Amount in controversy and removal: current trends and strategic considerations.

AuthorUrquhart, Quentin F., Jr.

In 1988, Congress amended the U.S. Code in an attempt to limit the number of cases that can be removed to federal court.[1] Although these revisions took a number of forms, perhaps the most significant restriction was an increase in the amount in controversy requirement for diversity jurisdiction from $10,000 to $50,000. This increase, combined with the enactment of state court rules prohibiting specification of damages in state court complaints, has raised significant questions in determining whether amount in controversy exists for purposes of removal.

This article will attempt to answer some of these questions and provide an analysis of current trends. It also will attempt to provide strategic guidance to defense counsel.

Removal Jurisdiction

In general, a defendant may remove a state court proceeding to federal court under 28 U.S.C. [sections] 1441(a) if it could have been brought there originally. Pursuant to 28 U.S.C. [sections] 1332(a), a federal district court has original jurisdiction over any civil action in which (1) the amount in controversy exceeds $50,000, exclusive of interest and costs, and which (2) is between citizens of different states. Section 1332(a) does not define "amount in controversy" other than to exclude interest and costs.

Accordingly, every item of damage conceivably recoverable by the plaintiff should be included in the amount in controversy calculation, unless state law expressly prohibits recovery of the type of damage claimed.[2] Plaintiffs may not aggregate their claims to satisfy the jurisdictional amount unless they are suing to enforce a common and undivided interest.[3] In class actions, each member of the class must have a claim for jurisdictional amount, and class members may not aggregate their claims to reach the $50,000 threshold.[4]

Amount in Controversy and Timing

28 U.S.C. [sections]1446(b) governs the timing of removal to federal court and provides in relevant part:

The notice of removal of a civil action or proceeding shall be filed within 30 days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based, or within 30 days after the service of summons upon the defendant if such initial pleading has then been filed in court and is not required to be served on the defendant, which ever period is shorter....

If the case stated by the initial pleading is not removable, a notice of removal may be filed within 30 days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, or other paper from which it may be first ascertained that the case is one which is or has become removable, except that a case may not be removed on the basis of jurisdiction conferred by Section 1332 of this title more than one year after commencement of the action.

Section 1446(b) establishes two distinct windows during which removal must take place. The first paragraph provides that if the case stated by the initial pleading is removable, the notice of removal must be filed within 30 days after the receipt by the defendant of the plaintiff's initial pleading, or after receipt of a summons in those states where the pleading is not required to be served on the defendant. The second paragraph provides that if the case stated by the initial pleading is not removable, then the notice must be filed within 30 days from receipt of an amended pleading, motion or other paper from which the defendant can ascertain that the case is removable, but subject to a one-year time limit from commencement of the action.

Although the 30-day time period for removal is viewed as mandatory, it is not jurisdictional and may be waived by the plaintiff s failure to make timely objection. In 1988, 28 U.S.C. [sections] 1447(c) was amended to require that the filing of a motion to remand on the basis of any "defect in removal procedure" be made within 30 days after the filing of the notice of removal. The failure of a defendant to file a timely notice of removal is a procedural defect that may be waived by the failure to move timely for remand.[5]

There is a split in authority as to whether the one-year time limit set forth in the second paragraph of Section 1446(b) is procedural in nature and thus can be waived, or whether it is jurisdictional and not subject to waiver.[6]

  1. Indeterminate Complaint

    Significant questions can arise in determining when the Section 1446(b) time periods commence when the initial pleading does not set forth a specific amount of damages. For example:

    * If there is no express delineation of damages in the original complaint, can the defendant wait until the plaintiff affirmatively alleges an amount in excess of $50,000 before removing?

    * Of what effect are demand letters or other "outside" information indicating that the case is worth more than $50,000, if they are received before service of the initial pleading?

    * What are "other papers" sufficient to commence the time period for removal under the second paragraph of Section 1446(b)?

    Although there are significant gray areas of which counsel should be aware, recent decisions have provided some guidance in answering these questions.

    1. Totality of Circumstances Test

      Some courts have adopted what could be described best as a "totality of the circumstances" test for determining whether removal was timely when the amount in controversy is not specified in the initial pleading.

      In Mielke v. Allstate Insurance Co.[7] the initial complaint did not contain a specific demand for damages, but before suit was filed the plaintiff presented the defendant with medical bills and expenses of more than $10,000, which then was the federal jurisdictional minimum. The defendant did not initially remove but instead waited until the plaintiff filed an amended petition setting forth a demand in excess of $5 million. The court granted the plaintiff's motion to remand, finding that "there is no reason to allow a defendant additional time if the presence of grounds for removal are unambiguous in light of the defendant's knowledge and claims made in the initial complaint."[8]

      Under this test, the 30-day time period will commence when the defendant can clearly ascertain from the totality of the circumstances and a fair reading of the original complaint that the case involves more than $50,000. This means that defense counsel must make a reasoned determination based on the information then at their disposal as to whether the jurisdictional minimum has been met. This information can include settlement offers, medical bills, verifications of lost income and prior jurisprudence indicating the probable value of the claim.

    2. Chapman "Bright Line" Rule

      The Fifth Circuit recently declined to follow the totality of the circumstances test in Chapman v. Powermatic Inc.[9] The plaintiff initially filed suit in state court but, following a Texas rule of civil procedure, did not plead a specific amount of damages. After the plaintiff answered a set of interrogatories indicating damages in excess of $800,000, the defendant filed a notice of removal. The plaintiff then moved to remand on the ground that removal was not timely. The district court denied plaintiff's motion, finding that the case was timely removed by the defendant within 30 days from the time that it received answers to the interrogatories. After an adverse jury verdict, the plaintiff appealed the denial of the motion to remand.

      Relying on Mielke, the plaintiff contended that the court should use a "due diligence" standard. Because the defendant "knew or in the exercise of due diligence should have known that the amount in controversy exceeded $50,000," the plaintiff argued that removal should have occurred within 30 days from defendant's receipt of the initial pleading. After conducting an in-depth review of the jurisprudence on this issue, the Fifth Circuit rejected the plaintiff's contention in favor of a bright line rule:

      We disagree with the opinion of the district court in Mielke, and conclude that for the purposes of the first paragraph of Section 1446(b), the 30-day time period in which a defendant must remove a case starts to run from defendant's receipt of the initial pleading only when that pleading affirmatively reveals on its face that the plaintiff is seeking damages in excess of the minimum jurisdictional amount of the federal court. We adopt this rule because we conclude that it promotes certainty and judicial efficiency by not requiring courts to inquire into what a particular defendant may or may not subjectively know....

      We believe the better policy is to focus the parties' and the court's attention on what the initial pleading sets forth, by adopting a bright line rule requiring the plaintiff, if he wishes the 30-day time period to run from the defendant's receipt of the initial pleading, to place in the initial pleading a specific allegation that damages are in excess of the federal jurisdictional amount.[10]

      The court further rejected the plaintiff s contention that the defendant's prior receipt of medical bills and a demand letter indicating that the amount in controversy exceeded $50,000 were sufficient to start the 30-day time period from the receipt of the initial pleading. The court noted that the medical bills and demand letter were "other papers" that could be considered only under the second paragraph of Section 1446(b). Under the plain language of the statute, the defendant must receive those "other papers" after receiving the initial pleading in order to commence the 30-day time period. Because the "other papers" - the medical bills and demand letter - were received by the defendant before the initial pleading, they could not be used to commence the 30-day time period. The court expressly declined to follow Central Iowa Agri-Systems v. Old Heritage Advertising and Publishers Inc.,[11] an earlier district court...

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