Forum Defendant May Remove From Local State Court To Federal Court If They Remove Before Being Served

Posted: October 01, 2018 by Matthew J. Gannett

The U.S. Court of Appeals for the Third Circuit, in the case of Encompass Ins. Co. v. Stone Mansion Rest., Inc., No. 17-1479, 2018 LEXIS 23576 (3rd Cir., Aug. 22, 2018), recently held that a defendant may remove a case from its home state court to federal court if they do so before the defendant has been properly served.  This decision highlighted an exception to the forum defendant rule, which prohibits a defendant from removing a case on the basis of diversity from its home state court to federal court. 
           
In Encompass Ins. Co. v. Stone Mansion Rest., Inc., a foreign insurance company brought a contribution action in Pennsylvania state court against a defendant incorporated in Pennsylvania.  Prior to suit, counsel for defendant indicated that it would accept service on behalf of the defendant.  However, after suit was filed and plaintiff forwarded the Acceptance of Service form to defense counsel, defendant indicated that they would not return the Acceptance of Service form until after they removed the case to federal court.  Defendant then proceeded to file a Notice of Removal.  Thereafter, the plaintiff filed a motion to remand the matter back to state court on the basis that the forum defendant rule prohibited the defendant, who was a resident of Pennsylvania, from removing the case to federal court on the basis of diversity.  The district court denied the motion for remand on the basis that the forum defendant rule only precludes a resident defendant that is “properly joined and served as defendants” from removing to federal court. 

On appeal, the Court of Appeals for the Third Circuit affirmed.  The Court relied upon the language of the statute, 28 U.S.C. § 1441(b)(2), which provides “[a] civil action otherwise removable solely on the basis of [diversity jurisdiction] 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.”  The Court explained that the language of the statute is unambiguous and only precludes removal on the basis of in-state citizenship when the defendant has been properly joined and served. 

The Court acknowledged that in some extraordinary instances, the Court may depart from the strict language of the statute.  However, it found that it could not do so in this case because the appellant failed to show (1) “a most extraordinary showing of contrary intentions” of Congress, or (2) that the “literal interpretation leads to ‘absurd or bizarre results.’”  The Court noted that while “this result may be peculiar in that it allows [defendant] to use pre-service machinations to remove a case that it otherwise could not . . . the outcome is not so outlandish as to constitute an absurd or bizarre result.”

The Court concluded that “[r]easonable minds might conclude that the procedural result demonstrates a need for a change in the law; however, if such a change is required, it is Congress—not the Judiciary—that must act.”  Therefore, until Congress acts, resident defendants may rely upon this case to remove cases if they act before service is completed.



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