See 28 U.S.C. §1446(c)(1).  Were plaintiffs acting in bad faith when they add a non-diverse defendant exactly one year after filing suit and then dismissing them a few months later?  We don’t know enough from the opinion to answer that question.  We raise it simply so that you know the bad faith clause is there if you are faced with a plaintiff who is somewhat fickle about whom they want to sue. 

            Argument number 2 – the amount in controversy is less than $75,000.  Usually, such a proclamation by plaintiffs is music to the defendants’ ears.  Not true when it is an empty statement being use to defeat federal jurisdiction and plaintiffs have no intention of actually limiting the damages they are seeking.  Under both the new and old statutes, where the complaint doesn’t specify the amount of damages sought, the court is allowed to look beyond the pleadings to establish the amount in controversy.  And, as Franklin points out, the amount in controversy is determined “at the time of removal.”  Franklin, at *8-9.  (citation omitted).  So, the court looked at the evidence that existed prior to removal – initial disclosures claiming $1.9 and $1.5 million in damages by plaintiff and his spouse respectively; a demand for $300,000; lost wages of $105,000; and the allegation in the complaint itself stating plaintiffs “suffered damages in an amount in excess of the minimum jurisdictional requirements of this court.”  Id. at *9-10 (emphasis in original).  Looks like a preponderance of evidence to us.

            Plaintiffs argued that prior to removal, they had made a new settlement demand of $30,000 which proves that the amount in controversy is less than $75,000. But the court found that a settlement demand “is not the same as informing defendants that the amount in controversy has been unalterably reduced.”  Id. at *11.  In fact, the court points out that in the letter memorializing the demand, plaintiffs were clear that $30,000 would only “partially compensate” them and that defendants’ position on damages did not sufficiently cover mental anguish damages or economic damages for medical expenses and lost wages.  Id. at *12.  Hence, prior to removal, “there was no explicit indication that the Franklins were reducing the amount they sought to recover.”  Id. at *12. 

            What about post-removal?  Post-removal, plaintiffs amended their initial disclosures to state that plaintiffs were seeking $68,000 and $7,000 in damages respectively.  Is it just a coincidence that those figures add up to exactly $75,000? (by the way, damages typically aren’t aggregated for determining the jurisdictional threshold anyway).  But, post-removal doesn’t count.  “Post-removal affidavits, stipulations, and amendments reducing the amount do not deprive the district court of jurisdiction.”  Id. at *9.  So, it doesn’t matter what plaintiffs said or did after removal.  Defendants proved by a preponderance of the evidence that the amount in controversy at the time of removal met the jurisdictional threshold.  Id. at *13. 

            Finally, another quick note about the new statute – the “bad faith” escape clause also applies when plaintiffs deliberately withhold the actual amount in controversy in order to prevent removal.  28 U.S.C. §1446(c)(3)(B).  Again, the court didn’t need to address issue of bad faith because it wasn’t applying the new statute, but we wanted you to know it was there if you need it.


No comments: