Federal Removal Jurisdiction and Procedure – A Refresher

John C. Lane

Federal courts have limited jurisdiction, governed by Congress. A Notice of Removal from state court to federal court is not a mere notice – it is a pleading, governed by strict federal statute, that commences a federal action. If those statutory requirements are not followed in full, the federal court will remand your case to state court, if indeed it gets to federal court at all. The requirements are jurisdictional and cannot be waived.

Why remove to federal court?

Reasons are myriad: to escape a state court known for very high verdicts, or to seek a perceived better judiciary or jury pool, broader discovery rules, or nation-wide subpoena power, or good case management. Also, federal judges are more familiar with subjects covered by federal law, such as transportation law. (In some cases the state court venue may be preferable. That, too, must be considered.)

So, what are those rules for federal removal jurisdiction?

For cases removed on the basis of diversity of citizenship, the most common basis, the first requirement, as in all diversity cases, is that every plaintiff must be of diverse state citizenship from every defendant. But that is only the beginning. 46 U.S.C. 1441 and 1446 list these requirements:

  • No defendant may be a citizen of the state in which the action is brought [even if the plaintiff is from a different state and there is otherwise complete diversity].
  • As with all cases based on Diversity Jurisdiction, the amount in controversy must exceed $75,000 exclusive of interest and costs.
  • The Notice of Removal must be signed and attested to by an attorney pursuant to Federal Rule 11.
  • All co-defendants who have been properly joined and served must join in or consent to the removal.
  • The notice of removal must be filed within thirty days of receipt of the initial pleading, by service or otherwise, unless the complaint does not provide sufficient information to allow a defendant to plead federal removal jurisdiction.
  • If the initial pleading does not provide the necessary information for removal, the notice of removal may be filed within thirty days of receipt of that information.
  • Caveat: A case must be removed not later than one year from commencement of the state-court proceeding, unless the federal district court finds that the plaintiff acted in bad faith in order to prevent a defendant from removing the action.

Each one of these requirements must be investigated by your attorney and specifically pleaded in the Notice of Removal. Again, the Notice must be signed and attested to by your attorney. We emphasize this: the requirements are jurisdictional and cannot be waived by any party or the federal district court.

What constitutes citizenship of the parties?

Generally, a person is a citizen of the State in which he or she resides. Issues can arise if the person has two residences in different states, or is in one state on temporary assignment, such as a member of the armed forces. Or a person who lives and works in one state but still considers her home as the place she was raised.

A corporation is a citizen of the State of its incorporation and the State where it maintains its principal place of business. A Delaware corporation having its principal place of business in Illinois is a citizen of both states for federal jurisdiction purposes. A limited liability company is a citizen of the state of its formation and the state of citizenship of each of its members. A partnership is treated similarly for federal jurisdiction purposes.

The determination of the citizenship of the various parties can require considerable time and effort on the part of your defense attorney. Helping your attorney to identify citizenship of your corporate entities is very important.

What constitutes the “amount in controversy” and how and when is it determined?

The simplest method is to look to the ad damnum clause in the complaint, if the state court rules permits such a clause in the initial pleading. New York and New Jersey do not, but they allow a defendant to demand a statement of the damages claimed. The response to that demand may be the first indication that the amount in controversy exceeds $75,000, thus meeting that element of the federal removal requirements and starting the thirty-day limit for removal. Federal courts in Manhattan and Brooklyn will not accept removal jurisdiction until it is made clear that all requirements are met, especially the amount in controversy. A discovery response may also be the trigger, by listing special damages such as medical expenses or lost earnings, again starting the removal clock.

Other possibilities exist. New York and New Jersey require a statement in the complaint that the amount sought exceeds the “jurisdictional limits of all lower courts” usually between $15,000 and $20,000 and thus not implicating federal jurisdiction. Be alert, though. Some attorneys will add a phrase like this: “and the jurisdictional minimum of the federal courts.” In our judgment, that phrase meets the amount in controversy requirement, and the thirty-day removal clock starts when that initial pleading is received by the defendant or its agent, by service or otherwise.

Some attorneys will send a pre-suit settlement demand letter to the defendant or its claims agent. If that demand exceeds $75,000, the amount in controversy has already been met and the thirty days begins to run on receipt of the complaint. If you do not provide defense counsel with a copy of that letter immediately upon assignment, the time for removal may be lost.

What can you do to help your defense attorney?

Send the lawsuit papers as soon as possible. The time to answer in state court is already running. If federal removal is your goal, your attorney will evaluate the factors and advise you. Send your attorney your complete file – including claim notes. Valuable information resides there. Finally, be prepared to help your attorney determine the citizenship of the defendants to be represented.

Successes in 2023

The Lane Law Letter

We look back at some of our successes in 2023.

Summary Judgment in Quadriplegic Accident

A severe accident on the Cross-Bronx Expressway involved a Jeep Grand Cherokee, a Honda Odyssey, and two tractor-trailers. An occupant of the Jeep was rendered a quadriplegic and brought suit in Bronx County against the operators of the other vehicles. The Court granted summary judgment for our trucking company client after seven years of litigation. This high-exposure case will proceed against the owners of the Honda and the other tractor-trailer.

Summary Judgment, Indemnity and Insurance Coverage

An accident on a state highway in New Jersey led to debilitating injuries to the driver of a small delivery truck when his vehicle impacted a truck operated by a company retained by our client, a broker. The injured man sued our broker client and the trucker involved in the accident. The trucker’s insurer denied additional-insured coverage for our client and commenced a declaratory judgment action to avoid that coverage. We represented the broker in both actions. In the personal injury action we obtained summary judgment dismissing the complaint and enforcing contractual indemnity against the trucker. That double victory led to a settlement of both actions. The insurer settled the personal injury claim in full and made reimbursement to our client for legal fees and expenses incurred in both cases.

Voluntary Dismissal in Alleged Roadway Distraction Claim

Plaintiff’s car was struck in the rear by co-defendant’s vehicle, from which plaintiff suffered spinal injuries requiring surgery. Co-defendant claimed he had been distracted by a truck that was weaving from lane to lane, and even coming close to tipping over. His identification of the truck, which he said bore the name of our client, a popular food service transporter, started out as very sketchy and became virtually worthless after depositions. Plaintiff was persuaded that the phantom truck, if it existed, was not owned by our client. Plaintiff voluntarily dismissed the claim against our client.

Settlement, Exoneration, and Insurance Coverage

A small outdoor recreation business was sued by a young man injured in a rope incident in a state park in New Jersey. The man suffered spinal fractures and had a lengthy hospital and treatment course. He sued our client in state court. Our client made timely notification to its general liability insurer, but the insurer reserved rights as to coverage and commenced a federal declaratory judgment action. We defended that suit, counterclaimed for coverage, and impleaded the client’s insurance broker. After nearly seven years of litigation, the insurers moved for summary judgment. We defeated those motions and a motion to amend the complaint. The insurers succumbed. Together they settled the personal injury case in the high six figures, and then paid the majority of our legal fees and expenses incurred over nearly seven years of federal court litigation.

Summary Judgment Under Graves Amendment and Independent Contractor Doctrine, Indemnification against Subcontractor

An accident at an intersection in Yonkers, New York resulted in shoulder and back injuries. Both injuries resulted in surgical intervention. The injured party brought suit against our client, a freight forwarder, and its subcontractor, who was operating a tractor-trailer involved in the subject accident. The trailer was owned by our client. We obtained summary judgment under both the Graves Amendment and an independent contractor defense. We also obtained summary judgment for contractual indemnity on our cross-claim against the subcontractor.

Voluntary Dismissal in Severe Injury Case

A New Jersey municipal employee was injured while unloading cargo from a trailer, allegedly caused by an ice condition on the product being unloaded. The injured employee sued several parties, including our client, a freight broker. After completion of discovery, and without the need for motion practice, we persuaded our client’s subcontractor to settle the case and obtain a release for our client, while also agreeing to reimburse our client for attorneys’ fees and expenses incurred defending the case.

Plaintiff’s Bad Faith Delay of Defendant’s Removal to Federal Court

Plaintiff sued in state court in New York after an accident on the Cross-Bronx Expressway. His injuries were not serious and treatment was scant. His attorney refused to negotiate a settlement, but he wanted to avoid a federal removal. When we obtained an order that plaintiff provide a written demand, the attorney delayed as long as he could and then provided a written demand of $74,000, just below the $75,000-plus minimum for jurisdiction. Later, counsel served discovery responses that surreptitiously increased the demand to $2,000,000, but that was beyond the one-year limitation for removal. We removed anyway, citing an exception in the statutory deadline provision. The federal court retained jurisdiction, finding that “plaintiff acted in bad faith in order to prevent or delay defendants from removing this action.” The case settled in two weeks for what it was worth – next to nothing.

Moral: Never give up!

The Lane Law Letter will continue to bring you updates on matters of pertinent law in New York and New Jersey.

Supreme Court to Handle Another Arbitration Dispute: Are Bakery-Product Delivery Drivers Transportation Workers or Bakery Workers?

John C. Lane

And why does it matter? Because if they are transportation workers, their putative class action under the FLSA must proceed in court, not by contracted-for arbitration. But if they are bakery workers, they must submit to arbitration. The Second Circuit held they are not transportation workers and therefore must submit to arbitration. The Supreme Court has agreed to hear the workers’ further appeal, in Bissonnette v. LePage Bakeries Park St., LLC.

Certainly Section 1 of the Federal Arbitration Act forbids a transportation worker, even an independent contractor, to be compelled to arbitrate a claim against an employer. That was settled by the Court in its 2019 decision in New Prime, Inc. v. Oliveira. The unusual setting in Bissonnette raises the issue for the Court of whether the workers are transportation workers or, perhaps, bakery workers.

The workers entered into distributor agreements with defendant bakery companies. In a putative class action, they alleged they were misclassified as independent contractors rather than employees, in violation of the FLSA and Connecticut law, seeking reclassification and damages. The bakery defendants moved to compel arbitration under a contractual provision that also excluded class or other representative actions. But what was their job?

Under the agreements, plaintiffs purchased their own service territories, identified new customers, developed relationships with existing customers, ordered and delivered products, stocked and replenished products in customers’ locations, and otherwise promoted sales and customer service. Plaintiffs purchased bakery goods from defendants and sold them to the customers at a profit, which they kept.  They increased profits by increasing business. The goods came from outside Connecticut and were transported by the workers to their final destinations in Connecticut, using their own vehicles.

Plaintiffs claimed they were transportation workers, transporting bakery products on the intrastate leg of interstate commerce. In contrast, the bakery companies focused on the business aspect of the work, to say that plaintiffs are not transportation workers because their primary activities are in the bakery industry, not the transportation industry. They are more akin to sales workers or managers responsible for all aspects of a bakery products distribution business. Thus, they argue, the Section 1 exception is no impediment to the application of the full Federal Arbitration Act.

The Connecticut district court agreed with the defendant bakeries, ordering the workers to arbitration. The Second Circuit affirmed. The Supreme Court recently granted certiorari to decide whether these distributors of bakery products are in the bakery industry or the transportation industry. And that determination will decide whether their employment claims will be resolved in court or in arbitration.

New York Governor Hochul Vetoes the Grieving Families Act

John C. Lane

We addressed this bill in July 2022 when it was passed by the New York Legislature last year and sent to the Governor for signature. The bill would add wrongful death compensation for the value of “grief or anguish caused by a decedent’s death,” a type of damages never before found in New York law. Under current law, and for the past 176 years, the measure of damages has been the loss of economic support or other benefit resulting from the decedent’s death. The law would expand the statute of limitations and would apply retroactively to every pending lawsuit.

In an Op-Ed to the New York Daily News on January 30, 2023, Governor Hochul made clear her objections to the Act as written, while agreeing with the plaintiffs’ bar on the need to change existing law:

The question is how. Last year, the Legislature passed a bill, the Grieving Families Act, that would effectuate a complete overhaul of the wrongful death framework. It would dramatically expand beneficiaries, categories of damages, and the statute of limitations.

Experts have highlighted concerns that the unintended consequences of this far-reaching, expansive legislation would be significant. It is reasonable to think that the legislation as drafted will drive up already-high health insurance premiums, adding significant costs for many sectors of our economy. . . . This is a question that would benefit from careful analysis before, not after, passing sweeping legislation.

The Governor further commented that what was missing in the Legislature’s process “was a serious evaluation of the impact of these massive changes on the economy, small businesses, individuals, and the state’s complex health care system.” The Op-Ed continued:

We must fully understand the impacts of potential changes on small businesses, families, doctors and nurses, struggling hospitals in underserved communities, and the overall economy to ensure that undesired consequences don’t overshadow the good we can do for grieving families.

While this is a breath of fresh air from an unexpected source, we note Governor Hochul’s total omission of the potential effect on liability insurers, the premiums needed to meet these expanded liabilities, and the effect on the future availability of insurance for New York businesses and individuals. Perhaps that was a step too far for the Governor.

Peter Bobchin to present at TIDA Webinar on Preventability Determinations

The Lane Law Letter

Peter Bobchin will be presenting at a webinar on Tuesday, November 1st, sponsored by the Trucking Industry Defense Association. The webinar, entitled “FMCSA, Preventability Determinations, and How to Navigate These Issues at Deposition,” will explore FMCSA requirements for reporting accidents, addressing protections afforded under 49 U.S.C. § 504(f), and whether preventability determinations fall under the protections.

The program will review how some state courts handle the admissibility of preventability determinations at trial, and how to address the issue in preparing a safety supervisor to testify at a deposition. The webinar will also discuss the FMCSA’s voluntary Crash Preventability Demonstration Program.

The Panel members also include TIDA attorneys Rene L. Bowen of Franklin & Prokopic, P.C., in Baltimore, and Joseph Panatera of Cassiday Schade LLP, in Chicago.

TIDA members can register for the webinar via the link at the bottom of TIDA’s home page, at http://www.tida.org.

Peter has been a member of TIDA for 17 years and his partner, John Lane, has been a member for most of TIDA’s existence. Together, they co-author and update TIDA’s state law summary for New York. The Association includes individuals from the trucking industry, trucking insurance and claims professionals, and attorneys who devote a substantial portion of their practice to the defense of trucking companies.

Complacency Can Cost You Federal Removal

John C. Lane

Removal to federal court requires defendants to turn square corners. A slip-up can cost federal jurisdiction. In Reyes v. Hess Retail Stores, a federal judge in Brooklyn, New York, showed how a clever plaintiff’s attorney outwitted the defense and precluded removal, from the moment the complaint was filed in state court. Here is a lesson for us all.

Ajay Suresh from New York, NY, USA, CC BY 2.0 https://creativecommons.org/licenses/by/2.0, via Wikimedia Commons

The 30-day time limit to remove a case from state court to federal court commences when the defendant receives a written demand that exceeds the federal jurisdictional minimum of $75,000. Typically, that demand is found in plaintiff’s complaint. But not in New York. By statute, state-court complaints may not include a specific monetary demand. The complaint may state that the amount demanded exceeds the jurisdictional limits of all lower courts. The statute permits a defendant to request a supplemental written demand for damages, which is exchanged between counsel but not filed in court. The 30-day removal period begins when defendant receives a responding demand in excess of $75,000, or any other written statement of damages.

But when the defendant in Reyes removed the case to federal court within that later time period, the district court ruled the removal was too late. Why?

Mr. Reyes’ complaint in state court made no specific monetary demand and stated the usual phrase that the demand exceeded the jurisdictional limits of all lower courts. But plaintiff’s attorney added one more critical phrase: “including the minimum threshold for federal jurisdiction under 28 U.S.C. § 1332a) [the $75,000 requirement, softly spoken]. And that made the difference.

The defense had waited until it received a bill of particulars from plaintiff listing special damages totaling over $200,000 and then filed its notice of removal. The district court ruled that federal removal should have been filed within thirty days of service of the complaint: Any lawyer should know that alleging that plaintiff’s demand “exceeds the minimum threshold for federal jurisdiction under 28 U.S.C. §1332(a)” is no different than alleging the demand “exceeds $75,000.”

This court remanded the case to state court with this admonition from the court: “If plaintiff sought to capitalize on the possibility of defendant’s complacency, he was entitled to find a way to put explicit language in the complaint starting the removal period. That is what he did.” And that decision to remand is not appealable.

Don’t be complacent on federal removal issues. Read the complaint carefully.

Designated Counties Exclusion Leads to Coverage Denial in Product Liability Claim

John C. Lane

Colleen Lorito worked at a Home Depot store in Freeport, New York, in Nassau County. She suffered a severe hand injury while working with a cutting machine designed to cut pre-made window blinds to meet the specifications of Home Depot’s customers. The blinds and cutting machines were marketed by Richland Window Coverings, LLC, doing business as Nien Made (America), headquartered in California. When Colleen and her husband filed a product-liability lawsuit against Richland in Nassau County, Richland’s insurer, Admiral Insurance Company, disclaimed coverage. Richland sued Admiral in its home state of New Jersey for a declaratory judgment that it owed coverage. On appeal, the New Jersey Supreme Court sided with Admiral. Here’s why.

The Admiral policy contains a “Designated New York Counties” Exclusion, listing the five counties that make up New York City, two nearby upstate counties, and the counties of Long Island – Nassau and Sussex. There would be no coverage for Richland for any liability “arising out of, related to, caused by, or in any way connected with . . . [any] operations or activities performed by [Richland]” in any of the designated counties. Admiral asserted that Richland’s activities at the Freeport Home Depot, in Nassau County, triggered the Exclusion, denying coverage to Richland for Colleen’s accident claim.

(Why all those counties? Five of those nine counties are actually defendants’ venues – especially Nassau and Suffolk.)

Richland argued before the New Jersey courts that it sold blinds and cutting machines to Home Depot, not to any specific store location. The Supreme Court looked beyond the four corners of the complaint to review all background facts, to determine that Colleen’s injuries were “connected with” and “related to” Richland’s operations and activities at the Home Depot in Nassau County. The allegations of the complaint alone were insufficient to answer the coverage question.

The Court gleaned from the record that Richland sells Nien Made window covering products to national retailers such as Home Depot. It also provides the cutting machines to cut the blinds to customers’ specifications, and a user manual for the retailers’ employees to learn how to use the cutting machines. Its representatives visit the stores, train employees on the machines and answer questions about the blinds and machines. They maintain and repair the machines, and replace cutting blades as needed, on site. All those activities occurred at the Freeport Home Depot store where Colleen was injured.

The Supreme Court found that Richland was more than a distant marketer. Its activities in Nassau County were sufficient to conclude that Colleen’s injuries were “connected with” and “related to” Richland’s operations and activities in Nassau County. The Exclusion was upheld, and Richland was denied liability coverage for Colleen’s Nassau County lawsuit.

For insurance-law purists, neither the Supreme Court nor the Appellate Division, below, explained why New Jersey insurance law governed the outcome. True, Admiral is a New Jersey-based insurer. But Richland is headquartered in California, where the policy was presumably delivered. Colleen is a New York resident, where she sustained her injury. A choice-of-law discussion is absent from the Supreme Court’s opinion. Nor is there any discussion of the purpose or enforceability of the Exclusion.

For insureds, you may be well advised to review your policies when issued, unless you have absolute confidence in your insurance broker to do so on your behalf. Here, Colleen’s lawsuit will proceed, but Richland will not have the benefit – or comfort – of coverage under the Admiral policy. That matters.

New York Legislature Passes Major Changes to Wrongful Death Act

John C. Lane

For over one hundred years, New York law has restricted wrongful death damages to pecuniary losses sustained by a decedent’s family. The plaintiff’s bar has succeeded in persuading both houses of the State Legislature to pass the “Grieving Families Act” to add elements of grief or anguish caused by a decedent’s death. The amount to be awarded would be at the discretion of the jury, with no cap set in the legislation. It is now up to Governor Kathy Hochul, to sign the bill, or veto it, possibly with recommendations for changes. It is expected that opposing sides, such as the insurance industry, will be consulted by the Governor.

Specifically, the Act would add as compensation for wrongful death a value for the “grief or anguish caused by a decedent’s death, and for any disorder caused by such grief or anguish” and “the loss of love, society, protection, comfort, companionship, and consortium resulting from the decedent’s death.” Such damages have never been part of New York wrongful death claims and would greatly increase exposures for defendants and insurers if the Act becomes law in its present form. Among other things, the Act would provide compensation for the wrongful death of a child or other non-income producing family member. Under existing law, those claims have had relatively low pecuniary value. The Grieving Families Act takes its name from its aim to provide monetary damages because of grief suffered at the loss of a family member, even in the absence of pecuniary loss.

As written the Act would expand the statute of limitations from the present two years to three and one-half years from the decedent’s death. If signed by the Governor, the Act would take effect immediately and would apply retroactively to all pending actions, as well as actions commenced on or after that date.

We shall report further on any action by Governor Hochul.

Drastic Insurance Disclosure Rules Take Aim at New York Lawsuit Defendants

John C. Lane

Even with some softening amendments taking effect February 24, 2022, New York’s 2021 Comprehensive Insurance Disclosure Act brings sweeping and burdensome new insurance disclosure demands for persons and companies named in lawsuits in New York state courts. Here’s what New York defendants and their insurers need to know.

The New Law and the New Requirements

  • Time of Insurance Disclosure
Photo by Pixabay on Pexels.com

Not later than 90 days after answering a complaint, the defendant must provide to the plaintiff “proof of the existence and contents of any insurance agreement” in the form of the insurance policy in place at the time of the loss.

But if the plaintiff agrees in writing, the defendant need only produce a copy of a declaration page. A plaintiff who agrees to accept a declaration page in lieu of the policy may later revoke that agreement and shall then be provided a full copy of the insurance policy.

  • Policies to be Disclosed

The insurance information and documentation provided, whether in the form of the policy or the declaration page, shall include “all primary, excess and umbrella policies, contracts or agreements, and self-insurance programs insofar as such documents relate to the claim being litigated.” [emphasis ours].

  • Additional Disclosures

The insurance disclosure must also provide the following:

a. The name and email address of an assigned individual responsible for adjusting the claim at issue; and

b. The total limits available under any policy, after taking into account erosion and any other offsets.

  • Reasonable Efforts

Defendant must make reasonable efforts to update the information given to any party, at the time of filing of the note of issue [the pleading that places the case on the trial calendar], when entering into any court settlement conference or voluntary mediation, at the time the case is called for trial, and for 60 days after entry of final judgment in the case, including all appeals.

  • Affidavits of Defendant and Defense Counsel

Unfortunately, one challenging provision in the original bill was not amended. Newly added Section 3122-b of the Civil Practice Law and Rules mandates that any insurance information provided must be accompanied by both an affidavit of the defendant [emphasis ours] and an affidavit or affirmation of the defendant’s attorney –

stating that the information is accurate and complete, and that “reasonable efforts” have

been undertaken to ensure that this information remains accurate and complete.

Under this provision defendants in New York lawsuits will need to appoint an individual with knowledge of the defendant’s insurance program to be able to execute such an affidavit. More problematic is the statute’s requirement that defense counsel also provide similar affidavits or affirmations, ignoring the fact that defense counsel learn about the insurance coverage from their clients, and not from personal knowledge.

  • Some Improvements Over the Original Bill

The amendments did provide some improvements. The time to serve insurance disclosure was extended from 60 to 90 days after the answer is filed. It is now clearly stated that disclosure of an insurance policy does not render it admissible in evidence at trial. Also clear is that such disclosure does not constitute an admission that an alleged injury is covered by the policy, obviously more helpful to the insurer than the insured defendant.

The original law required that these detailed insurance disclosures be made in all pending cases, not just in new lawsuits. The amendments remove the requirement from already pending lawsuits.

Going Forward

Navigating these new requirements will be challenging, and questions will abound. How far into excess coverage layers must defendants provide insurance disclosure? Why should layers of excess coverage have to be disclosed if they far exceed the value of the claim? Should defendants produce only declarations pages in the first instance? What if the affidavit of accuracy and completeness are not provided? Or, what if it turns out that the coverage disclosed is inaccurate?

These and many other issues, both legal and operational, will be faced under the new law. We would be pleased to discuss these new requirements and assist you to work through them.