Practice Tip: Avoiding Federal Jurisdiction in Mass Actions

Just about everyone knows that a defendant can remove a case from a state court, where the action is pending, to a federal court in that district on the basis of “diversity of citizenship,” i.e., where the plaintiff and defendant are citizens of different states and the amount in controversy exceeds $75,000.' Complete diversity is required, which means, in multiple party cases, all of the plaintiffs and defendants must be citizens of different states. An exception arises where the defendant is a citizen of the forum state, i.e., where it is incorporated or has its principal place of business. The statute prohibits any defendant that is a citizen of the forum state (the forum defendant) that is “properly joined and served” from removing. 28 USCA 1441(b)(2). Some jurists have called this the “forum defendant rule.” The original purpose of permitting removal was to prevent presumed local bias against out-of-state litigants. A local defendant would not be subject to such bias, thus the exception to removal for forum defendants was written into the statute.

Suppose two defendants are joined in a case, one of whom is a forum defendant and another that is diverse? Can the diverse defendant remove? Until a few years ago, the answer was “No,” because there had to be complete diversity; however, over the past few years, defendants have been able to carve out an exception to that rule. If the diverse defendant was served before the forum defendant was served, some courts recently ruled that the diverse defendant may remove under the theory that the forum defendant had not yet been “joined and served” as required by the plain meaning of the statute. See Gibson v. Wal-Mart Stores East LP, et. al., 2010 WL 419393 (M.D. Ga. 2010); (out-of-state defendant can remove where forum defendant not yet served), and Masterson v. Apotex Corp., 2008 WL 2047979 (S.D.Fla. 2008) (forum defendant must be “joined and served” to defeat removal).

Suppose the forum defendant removes before plaintiff serves any defendant. Is this permitted by 1441 (b)? The answer to that question depends on which court you ask. In New Jersey, some district courts are permitting an unserved forum defendant to remove. Thomson v. Novartis, 2007 WL 1521138 (D.N.J. 2007) (removal by unserved forum defendant permitted where no defendant was yet served). Yet another New Jersey district court ruled that a forum defendant could not remove the action prior to service on the diverse defendant. DeAngelo-Shuayto v. Organon USA, Inc., 2007 WL 4365311 (D.N.J. 2007).

That court reasoned that such a practice would create “a bizarre result [that] cannot possibly have been the intent of the legislature.” This approach was followed in Vivas v. Boeing Co., 486 F. Supp. 2d 726, 734 (N.D. Ill. 2007); (allowing unserved forum defendant to remove action would “frustrate the consistent efforts of both Congress and the courts to determine diversity jurisdiction based on the genuine interests of the parties to the controversy), Ibarra v. Protective Life Ins. Co., 2009 WL 1651292 (D. Ariz. 2009); (allowing removal by forum defendant would produce absurd results) and Ethington v. Gen. Elec. Co., 575 F.Supp.2d 855, 864 (N.D.Ohio 2008).'

So how can a plaintiff overcome the removal of a case by the forum defendant? Because the statute provides that a “joined and served” forum defendant cannot remove, just serve the forum defendant first. But you have to make sure that you serve such a defendant before that defendant learns about the filing and removes it before it is served. Another way to avoid removal is to start a lawsuit in the state court against only the forum defendant and then serve a supplemental summons and complaint on the other defendants.' In this way, the forum defendant will be unable to utilize the “joined and served” language of the removal statute.

CAFA; Mass Actions'

The Class Action Fairness Act (CAFA) was added to the diversity statute, 28 USC 1332. It defines a “mass action” as one that has 100 or more plaintiffs to be tried jointly on the grounds that there are common questions of law or fact. Plaintiffs in a mass action, unlike a class action, do not seek to represent the interests of parties not before the court; nevertheless it will be deemed a removable class action if the amount in controversy is $5 million and there is at least “minimal diversity” (i.e., diversity between at least two of the parties) as compared with complete diversity in the non-CAFA case. The joinder of the 100 claims has to be by the plaintiffs, i.e., the defendant(s) cannot move to join them. If the claims are merely joined for pre-trial purposes, the action cannot be removed.

An additional requirement is that each of the claims must have an amount in controversy of more than $75,000. Suppose 99 claims have an amount in controversy greater than $75,000, but number 100 has a $50,000 demand. Does that mean the entire case cannot be removed? Or can the federal court permit the removal of the 100 claim case and merely sever the $50,000 claim? In Lowery v. Alabama, 483 F.3d 1184 ((11th Cir. 2007), the court permitted the removal of the entire case and then severed the non-removable claim. Thus, a mass action is probably removable if it meets the total amount of $5 million in controversy even if some of the cases are less than $75,000 in controversy.”

There are other exceptions in the statute (securities class actions, parens patriae cases, derivative actions, event or occurrence occurring only in forum state) a discussion of which is beyond the scope of this article.

What are the ways plaintiffs can avoid removal under CAFA? The most obvious one is not to file a complaint with more than 99 claims in it. This maneuver has been judicially condoned. In Dublin v. Monsanto Co., 2011 WL 5330571 (E.D. Mo. 2011) and Walker v. Monsanto Co., 2011 WL 5330602 (E.D. Mo. 2011) plaintiffs' counsel filed two cases, one with 95 plaintiffs and another with 96 plaintiffs. The defendants removed, claiming plaintiffs should not be allowed to “splinter” their cases in order to avoid federal jurisdiction; however, the court disagreed and remanded. It found that the general rule in a diversity case is that the plaintiffs are masters of their complaint and may include or omit claims or parties in order to determine the forum.

Another way a plaintiff can avoid federal jurisdiction is by not consolidating 100 cases or more for a trial. A consolidation of 100 claims or more, even with a proposal for an exemplar trial, will probably not activate a CAFA removal because that would not dispose of the remaining claims without other trials. See Cesur v. Boeing Company, 2010 WL 4638175 (N.D. Ill. 2010). For example, if a court consolidates the claims for pre-trial purposes and plans to try a few “bellwether cases,” they cannot be removed. Bartolini' v. Abbott Laboratories Inc., 2012 WL 1313057 (S.D. Ill. 2012). Of course, if a plaintiff moves for consolidation of 100 claims “through trial,” as was done in In Re Abbott Laboratories Inc., 698 F.3d 568 (7th Cir. 2012), then they are removable.

Until March, another possible way to avoid federal court may have been to disclaim damages for more than $499,999,999, or stipulate that none of the plaintiffs are claiming damages in excess of $75,000. Plaintiffs successfully followed that plan of action in Armstead v. Multi-Chem Group LLC, 2012 WL 1866862 (W.D. La. 2012). But the Supreme Court vacated and remanded a case, Knowles v. The Standard Fire Insurance Company, in a 9-0 opinion' written by Justice Breyer on March 19, 2013. The Court held that a stipulation by a class-action plaintiff that he and the class that he purports to represent will seek damages that are less than the threshold for jurisdiction under the Class Action Fairness Act of 2005 does not defeat federal jurisdiction under the Act.

'Tag-Along' Orders

Generally, when an action is removed from a state court and the Judicial Panel on Multidistrict Litigation (JPML) has set up an MDL, the defendant can immediately get the case transferred from the local district court to the MDL court via a “tag-along” order pursuant to 28 USC 1407. However, CAFA prohibits a mass action case from being transferred to the MDL absent consent of the majority of the plaintiffs. 28 USC 1332 (d)(11)(c)(i). The usual procedure for removed cases is for the JPML to transfer the case to the MDL even if a remand motion is pending in the district court. Now, when faced with opposition to a 1407 transfer order in a mass action case, the JPML will abstain from the transfer until the district court has ruled on the remand motion. In re: TFT-LCD (Flat Panel) Antitrust Litigation, 764 F. Supp. 2d 1338 (JPML 2011).

Therefore, if you are merely adverse to being transferred to the MDL but do not mind trying your case in your local federal district court in the state where you filed the action, then you may want to consider making sure your case is part of a mass action, so it cannot be transferred to the MDL.

Conclusion

If you want to become a good jurisdiction jockey, keep your eyes out for future decisions that I hope will clarify these complex issues. What is a good tip today may be bad advice in a month, or even sooner.

Lawrence Goldhirsch, a member of this newsletter's Board of Editors, is Trial Counsel at Weitz & Luxenberg, New York. The author would like to thank Ellen Relkin and Kendra Goldhirsch, attorneys at the firm, for their assistance in the preparation of this article.

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Plaintiffs' lawyers generally prefer to litigate in state courts for numerous reasons. First of all, most of them have more experience in state court and thus are up to date with their local rules, nuances' and jurists' idiosyncrasies. Also, many states do not curtail experts' opinions as much as Daubert and its progeny do. If an MDL has been formed, many lawyers do not like getting tied up in a case where the venue may be many miles from their home states. Also, a federal jury requires unanimity, whereas most states permit partial verdicts.

Last, but not least, many lawyers think, often incorrectly, that their cases will settle faster in a state court. They think that involvement in an MDL guarantees that the case will go on for years; however, when commencing a state court action, practitioners must be careful not to trigger a removal to federal court pursuant to 28 U.S.C. 1441, the removal statute, or 28 U.S.C. 1332, the diversity statute containing the recently passed Class Action Fairness Act (CAFA). (CAFA also applies to mass tort actions which are now known as “mass actions” under the statute.)

Removal of Cases; 28 U.S.C. 1332

Just about everyone knows that a defendant can remove a case from a state court, where the action is pending, to a federal court in that district on the basis of “diversity of citizenship,” i.e., where the plaintiff and defendant are citizens of different states and the amount in controversy exceeds $75,000.' Complete diversity is required, which means, in multiple party cases, all of the plaintiffs and defendants must be citizens of different states. An exception arises where the defendant is a citizen of the forum state, i.e., where it is incorporated or has its principal place of business. The statute prohibits any defendant that is a citizen of the forum state (the forum defendant) that is “properly joined and served” from removing. 28 USCA 1441(b)(2). Some jurists have called this the “forum defendant rule.” The original purpose of permitting removal was to prevent presumed local bias against out-of-state litigants. A local defendant would not be subject to such bias, thus the exception to removal for forum defendants was written into the statute.

Suppose two defendants are joined in a case, one of whom is a forum defendant and another that is diverse? Can the diverse defendant remove? Until a few years ago, the answer was “No,” because there had to be complete diversity; however, over the past few years, defendants have been able to carve out an exception to that rule. If the diverse defendant was served before the forum defendant was served, some courts recently ruled that the diverse defendant may remove under the theory that the forum defendant had not yet been “joined and served” as required by the plain meaning of the statute. See Gibson v. Wal-Mart Stores East LP, et. al., 2010 WL 419393 (M.D. Ga. 2010); (out-of-state defendant can remove where forum defendant not yet served), and Masterson v. Apotex Corp., 2008 WL 2047979 (S.D.Fla. 2008) (forum defendant must be “joined and served” to defeat removal).

Suppose the forum defendant removes before plaintiff serves any defendant. Is this permitted by 1441 (b)? The answer to that question depends on which court you ask. In New Jersey, some district courts are permitting an unserved forum defendant to remove. Thomson v. Novartis, 2007 WL 1521138 (D.N.J. 2007) (removal by unserved forum defendant permitted where no defendant was yet served). Yet another New Jersey district court ruled that a forum defendant could not remove the action prior to service on the diverse defendant. DeAngelo-Shuayto v. Organon USA, Inc. , 2007 WL 4365311 (D.N.J. 2007).

That court reasoned that such a practice would create “a bizarre result [that] cannot possibly have been the intent of the legislature.” This approach was followed in Vivas v. Boeing Co. , 486 F. Supp. 2d 726, 734 (N.D. Ill. 2007); (allowing unserved forum defendant to remove action would “frustrate the consistent efforts of both Congress and the courts to determine diversity jurisdiction based on the genuine interests of the parties to the controversy), Ibarra v. Protective Life Ins. Co. , 2009 WL 1651292 (D. Ariz. 2009); (allowing removal by forum defendant would produce absurd results) and Ethington v. Gen. Elec. Co. , 575 F.Supp.2d 855, 864 (N.D.Ohio 2008).'

So how can a plaintiff overcome the removal of a case by the forum defendant? Because the statute provides that a “joined and served” forum defendant cannot remove, just serve the forum defendant first. But you have to make sure that you serve such a defendant before that defendant learns about the filing and removes it before it is served. Another way to avoid removal is to start a lawsuit in the state court against only the forum defendant and then serve a supplemental summons and complaint on the other defendants.' In this way, the forum defendant will be unable to utilize the “joined and served” language of the removal statute.

CAFA; Mass Actions'

The Class Action Fairness Act (CAFA) was added to the diversity statute, 28 USC 1332. It defines a “mass action” as one that has 100 or more plaintiffs to be tried jointly on the grounds that there are common questions of law or fact. Plaintiffs in a mass action, unlike a class action, do not seek to represent the interests of parties not before the court; nevertheless it will be deemed a removable class action if the amount in controversy is $5 million and there is at least “minimal diversity” (i.e., diversity between at least two of the parties) as compared with complete diversity in the non-CAFA case. The joinder of the 100 claims has to be by the plaintiffs, i.e., the defendant(s) cannot move to join them. If the claims are merely joined for pre-trial purposes, the action cannot be removed.

An additional requirement is that each of the claims must have an amount in controversy of more than $75,000. Suppose 99 claims have an amount in controversy greater than $75,000, but number 100 has a $50,000 demand. Does that mean the entire case cannot be removed? Or can the federal court permit the removal of the 100 claim case and merely sever the $50,000 claim? In Lowery v. Alabama , 483 F.3d 1184 ((11th Cir. 2007), the court permitted the removal of the entire case and then severed the non-removable claim. Thus, a mass action is probably removable if it meets the total amount of $5 million in controversy even if some of the cases are less than $75,000 in controversy.”

There are other exceptions in the statute (securities class actions, parens patriae cases, derivative actions, event or occurrence occurring only in forum state) a discussion of which is beyond the scope of this article.

What are the ways plaintiffs can avoid removal under CAFA? The most obvious one is not to file a complaint with more than 99 claims in it. This maneuver has been judicially condoned. In Dublin v. Monsanto Co., 2011 WL 5330571 (E.D. Mo. 2011) and Walker v. Monsanto Co., 2011 WL 5330602 (E.D. Mo. 2011) plaintiffs' counsel filed two cases, one with 95 plaintiffs and another with 96 plaintiffs. The defendants removed, claiming plaintiffs should not be allowed to “splinter” their cases in order to avoid federal jurisdiction; however, the court disagreed and remanded. It found that the general rule in a diversity case is that the plaintiffs are masters of their complaint and may include or omit claims or parties in order to determine the forum.

Another way a plaintiff can avoid federal jurisdiction is by not consolidating 100 cases or more for a trial. A consolidation of 100 claims or more, even with a proposal for an exemplar trial, will probably not activate a CAFA removal because that would not dispose of the remaining claims without other trials. See Cesur v. Boeing Company, 2010 WL 4638175 (N.D. Ill. 2010). For example, if a court consolidates the claims for pre-trial purposes and plans to try a few “bellwether cases,” they cannot be removed. Bartolini' v. Abbott Laboratories Inc. , 2012 WL 1313057 (S.D. Ill. 2012). Of course, if a plaintiff moves for consolidation of 100 claims “through trial,” as was done in In Re Abbott Laboratories Inc. , 698 F.3d 568 (7th Cir. 2012), then they are removable.

Until March, another possible way to avoid federal court may have been to disclaim damages for more than $499,999,999, or stipulate that none of the plaintiffs are claiming damages in excess of $75,000. Plaintiffs successfully followed that plan of action in Armstead v. Multi-Chem Group LLC, 2012 WL 1866862 (W.D. La. 2012). But the Supreme Court vacated and remanded a case, Knowles v. The Standard Fire Insurance Company, in a 9-0 opinion' written by Justice Breyer on March 19, 2013. The Court held that a stipulation by a class-action plaintiff that he and the class that he purports to represent will seek damages that are less than the threshold for jurisdiction under the Class Action Fairness Act of 2005 does not defeat federal jurisdiction under the Act.

'Tag-Along' Orders

Generally, when an action is removed from a state court and the Judicial Panel on Multidistrict Litigation (JPML) has set up an MDL, the defendant can immediately get the case transferred from the local district court to the MDL court via a “tag-along” order pursuant to 28 USC 1407. However, CAFA prohibits a mass action case from being transferred to the MDL absent consent of the majority of the plaintiffs. 28 USC 1332 (d)(11)(c)(i). The usual procedure for removed cases is for the JPML to transfer the case to the MDL even if a remand motion is pending in the district court. Now, when faced with opposition to a 1407 transfer order in a mass action case, the JPML will abstain from the transfer until the district court has ruled on the remand motion. In re: TFT-LCD (Flat Panel) Antitrust Litigation, 764 F. Supp. 2d 1338 (JPML 2011).

Therefore, if you are merely adverse to being transferred to the MDL but do not mind trying your case in your local federal district court in the state where you filed the action, then you may want to consider making sure your case is part of a mass action, so it cannot be transferred to the MDL.

Conclusion

If you want to become a good jurisdiction jockey, keep your eyes out for future decisions that I hope will clarify these complex issues. What is a good tip today may be bad advice in a month, or even sooner.

Lawrence Goldhirsch, a member of this newsletter's Board of Editors, is Trial Counsel at Weitz & Luxenberg, New York. The author would like to thank Ellen Relkin and Kendra Goldhirsch, attorneys at the firm, for their assistance in the preparation of this article.

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