Third Circuit Now 'Encompasses' Pre-Service Removal


New Jersey Law Journal

December 10, 2018

By: Stephen J. Finley, Jr.Randy A. Gray

The removal statute says what it says and should be given its plain meaning. That was the holding of the United States Court of Appeals for the Third Circuit in Encompass Ins. Co. v. Stone Mansion Rest., 902 F.3d 147 (3d Cir. 2018), a decision in which the court found that pre-service removal, sometimes also referred to as “snap removal,” is a proper and legitimate method to secure a federal forum.

In Encompass, the Third Circuit considered whether pre-service removal from state court to federal court is barred by the forum defendant rule under 28 U.S.C. §1441(b). The forum defendant rule precludes removal based on diversity of citizenship “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.” Encompass, the liability carrier for a party to a fatal motor vehicle accident, settled a claim brought by an injured passenger and sought contribution from Stone Mansion under Pennsylvania’s Dram Shop Act. Stone Mansion, a Pennsylvania corporation, agreed to accept service of the complaint electronically but did not complete Encompass’s acceptance of service form, explaining to Encompass instead that it would remove the case to federal court, which it did before formally accepting service. Encompass moved to remand the case back to state court on the grounds that, although there existed diversity of citizenship between the parties, the forum defendant rule nevertheless prohibited removal. The United States District Court for the Western District of Pennsylvania declined to remand the case back to the Pennsylvania Court of Common Pleas.

On appeal, the Third Circuit considered whether Stone Mansion’s pre-service removal was proper. Encompass argued that removal was improper because (1) the district court ignored the intent of the forum defendant rule and construed it in a manner that “would create a nonsensical result that Congress could not have intended,” and (2) Stone Mansion was precluded from removal because it agreed to accept service electronically. The Third Circuit rejected both arguments.

The Third Circuit found the text of the forum defendant rule to be “unambiguous” in that “removal on the basis of in-state citizenship” is precluded “only when the defendant has been properly joined and served.” The court analyzed the statutory text to determine “whether there has been a most extraordinary showing of contrary intentions and consider whether this literal interpretation leads to absurd or bizarre results.” The court noted that the purpose of the forum defendant rule is to, in part, prevent a bias in favor of in-state litigants. The specific purpose of the text in question—“properly joined and served”—is designed to prevent fraudulent joinder, meaning joining a defendant for the purpose of defeating removal in a diversity action. The district court’s interpretation of the forum defendant rule was proper because: “(1) it abides by the plain meaning of the text; (2) it envisions a broader right of removal only in the narrow circumstances where a defendant is aware of an action prior to service of process with sufficient time to initiate removal; and (3) it protects the statute’s goal without rendering any of the language unnecessary.” That Stone Mansion agreed to accept service before removing did not invalidate removal or give rise to an exception to the forum defendant rule’s “joined and served” requirement.

The court noted that the result for the present matter “may be peculiar,” as Stone Mansion availed itself of a tactic that allowed for removal of a case that it could otherwise not remove. The court even acknowledged that “[r]easonable minds might conclude that a procedural result demonstrates a need for a change in the law.” Nevertheless, the removal statute countenanced removal to federal court, even if the result was “peculiar” and subject to disagreement between “reasonable minds.”

The court further commented—in a footnote—that the advancement of technology “now permit[s] litigants to monitor dockets electronically,” setting up a race to the courthouse for removal. The court declined to specifically address this, but reasoned that “[i]f a significant number of potential defendants (1) electronically monitor dockets; (2) possess the ability to quickly determine whether to remove the matter before a would-be state court plaintiff can serve process; and (3) remove the matter contrary to Congress’ intent, the legislature is well-suited to address the issue.” However, the court made clear that, if a change in the law is necessary regarding the propriety of pre-service removal and the limitations of the forum defendant rule, “it is Congress—not the Judiciary—that must act.”

Encompass “removes” any doubt as to the propriety of snap removal in the Third Circuit. Snap removal to district court is proper and allowable under the removal statute where a diverse, forum defendant is named in the case but not yet served. The Third Circuit did not articulate any limitation on snap removal, thus permitting pre-service removal even by a forum defendant.

The Third Circuit’s decision in Encompass, though highly notable as the strongest endorsement of snap removal by a Court of Appeals, is in line with decisions reached in other federal courts. Not long before Encompass was decided, the United States District Court for the Southern District of New York denied remand following a series of snap removals before service of a forum defendant. Cheung v. Bristol-Myers Squibb Co., 2017 WL 4570792 (S.D.N.Y. Oct. 12 2017). In Cheung, the plaintiffs moved to remand and characterized the defendant’s removal as “gamesmanship.” The plaintiffs did not reject the notion of removal before service entirely, but argued that removal before service should be permitted only where a plaintiff has had a “meaningful chance” to serve the forum defendant. The district court held that:

The statute prohibits removal when there are in-state defendants only when those defendants have been properly joined and served. The specific purpose of the joined and served requirement has been read to prevent a plaintiff from blocking removal by joining as a defendant against whom it does not intend to proceed and who it does not even serve.

Like the Third Circuit, the Southern District of New York found that “a plain reading of the forum defendant rule” permitted pre-service removal and denied remand.

The Third Circuit’s decision in Encompass provides significant guidance to parties litigating the propriety of removal. Removal to federal court is often procedurally complicated. Effecting a proper removal requires navigating the myriad requirements of the Federal Rules of Civil Procedure, the federal removal statute and, in some cases, the procedural and substantive requirements of state law, particularly state rules governing service. Where removal is contested and remand is sought, Encompass stands for the proposition that, while removal statutes are to be construed narrowly, they should still be given their plain and reasonable meaning. Disputes regarding the propriety of removal should be resolved by giving plain meaning to the statute, even when application of the plain language may create what some would call a “peculiar” result. The fact that Congress amended portions of the federal removal statute in 2011 significantly, and left the “joined and served” language intact, further suggests that Congress has considered the statutory framework governing removal and is content with the forum defendant rule’s joined and served requirement.

Encompass has several practical implications for practitioners. For defendants who favor a federal forum, snap removal has been endorsed as a path out of state court. To maximize the chances of successfully removing a case prior to service of a forum defendant, defendants should monitor state court docket activity to ensure prompt notice of newly-filed state court cases. As with any issue of forum, venue or jurisdiction, the prospect of removal prior to service should be considered as part of early case analysis. Indeed, because time is truly of the essence to perfect snap removal, the possibility of removal should be considered as soon as a defendant is aware of a lawsuit. Defense counsel should have removal papers prepared so that upon the first notice of a potential claim, counsel can file quickly. If a litigation hold is triggered or notice is provided to an insurer, immediate consideration should be given to the potential for snap removal.

Plaintiffs charge that snap removal is “gamesmanship” aimed at evading the limitations of removal. Defendants counter that snap removal is necessary to counter plaintiffs’ gamesmanship in filing suit in favorable venues and is consistent with the plain language of the removal statute. At least in the Third Circuit, this debate is now over, and snap removal has been confirmed as a path to federal court.

Reprinted with permission from the December 10, 2018 issue of the New Jersey Law Journal. © 2018 ALM Media Properties, LLC.
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