What Snap Removal Debate Means for Insurance Disputes

September 6, 2022 | Greg E. Mann | Insurance Coverage

When defendants are sued in state court, one of the first things defense attorneys will usually consider is whether the case is removable, and if so, whether it should be removed.

A recent practice, spurred by case law, has allowed defendants in some jurisdictions to remove to federal court. This is particularly a concern in insurance cases because some insurers perceive that state courts are more favorable to policyholders than insurers.

The general removal statute requires defendants to act quickly, within 30 days of receiving the complaint through service or otherwise.[1] A defendant can only remove a state court case to federal court if the case contains a federal question or diversity jurisdiction.

Typically, diversity jurisdiction exists if all plaintiffs and defendants are citizens of different states, and the amount of the controversy exceeds $75,000. But even if the requirements of diversity jurisdiction are met, a case cannot be removed to federal court based on diversity jurisdiction if one of the defendants is a citizen of the forum state.[2] This is the forum defendant rule.

The rationale for the forum defendant rule is that diversity jurisdiction is meant to protect defendants against the bias of local courts. When a defendant is a citizen of the forum, the concern about bias disappears.

But this rule leaves co-defendants who are not citizens of the state in the lurch. These defendants still face the perceived bias from local courts that diversity jurisdiction is supposed to address.

Insurance cases are often difficult to remove to federal court because policyholders frequently name multiple carriers, including an in-state defendant, to defeat federal jurisdiction.

But a practice known as snap removal allows a defendant to circumvent the forum defendant rule before the forum defendant is served. The practice thus gets its name from the need for defendants to act fast, or snappily. A quick review of Westlaw reveals a new case on the topic almost weekly.[3]

Although snap removal is not limited to insurance cases, the forum defendant rule is frequently an obstacle to federal jurisdiction, and thus snap removal provides a possible avenue to federal jurisdiction.

To be clear, snap removal is not an exception to diversity jurisdiction. It is only an exception to the forum defendant rule, which itself is an additional requirement in diversity cases.

Complete diversity must still exist in snap removal cases.[4] And diversity is generally measured by the citizenship of the named parties regardless of service. Thus, this issue only arises in narrow circumstances: where diversity exists, but one of the defendants is a citizen of the forum state.

Snap removal follows from a strict reading of the forum defendant rule, Title 28 of the U.S. Code, Section 1441(b)(2), which states:
A civil action otherwise removable solely on the basis of the jurisdiction under section 1332(a) of this title 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.

Thus, on its face, the forum defendant rule applies only if one of the defendants “properly joined and served” is a citizen of the forum state.

But snap removal is not without controversy. It has divided courts. While the U.S. Courts of Appeals for the Second,[5] Third[6] and Fifth Circuits[7] have approved snap removal, the U.S. Court of Appeals for the Eleventh Circuit[8] has rejected it, though only in dicta.

The U.S. Court of Appeals for the Sixth Circuit accepted the practice, in dicta, in a 2001 case, years before snap removal became commonplace.[9]

In practice, most decisions are resolved at the district court level because orders granting or denying motions to remand are generally not immediately appealable.[10] The district courts, however, cannot agree about the practice of snap removal.

In Deutsche Bank National Trust Co. v. Chicago Title Insurance Co. in July, the U.S. District Court for the District of Nevada noted that courts are in disarray on the question.[11]  Because district courts within the same districts have split on the issue, whether a snap removal sticks in any given case could depend on the luck of the judicial draw.

Courts permitting the practice point to the plain meaning of the statutory text, which again, refers only to forum defendants who have been properly joined and served.

On the other hand, courts disallowing snap removal say that this practice leads to absurd results. These courts reason that, whether a forum defendant has been properly served has nothing to do with the point of the forum defendant rule: to respect plaintiff’s choice of forum when there is no risk of bias against a forum defendant.

These courts also note that the snap removal essentially writes the forum defendant rule out of existence, especially for those defendants with the resources to monitor local filings before parties are served.

Some courts disallowing snap removal reason that the properly-joined-and-served concept is meant to prevent application of the forum defendant rule to a forum defendant who is fraudulently joined.[12]

In other words, the “properly joined and served” phrase is meant to prevent shrewd plaintiffs from preemptively blocking removal by naming an unnecessary forum defendant against whom they did not intend to litigate.

In 2017, in In re: Jean B. McGill Revocable Living Trust, the U.S. District Court for the Northern District of Oklahoma said it “does not believe that Congress intended to trade one form of procedural gamesmanship—fraudulent joinder—for another—snap removal.”[13]

To be sure, the properly-joined-and-served doctrine does seem geared toward fraudulent joinder, but there are counterarguments to this theory. Allowing snap removal does not mean fraudulent joinder is permitted.

The two concepts are distinct. The former is used by defendants, the latter by plaintiffs. Moreover, fraudulent joinder is a federal common law concept that is not limited to the forum defendant rule.

A truly paradoxical result happens when the forum-state defendant itself engages in snap removal.

In fact, this is what occurred in two of the circuit court decisions accepting snap removal, Gibbons v. Bristol-Myers Squibb Co. in the Second Circuit, and Encompass Insurance Co. v. Stone Mansion Restaurant Inc. in the Third Circuit.

In that scenario, the forum defendant rule will essentially argue in its removal petition that it is seeking federal jurisdiction despite not yet being served in the state court litigation.

Snap removal has gotten the attention of Congress. In 2020, several House members introduced draft legislation, H.R. 5801,[14] which would have required a federal court, on a motion, to remand a case if the unserved forum defendant was served within a prescribed time period.

That legislation would thus not prevent snap removal but would give plaintiffs a remedy to nullify snap removals after the fact. No action has taken place on the legislation.

The U.S. Supreme Court could weigh in given a possible circuit split in light of the Eleventh Circuit’s decision in Goodwin v. Reynolds in 2014, but given that the court’s ruling was dicta, the Supreme Court may wait for a more direct circuit split to arise.

[1] See 28 U.S.C. § 1146(b)(1).
[2] See 28 U.S.C. § 1441(b)(2).
[3] Guillen v. Vie De France Yamazaki, Inc., 2022 WL 3211219, at *3 (C.D. Cal. Aug. 9, 2022)(approving snap removal); Bank of Am., N.A. v. Fid. Natl. Tit. Group, Inc., 2022 WL
2914750, at *4 (D. Nev. July 25, 2022)(approving snap removal but only where at least one party has been served); Kirst v. Erck, 2022 WL 2869742, at *4 (D. Md. July 21, 2022)(rejecting snap removal); Cagle v. NHC HealthCare-Maryland Hgts., LLC, 2022 WL 2833986, at *4 (E.D. Mo. July 20, 2022)(rejecting snap removal).
[4] Cox v. J.B. Hunt Transp., Inc., 2020 WL 3288090, at *2 (S.D. Tex June 17, 2020).
[5] Gibbons v. Bristol-Myers Squibb Co., 919 F.3d 699, 705-06 (2d Cir. 2019).
[6] Encompass Ins. Co. v. Stone Mansion Rest. Inc., 902 F.3d 147, 152-54 (3d Cir. 2018).
[7] Texas Brine Co., LLC v. Am. Arbitration Ass’n, Inc., 955 F.3d 482, 485-87 (5th Cir. 2020).
[8] Goodwin v. Reynolds, 757 F.3d 1216 (11th Cir. 2014).
[9] McCall v. Scott, 239 F.3d 808, 813 n. 2 (6th Cir. 2001).
[10] 28 U.S.C. § 1447(d).
[11] Deutsche Bank Natl. Tr. Co. v. Chicago Tit. Ins. Co., 2022 WL 2819844, at *3 (D. Nev. July 18, 2022).
[12] In re Jean B. Mcgill Revocable Living Tr., 2017 WL 75762, at *3 (N.D. Okla Jan. 6, 2017).
[13] Id.
[14] Removal Jurisdiction Clarification Act of 2020, H.R. 5801, 115th Cong. (2020).

Reprinted with permission from Law360.

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