Federal diversity jurisdiction – Removal by home state defendant allowed when the defendant hasn’t been served yet

The Second Circuit Court of Appeals recently resolved a split among its district courts on an issue relating to removal from state to federal court based on diversity jurisdiction.  Gibbons v. Bristol-Myers Squibb, http://www.ca2.uscourts.gov/decisions/isysquery/22dc561c-ea79-44c4-a5e4-50d2cdf8e465/1/doc/17-2638_opn.pdf#xml=http://www.ca2.uscourts.gov/decisions/isysquery/22dc561c-ea79-44c4-a5e4-50d2cdf8e465/1/hilite/ (2nd Cir., 3/26/2019).  This ruling is of importance to attorneys involved in mass tort and class action litigation, where removability may be a crucial issue.

The complex procedural history of the case is summarized on pages 2 to 8 of the slip opinion.  Briefly, in a multidistrict litigation involving product liability claims concerning the blood-thinning drug Eliquis, the trial court (Southern District of NY) granted the defendants’ motion to dismiss.  All of the complaints pleaded state law causes of action exclusively; the cases had been filed in various federal courts on the basis of diversity jurisdiction.  The district court held that the state law claims were either preempted by the federal Food, Drug and Cosmetics Act or failed to meet the basic pleading requirements of Fed.R.Civ.P. 8.  The plaintiffs appealed.

At the time of the dismissal, 33 additional Eliquis cases (all filed by the same law firm) were pending in federal court in California, awaiting transfer to the MDL.  The plaintiffs in those cases voluntarily dismissed their suits without prejudice and refiled them in Delaware state court.  Because the defendants (Bristol-Myers Squibb and Pfizer) are Delaware corporations, the plaintiffs clearly expected the case to stay in the state court, where the plaintiffs could get a second chance at pursuing their state law claims, including a second ruling on whether their failure-to-warn claim was federally preempted under established Supreme Court precedent.  (A perfectly valid course of action, as res judicata did not apply – a dismissal for failure to state a claim upon which relief can be granted is not a final adjudication on the merits.)  However, two days later, the defendants – who had not yet been served with the Delaware complaints – removed the cases to the Delaware federal court and asked that they be transferred to the Southern District of NY and consolidated into the MDL.  The cases were duly transferred; the plaintiffs filed a motion to remand the cases to the state court, which was denied; and the judge dismissed the cases with prejudice, on the same grounds as her previous ruling.  Again, the plaintiffs appealed.

The Second Circuit affirmed the dismissal of the cases on preemption and failure to state a claim grounds.  But before getting there it had to address the denial of the plaintiffs’ motion to remand the cases to the state court – and that is the interesting aspect of the opinion:

Generally, any civil suit initiated in state court over which a district court would have had original jurisdiction “may be removed by…the defendants, to the district court of the United States for the district…embracing the place where such action is pending.”  28 U.S.C. § 1441(a).  Section 1441 permits removal on the basis of either federal question jurisdiction or diversity of citizenship.  But where, as here, the only basis for federal subject‐matter jurisdiction is diversity of citizenship, the forum defendant rule applies.  Under that rule, which is set out at 28 U.S.C. § 1441(b)(2), a suit that is “otherwise removable solely on the basis of…[diversity of citizenship] may not be removed if any of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.

…Here, however, Defendants removed each of the Transferred Actions to federal court after the suit was filed in state court but before any Defendant was served. [Emphasis in original.]  The district court, reasoning from the text of the statute, concluded that such removal was proper.  Other district courts in this Circuit have reached the opposite conclusion.  Nevertheless, in resolving this split among district courts, we agree with the district court here….

… The statute plainly provides that an action may not be removed to federal court on the basis of diversity of citizenship once a home‐state defendant has been “properly…served.”  28 U.S.C. § 1441(b)(2) (emphasis added).  By its text, then, Section 1441(b)(2) is inapplicable until a home‐state defendant has been served in accordance with state law; until then, a state court lawsuit is removable….

The plaintiffs urged the court to ignore the plain meaning of the statute on two grounds:  that the plain meaning produces an absurd result, and that it will lead to non-uniform application of the removal statute depending on state law service of process rules.  The court gave both arguments short shrift:

…Plaintiffs assert that it is absurd to allow a home‐state defendant to use an exception meant to protect defendants from unfair bias (in the courts of a plaintiff’s home state) and language designed to shield them from gamesmanship (in the form of fraudulent joinder) to remove a lawsuit to federal court…. But while it might seem anomalous to permit a defendant sued in its home state to remove a diversity action, the language of the statute cannot be simply brushed aside.  Allowing a defendant that has not been served to remove a lawsuit to federal court does not contravene Congress’s intent to combat fraudulent joinder.  In fact, Congress may well have adopted the “properly joined and served” requirement in an attempt to both limit gamesmanship and provide a bright‐line rule keyed on service, which is clearly more easily administered than a fact‐specific inquiry into a plaintiff’s intent or opportunity to actually serve a home‐state defendant.  Absurdity, then, cannot justify a departure from the plain text of the statute.

[Turning to the plaintiffs’ second argument:]  Plaintiffs are correct that allowing home‐state defendants to remove on the basis of diversity before they are served might mean that defendants sued in some states – those that require a delay between filing and service, like Delaware – will be able to remove diversity actions to federal court while defendants sued in others – those that permit a plaintiff to serve an action as soon as it is filed – will not.  But state‐by‐state variation is not uncommon in federal litigation, including in the removal context, and it does not follow from the existence of variation that we must look beyond the plain text of Section 1441(b)(2).   

Put simply, the result here – that a home‐state defendant may in limited circumstances remove actions filed in state court on the basis of diversity of citizenship – is authorized by the text of Section 1441(b)(2) and is neither absurd nor fundamentally unfair.  We therefore have no reason to depart from the statute’s express language and must affirm the district court’s denial of Plaintiffs’ motions to remand.

(Slip op. at 9-15; case citations and internal quotation marks from opinions omitted.)

 

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