A recent decision by the Third Circuit effectively expands the scope of removable cases. As the first appellate decision to directly address the issue, the U.S. Court of Appeals for the Third Circuit upheld a Pennsylvania district court’s ruling that a “snap removal” — where a defendant removes a case from state court to federal court before it has been served — was proper. Encompass Ins. Co. v. Stone Mansion Rest. Inc., 2018 U.S. App. LEXIS 23576 (3d Cir. Aug. 22, 2018). In Encompass, the Third Circuit concluded that the forum defendant rule, which prevents a “home state” defendant from removing diverse cases to federal court, does not apply if the defendant has not yet been properly served.
Background
The decision involved an out-of-state insurance company’s attempt to sue a Pittsburgh restaurant in Pennsylvania state court for contribution pursuant to Pennsylvania state law. The insurance company, a citizen of Illinois, filed suit against Stone Mansion Restaurant in Pennsylvania state court. After filing suit, counsel for both parties exchanged emails regarding service of the complaint, and the defendant’s counsel agreed to accept electronic service, rather than requiring formal process. After receiving the complaint, counsel for Stone Mansion notified counsel for the insurance company that it would not sign the acceptance of service until after the defendant had the opportunity to file a notice of removal to federal court. Defendant removed the case to federal court shortly thereafter. The district court denied a motion to remand, and the case was later appealed.
The Third Circuit Permits 'Snap Removal'
Pursuant to federal removal rules, a case can be removed to federal court if diversity jurisdiction exists, i.e., if the parties are citizens of different states and the amount in controversy is more than $75,000. An exception to this rule, 28 U.S.C. § 1441(b)(2), otherwise known as the “forum defendant rule,” provides that a resident defendant of the state where a case is filed may not exercise diversity jurisdiction if the defendant is “properly joined and served.” Under this rule, an out-of-state plaintiff who sues a Pennsylvania defendant in Pennsylvania state court where the requirements for diversity jurisdiction would otherwise be met will be protected from removal to federal court, so long as a defendant is properly joined and served. The justification for the “properly joined and served” requirement is generally understood to prevent instances of fraudulent joinder, where a plaintiff improperly names a defendant for the sole purpose of defeating removal.
Some courts have interpreted the forum defendant rule to mean that if a defendant has not been properly served, but becomes aware of a filed complaint (whether by electronic docket monitoring, improper service or otherwise), then the defendant may properly remove the case to federal court, thus avoiding the forum defendant rule. This process has become known as a “snap removal” and has been the subject of many disagreements among district courts. The U.S. Court of Appeals for the Third Circuit is the first appellate court to address the issue.
The court in Encompass first considered the plain meaning of the forum defendant rule and determined that the language was unambiguous. The court found that the text of the exception expressly required that a defendant be both “properly joined and served.” After reviewing the legislative history and finding no commentary as to the original purpose of the disputed language, the Third Circuit acknowledged that the requirement was intended as a deterrent to procedural gamesmanship by plaintiffs engaged in deceitful acts to elude federal jurisdiction, a practice not at issue in the Encompass case. While noting that Stone Mansion’s actions to take advantage of the fact that it had not yet been formally served may have been “unsavory,” the Third Circuit concluded that removal in this instance complied with the law and did not create an absurd or bizarre result. Thus, the Third Circuit affirmed the denial of remand and approved the practice of snap removal. The court further noted that Congress, and not the courts, was better equipped to deal with the issue of snap removals if it so chose.
Takeaways
In any civil case, plaintiffs and defendants spend a great deal of time and effort to determine which jurisdiction is the most advantageous. Before the surge in snap removals over the last 10 years, defendants that were sued in state court in their own state had no other option but to litigate in state court. With the increase in electronic filing and docket monitoring in the past few years, defendants and their counsel are in a much better position to obtain notice of lawsuits before formal service. The Encompass decision validates the practice of utilizing that information to remove cases that would otherwise not be removable. While it remains to be seen whether other circuits will weigh in on this practice, this decision, at least in the Third Circuit, brings clarity to the validity of snap removals.
For defendants who prefer the federal court forum, this decision is a welcome development. Careful monitoring of state court dockets may enable these parties to obtain prompt notice of newly filed state court actions and remove a case that otherwise would be precluded from removal. On the other hand, plaintiffs who wish to stay in their chosen state court forum should ensure that they make formal service promptly after filing to decrease the likelihood that they will become a victim of a snap removal.
