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On 7 April 2020, the Fifth Circuit Court of Appeals handed down its decision in Texas Brine Co., L.L.C. v. Am. Arbitration Ass’n, Inc., No. 18-31184, 2020 WL 1682777 (5th Cir. Apr. 7, 2020). Much of the commentary regarding the decision in Texas Brine has revolved around the Fifth Circuit’s reaffirmation that the Federal Arbitration Act provides the exclusive remedy for challenging an arbitration award based on an arbitrator’s failure to disclose potential conflicts of interest, thereby barring a party’s claim for damages and equitable relief based on an arbitrator’s alleged fraudulent conduct. Texas Brine, however, as a matter of first impression in the Fifth Circuit, decided a second important issue applicable to all civil law cases without regard to the nature of the dispute – the validity of “snap removal.”
28 U.S.C. § 1332(a) grants the federal district courts original jurisdiction of all civil actions where (1) the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs and (2) the dispute is between citizen of different states. 28 U.S.C. § 1441(a), in turn, permits a defendant to remove a civil case brought in state court to the federal district court in which the case could have been brought. There is, however, an additional restriction on removal, known as the local-defendant or forum-defendant rule found at 28 USC § 1441(b)(2):
(2) a civil action otherwise removable solely on the basis of the jurisdiction under [28 U.S.C. § 1332(a)] 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.
The initial issue raised in Texas Brine was whether the forum-defendant rule prohibits a non-forum defendant from removing a case when a not-yet-served defendant is a citizen of the forum state. The lawsuit was filed in Louisiana. Complete diversity as required by 28 U.S.C. § 1332(a) existed among the four parties. Texas Brine is a Texas limited liability company. The defendants are a New York corporation and two individual citizens of Louisiana. Before the two Louisiana defendants were served, the AAA, the New York corporation, removed the case to federal court, the so-called “snap removal.”
In joining the Second, Third and Sixth Circuits1 in recognizing the propriety of snap removal, the Fifth Circuit noted that the forum-defendant rule is a procedural rule and not jurisdictional.2 The district court, therefore, had subject-matter jurisdiction because each defendant was diverse from the plaintiff.
Relying on a plain reading of the statute, the Court observed that pursuant to Section 1441(b)(2)’s terms, if the local defendants had been “properly joined and served” at the time of removal, the case would not have been removable. In this instance, however, when the AAA filed its notice of removal, the case was “otherwise removable” — as required by Section 1441(b) — because the district court had original jurisdiction of a case initially filed in Louisiana state court in which the parties were diverse. At the time of removal, the only defendant “properly joined and served,” the AAA, was not a citizen of Louisiana, the forum state. In reaching this holding, the Court agreed with a comment made by the Second Circuit:
By its text, then, Section 1441(b)(2) is inapplicable until a home-state defendant has been served in accordance with state law; until then, a state court lawsuit is removable under Section 1441(a) so long as a federal district court can assume jurisdiction over the action.3
There is a maxim in law that “equity aids the vigilant.” Here, the AAA’s vigilance in removing the case afforded it access to a forum that would have been foreclosed had the AAA delayed in filing the removal.
1 Gibbons v. Bristol-Myers Squibb Co., 919 F.3d 699 (2d Cir. 2019); Encompass Ins. Co. v. Stone Mansion Rest. Inc., 902 F.3d 147 (3d Cir. 2018). The Sixth Circuit, in a footnote, has also interpreted Section 1441(b)(2) to allow snap removal. McCall v. Scott, 239 F.3d 808, 813 n.2 (6th Cir. 2001).
2 In re 1994 Exxon Chem. Fire, 558 F.3d 378, 392–93 (5th Cir. 2009)
3 Gibbons, 919 F.3d 705.