Federal Removal

Summary Judgment and Indemnification Secure Dismissal and Fee Reimbursement for Retailer

John C. Lane

We recently obtained summary judgment for a major retailer that had been sued after its deliveryman allegedly injured a customer’s neighbor while wheeling a washing machine toward the customer’s home. The retailer had used the services of an intermediary to arrange the actual delivery by one of its subcontractors. The neighbor sued the retailer and the subcontractor for her alleged injuries in New York state court. The intermediary was not named as a defendant. We appeared for the retailer and removed the case to federal court.

The agreement between the intermediary and the subcontractor required the subcontractor to indemnify both the intermediary and its customer, the retailer. That agreement, together with the parties’ conduct of business, showed that the retailer, the intermediary, and the subcontractor acted independently of one another. No party exercised operational control over any other party.

We moved for summary judgment based on the Independent Contractor Doctrine. We submitted deposition and affidavit testimony, and documentary evidence establishing that neither the retailer nor the intermediary exercised control over the means and methods used by the subcontractor or its employees; neither was negligent in selecting the subcontractor; and neither was personally culpable in any way. The District Court agreed and granted summary judgment, dismissing the plaintiff’s complaint with prejudice as against our client.

While the motion was pending, we pressed the subcontractor and its insurer for contractual indemnification. The insurer conceded, agreeing to reimburse the fees previously paid to our firm. It also agreed to assume our client’s defense, which promptly became unnecessary after the dismissal.

Plaintiff’s case proceeded against the subcontractor. Just before press time, those parties reached a mediated settlement. With that settlement, the protracted case came to an end. For our client, the dismissal, along with reimbursement of defense fees, was a complete win.

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.

“Removal to Federal Court Changes the Field of Play, but not the Game Being Played.”

John C. Lane
James A. Byrne U.S. Courthouse
Philadelphia, PA

With those words the Third Circuit rules that removal to federal court does not cure jurisdictional defects or waive any other defenses available in state court. Danziger & DeLlamo, LLP v. Morgan Verkamp, LLP, (January 15, 2020) is a battle between two law firms over a purported referral fee worth millions of dollars. Morgan Verkamp, an Ohio firm, succeeded in a qui tam action in Pennsylvania federal court. Danziger, a Texas law firm, says it referred the case to Morgan, for an orally agreed referral fee made by telephone between Texas and Ohio.

In a qui tam action a party, called a relator, pursues a claim on behalf of a government, which is deemed the real party in interest. If the government succeeds, the relator receives a share of the award. In this case, Morgan brought the case under the federal False Claims Act, and the U.S. government received a settlement for hundreds of millions of dollars; Morgan received several million dollars in attorneys’ fees. Danziger wants a share of those fees.

The two firms spent a year and a half conducting discovery in a procedure permitted by Pennsylvania state court rules before the filing of a complaint. When Danziger finally filed its complaint, Morgan Verkamp promptly removed the lawsuit to federal court and moved to dismiss, arguing that it was immune from personal jurisdiction in Pennsylvania. The district court agreed and dismissed the complaint. Danziger appealed, arguing that Morgan consented to personal jurisdiction by removing the case to federal court.

The Third Circuit disagreed:

We now adopt this rule.  On removal, a defendant brings its defenses with it to federal court. * * * Removal does not cure jurisdictional defects, so defendants can still challenge jurisdiction after removal.

The Third Circuit, which includes New Jersey, now joins the First, Second, and Eighth Circuits. “[T]he federal court takes up where the state court left off.” Nationwide Eng’g & Control Sys., Inc. v. Thomas (8th Cir. 1988). The governing case in the Second Circuit, which includes New York, is Cantor Fitzgerald, L.P. v. Peaslee (2nd Cir. 1996) (“Removal does not waive any Rule 12(b) defenses.”). Cantor continues to be cited by the New York federal courts.

We routinely remove cases to federal court in New York and New Jersey, with the confidence that our clients’ defenses to personal jurisdiction will remain intact in the federal forum.