The Third Circuit recently served up an ace for resident defendants seeking to remove cases filed in their home states prior to being served. In its August 22, 2018 Encompass Insurance Co. v. Stone Mansion Restaurant Inc. decision, the court resolved a split among its district courts and became the first appellate court to endorse pre-service removals by in-state defendants, a practice commonly called the “snap removal.”
In a world where venue can mean the difference between winning and losing on the merits, the Encompass decision will help set defendants up for early success. Quick-acting and astute defendants in the Third Circuit may avail themselves of the plain meaning of the “forum defendant rule” to remove actions filed in their home state. In addition, defendants in other circuits have additional persuasive appellate authority to cite in opposition to remand motions based on the forum defendant rule.
Statutory Framework for the Snap Removal
Defendants may remove actions filed in state court to the district court of the United States for the district and division embracing the place where the action is pending. 28 USC § 1441(a). However, even where federal jurisdiction is premised on the diversity of the parties, the forum defendant rule may preclude removal under certain circumstances. That rule provides that “[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.” Id. § 1441(b)(2) (emphasis added).
The “plain meaning” of § 1441(b) allows resident defendants to remove actions filed in state court provided they do so before being served. Nonetheless, some district courts have rejected a literal interpretation of the forum defendant rule because it would lead to an “absurd” result by allowing a resident defendant to remove a case before a plaintiff has a chance to effect service. With its decision in Encompass, the Third Circuit endorsed the plain meaning of the statute and resolved a split of district courts within its bounds.
The Encompass Decision
Encompass1 arose out of a fatal car accident that killed an intoxicated driver and seriously injured the sole passenger. Following settlement of the passenger’s claims, the driver’s insurance company, Encompass Insurance Company (Encompass), a citizen of Illinois, sued Stone Mansion Restaurant Incorporated (Stone Mansion)—the Pennsylvania restaurant that allegedly overserved the driver—in Pennsylvania state court, seeking contribution.
Stone Mansion removed the matter to the United States District Court for the Western District of Pennsylvania and Encompass moved to remand on the ground that removal was improper pursuant to the forum defendant rule. The district court denied the motion, concluding that the forum defendant rule did not apply because it precludes removal only “if any of the parties in interest properly joined and served as defendants is a citizen of the State in which [the] action is brought” and because Stone Mansion’s counsel “did not accept service of [Encompass’] Complaint until after [it] filed a Notice of Removal.” Encompass, 2018 WL 3999885, at *2 (quoting 28 USC § 1441). Once in federal court, Stone Mansion moved to dismiss the action under Federal Rule of Civil Procedure 12(b)(6). The court granted the motion, creating a rare perfect storm of circumstances necessary for a quick review of the district court’s denial of Encompass’ remand motion.
In considering whether the district court erred in denying Encompass’ motion to remand, the Third Circuit’s analysis began with the text of the forum defendant rule. “Starting with the text,” the Third Circuit concluded that the language of the forum defendant rule was “unambiguous” and that “[i]ts plain meaning precludes removal on the basis of in-state citizenship only when the defendant has been properly joined and served.” Encompass, 2018 WL 3999885, at *4.
Because the plain meaning was unambiguous, the Third Circuit could only consider “whether there has been a ‘most extraordinary showing of contrary intentions’ and whether this literal interpretation leads to ‘absurd or bizarre results.'” Id. Encompass argued that it is “inconceivable” that Congress intended the “properly joined and served” language to permit an in-state defendant to remove an action by delaying formal service of process. Id. The Third Circuit found this argument “unavailing,” holding that its interpretation of section 1441 did not “defy rationality or render the statute nonsensical or superfluous” for three reasons:
it abides by the plain meaning of the text;
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
it protects the statute’s goal without rendering any of the language unnecessary.
Id. Although the court acknowledged that “this result may be peculiar in that it allows Stone Mansion to use pre-service machinations to remove a case that it otherwise could not,” such an outcome was not so “outlandish as to constitute an absurd or bizarre result.” Id. The Third Circuit left Congress to decide whether “the procedural result demonstrates a need for a change in the law.” Id. at *5.2
Encompass is a victory for defendants and the plain language rule of statutory interpretation. Unless and until Congress, the Supreme Court, or perhaps an en banc Third Circuit determines that snap removals are contrary to Congressional intent, litigants in the Third Circuit may remove cases filed in their home state so long as they are not yet served. In addition, litigants outside the Third Circuit have new appellate precedent to cite in support of their own pre-service removals.