Commentary: Removal to federal court: Look before you leap, Part II

When a client is sued in state court, his or her defense lawyer is prone to consider removal to federal court as an option. Rightly or wrongly, many attorneys believe federal courts can be friendlier forums for defendants sued on state law claims. Removal, though, should not be a knee-jerk response. As we discussed last week, this is a highly technical area, one that should be approached with a sophisticated understanding of the substantive law involved.

There are a number of substantive law limitations on the right to remove. As only cases brought in a state court may be removed, state administrative proceedings generally do not qualify. Furthermore, a defendant can sabotage his right to removal simply by filing a counterclaim or taking discovery before attempting to remove the case. These actions demonstrate a commitment to litigating in the state court.

The bedrock principle here is that an action is removable from state to federal court only if the suit might have been brought in federal court originally. The law of federal jurisdiction is thus all important. The principal bases of federal jurisdiction are: (1) the existence of a federal question and (2) diversity of citizenship.

Federal Question

Let's examine the first standard in detail. For a case to meet it, the federal question must appear on the face of plaintiff's complaint. Removal may not be based on the defendant's defense or counterclaim. A limited exception exists when the doctrine of complete federal preemption applies. Under this doctrine, some cases are so necessarily federal that they may always be removed even if the federal issue is raised only as a defense.

The complete preemption doctrine applies primarily to cases presenting collective bargaining issues under federal labor laws and to ERISA claims where plan beneficiaries seek to enforce employee benefit plans.

Note that not all such cases may or should be removed. Think twice about removing cases involving potential ERISA issues, such as suits by employees against health insurers for medical benefits. Simply because a claim for $5,000 in benefits may be removable, does not mean that it's wise for an insurance carrier defendant to burden the federal court's crowded docket with such a small case. The adage, fools rush in where angels fear to tread should be borne in mind.

Diversity

Now let's look at the diversity of citizenship standard. First, for purposes of federal jurisdiction, a corporation has dual citizenship. It is a citizen of both its state of incorporation and the state where it has its principal place of business. So if a Delaware corporation has its principal place of business in Maryland, and is sued in Maryland state court, the diversity standard for removal is not met.

What about such entities as limited partnerships, LLCs and general partnerships? For purposes of federal jurisdiction, these entities are treated as unincorporated associations rather than corporations.

The limited partnership or LLC is considered to be a citizen of any state in which any of the entity's partners or members are citizens. In order to be removable, there must be complete diversity of citizenship. Diversity must exist between all of the original plaintiffs and all of the original defendants. So if an LLC is sued by a Maryland plaintiff in Maryland state court, and any single partner in the LLC is a Maryland citizen, the case cannot be removed based on the diversity standard.

Also, diversity must exist both at the time the original action was filed and when removal is sought. A defendant may not move to a different state after a suit is in an effort to create diversity. That said, diversity need not have existed at the time of the occurrence complained of in the suit. Another caveat is that if a defendant can establish that a plaintiff fraudulently joined a case purely for the purpose of destroying diversity, the federal court may permit removal.

Other Considerations

In order to remove a diversity case, the amount in controversy must exceed $75,000 exclusive of interest. (There is no such minimum with regard to the federal question standard.) If the complaint is silent as to the amount of damages sought, the notice of removal should contain the defendant's prima facie showing that the amount in controversy exceeds $75,000.

Where a complaint does not seek a money judgment but requests injunctive or declaratory relief, the court will examine the value to the plaintiff and/or the cost to the defendant of the relief sought. In all such cases, showing that the $75,000 threshold has been passed is the defendant's burden.

Finally, in navigating these waters, keep in mind that certain federal statutes, such as the Age Discrimination in Employment Act, the Fair Debt Collection Practices Act, and the Fair Labor Standards Act, provide for concurrent jurisdiction in both state and federal courts. Nevertheless, the majority of courts hold that a defendant sued in state court under such a statute may still remove the case.

As this article makes clear, removal to federal court is a technical subject, yet one that raises profound jurisdictional questions upon occasion. By way of example, next week we'll look at a fascinating Baltimore case that has focused the local U.S. District Court's attention on the potential for removal to delay state court proceedings.

This article was originally published in The Daily Record, Baltimore, Md., another Dolan Media publication.

Trial lawyer and author Paul Mark Sandler is a partner with Shapiro Sher Guinot & Sandler in Baltimore. Robert B. Levin is also a partner with the firm.

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