Companies sued in state court often prefer removal to federal court if possible. Most corporate defense counsel routinely assess their chances of removal on the basis of diversity jurisdiction. More aggressive counsel go further and ask whether a diversity-destroying party can be disregarded for one reason or another – misjoinder, misalignment of parties and so on.
A new tool is now available for companies sued in Texas, Louisiana or Mississippi, thanks to a recent Fifth Circuit decision that blessed the “snap removal” tactic that allows out-of-state defendants to remove diversity cases to federal court before any in-state co-defendants have been served.
Generally speaking, the “forum defendant rule” – 28 U.S.C. § 1441(b) – bans removal if a defendant is (1) a “citizen of the State in which such action is brought” and (2) has been “properly joined and served” (emphasis added). Creative counsel have – with varied success – removed cases before a forum defendant has been served and argued that the plain meaning of Section 1441 permits such snap removals. But because remand orders generally aren’t reviewable by appellate courts, a mishmash of nonbinding district court opinions resulted, making a snap removal’s success within the Fifth Circuit hinge largely on a particular federal judge’s reading of Section 1441.
But in April, the Fifth Circuit became one of the few federal appellate courts to consider snap removals. In Texas Brine Company v. American Arbitration Association, the AAA, which is based in New York, was sued in Louisiana state court alongside two Louisiana-based defendants. The Fifth Circuit held that the AAA’s snap removal – which was done before either of the Louisiana-based defendants were served – was allowed under the plain language of Section 1441(a), and Section 1441(b)’s forum-defendant rule did not come into play “until a home-state defendant has been served.”
Seeking remand, the plaintiff argued – like most parties argue when opposing snap removals – that the plain language of the statute led to an absurd result – removal of cases brought against forum-defendants in their home courts – that defeats congressional intent. But the Fifth Circuit rejected that argument, explaining that “an absurdity is not mere oddity” and that courts are not “final editors of statutes, modifying language when [they] perceive some oversight.”
However, there may be practical limits to the Fifth Circuit’s decision. The court emphasized that the removing party, the AAA, was not a forum defendant, which was of “some importance.” That fact mattered because federal diversity jurisdiction and removal “exist to protect out-of-state defendants from in-state prejudices.” Accordingly, the Fifth Circuit’s holding only addressed snap removals performed by out-of-state defendants: “A non–forum defendant may remove an otherwise removable case even when a named defendant who has yet to be ‘properly joined and served’ is a citizen of the forum state.” The question the Fifth Circuit did not decide – whether snap removals performed by forum defendants should be allowed – is still an open one on which district courts are still very much split.
Companies sued in state courts in Texas, Louisiana and Mississippi should be sure to consult experienced counsel who are familiar with both types of snap removals (as well as other methods of disregarding a diversity-destroying party named by plaintiffs to prevent removal) to avoid missing this narrow opportunity to enjoy the many advantages that come with being in federal court.
The full case citation is Texas Brine Company v. American Arbitration Association, No. 18-31184 (5th Cir. Apr. 7, 2020).
Nicholas A.F. Sarokhanian is a Dallas trial partner at Holland & Knight.