Federal Bar Update: 6-month update on changes to removal statutes

As readers will recall, the Federal Courts Jurisdiction and Venue Clarification Act of 2011 took effect Jan. 6. The act amended the removal statutes in many respects, including:

• if defendants are served at different times, and a later-served defendant files a notice of removal, any earlier-served defendant may consent to the removal even though he or she did not previously initiate or consent to removal;

• the act still has a one-year cap on diversity removals unless the District Court finds that the plaintiff acted in bad faith to prevent removal, and if the court finds that plaintiff failed to disclose the amount in controversy to avoid removal, that is bad faith; and

• the act speaks to how to treat amount in controversy on removal, including for jurisdictions (like Indiana) where in some types of cases, the amount of damages cannot be set forth in the state court complaint, the notice of removal can set forth the amount in controversy.

Since the act took effect, it has been cited by name in 13 reported decisions, most of which simply deal with the effective date of the act. For instance, in Hatfield v. Wilson, 2012 WL 1899653 (S.D. W. Va. May 24, 2012), the court noted that a defense brief cited to the amended language of 28 U.S.C. § 1446, but that the case was commenced in state court prior to Jan. 6 such that the amendments did not apply. Accord, Benson v. LVNV Funding, LLC, 2012 WL 699632 (S.D. Ill. March 1, 2012).

Practitioners thus need to be attentive to when the action was commenced and then be sure to apply the old removal statutes if the case pre-dates Jan. 6, and the amended statutes if the case was commenced in state court on or after Jan. 6. Federal courts have not been consistent and correct in determining if the act applies. Per the plain language of the act, the “amendments made by this title (1) shall take effect upon the expiration of the 30-day period beginning on the date of the enactment of this Act (which was Dec. 7, 2011); and (2) shall apply to (A) any action that is commenced in a United States district court on or after such effective date; and (B) any action that is removed from a State court to a United States district court and that had been commenced, within the meaning of State law, on or after such effective date.”

Despite this clear language, several decisions have applied the act – erroneously – to actions that were commenced in state court prior to Jan. 6 and later removed. See, e.g., Kahlo v. Bank of America, 2012 WL 1067237 (W.D. Wa. March 28, 2012), (mistakenly applying the act to an action filed in state court in December 2011, removed on Jan. 13, 2012, stating that the “relevant section [of the Act] took effect Jan. 6, 2012 and applies to this removal”).

Substantively, the only instructive opinion of note located that applies the act is Ramsey v. Kearns, 2012 WL 602812 (E.D. Ky. Feb. 23, 2012), which remanded a post-Jan. 6 state court action that was removed to federal court on diversity, with the court determining that the removing defendant had not met the burden to show more than $75,000 in controversy.

The court wrote, “Indeed, recent changes to the removal statute make it clear that defendants should pursue state-court discovery before removal. See Federal Courts Jurisdiction and Venue Clarification Act of 2011. On Jan. 6, 2012, an amended version of 28 U.S.C. § 1446 took effect. These amendments give defendants a new 30-day window to remove a case if they receive discovery from the plaintiff in state court showing that the jurisdictional minimum is met. 28 U.S.C. § 1446(c)(3)(A). And if a plaintiff intentionally fails to disclose the true amount in controversy to prevent removal, the statute exempts the defendant from the usual requirement to remove within one year of the start of the case. 28 U.S.C. § 1446(c)(3)(B). Kearns removed this case on Jan. 11, 2012, so the removal statute explicitly allowed him to establish the amount in controversy through state-court discovery. He chose not to do so.”

Protective order violations – In Tama Plastics Industry v. Pritchett Twine & Net Wrap, No. 1:11-CV-783 (S.D. Ind. May 29, 2012), Magistrate Judge Denise LaRue addressed a motion for sanctions for violations of a confidentiality protective order. In opposing a preliminary injunction motion, a defendant submitted an expert report that contained information that had been designated attorneys’ eyes only. The protective order in the case did not allow such information to be provided to experts without consent of the other party or court approval. Plaintiff moved for sanctions, including to exclude the expert.

In granting in part the motion, LaRue explained, “Protective orders encourage parties to disclose sensitive material, lead to better-informed litigation and decisions, and reduce the costs and delays of litigation. Parties and their counsel must respect and comply with protective orders or these advantages are lost in current litigation and threatened in future litigation. Therefore, courts have a duty to strictly enforce protective orders in the interests of the parties and the public. It is especially important that cavalier attitudes about the terms of protective orders, as exhibited in this instance, are discouraged. However, sanctions for violations of protective orders must be proportionate, practical, and compatible with other important interests such as deciding claims on their merits, achieving correct decisions, and maintaining the efficiency of litigation and judicial decision-making. On the present motion, the court’s goal is to determine a practical sanction that maintains and restores the parties and counsels respect for and compliance with the protective order but does not detract from the integrity of the preliminary injunction hearing and decision.”

Striking a balance, LaRue ordered the defendant to secure appropriate written undertakings from the expert and his staff to keep the information confidential, to provide an inventory of all persons who received the information, and to detail how the information would be protected. Additionally, defendant was ordered to pay plaintiff’s fees for bringing the motion for sanctions, with the court noting it would be up to the defendant and defense counsel to determine who paid between them.

The Tama Plastics order is a must-read opinion for anyone involved with protective orders. It obviously demonstrates the importance of adhering strictly to the terms of protective orders, and also counsels for fashioning a protective order that allows for sharing protected information with experts barring some unusual circumstance. The decision is available on ECF or from the undersigned upon request.

7th Circuit handbook – The 7th Circuit’s Practitioners Handbook for Appeals has recently been updated, and is available on the 7th Circuit’s website. This is an invaluable resource even for experienced federal appellate practitioners.

Judicial biographies – Biographies of Judges Cale Holder and James Noland are online at the Southern District of Indiana’s website and are an interesting read.•

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John Maley – [email protected] – is a partner with Barnes & Thornburg practicing federal and state litigation, employment matters, and appeals. The opinions expressed are those of the author.