Good Strategy or Forum Manipulation? The Continuing Evolution of the Bad Faith Exception to the One-Year Time Limit on Removal.

• Author: Guillory, Anne K.

IN 2011, Congress codified an "equitable exception" to the one-year time period for removing cases to federal court based upon diversity jurisdiction. 1 The new "bad faith" exception was intended to discourage forum manipulation by plaintiffs while maintaining a temporal limitation on removals. In the nearly seven years since the amendment took effect, there is little consensus on how to apply the exception.

The resulting patchwork of interpretation is due largely to the limited opportunities to appeal removal decisions. A decision remanding a case to state court is not generally appealable, so defendants cannot challenge the standard applied by the district court. 2 On the other hand, a plaintiff cannot appeal a decision finding bad faith and retaining jurisdiction until the case concludes by trial or dispositive ruling. 3 As a result, we have yet to see guidance from the appellate level where perhaps the contours of [section]1446(c)(1) could be considered from the "10,000 foot view." The practical effect is uncertainty and frustrating inconsistency for practitioners on both sides. Conduct sufficient to qualify as bad faith in one district court might be insufficient in another--even among district courts in the same state or the same circuit.

Parsing through the difference between good faith strategy and bad faith gamesmanship in any given case is a complex, fact-driven calculus. It is easy to identify a blazing house fire, but much harder to determine whether flames are smoldering covertly within the walls. The two most commonly-used frameworks originate from the Hiser and Aguayo opinions. These opinions are often presented to represent mutually exclusive approaches. This appears to be the result of subsequent interpretation since the root consideration of both decisions is the same: is there sufficient evidence of a plaintiff's intentional action or inaction to deprive a defendant of the opportunity to remove within the one-year time period. This article argues that because these approaches suffer from analytical blind spots, a third approach based upon the totality of the circumstances provides a more flexible framework for balancing the limited nature of diversity jurisdiction with the Congressional intent behind [section] 1446(c) (1).

1. A Brief History of [section] 1446(c)(1)

   Prior to 1988, 28 U.S.C. [section]1446 did not impose a time limit for removal in cases that were not initially removable on grounds of diversity:

   If the case stated by the initial pleading is not removable, a petition for removal may be filed within thirty days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable.4 The lack of an "end date" left defendants free to remove a case to federal court if it became diverse at any time--even during trial in state court. In 1988, Congress added the one-year time limit intended "as a means of reducing opportunity for removal after substantial progress has been made in state court." 5 This was viewed as "a modest curtailment in access to diversity jurisdiction." 6 In reality, however, it encouraged "plaintiffs to circumvent it altogether" by joining "nondiverse defendants for 366 days simply to avoid federal court, thereby undermining the very purpose of diversity jurisdiction." 7

   In reaction to the unintended consequence of forum manipulation, federal courts began to disagree on whether the one-year removal period was procedural or jurisdictional. 8 The Fifth Circuit, in particular, found that the time period was procedural and subject to an equitable exception "[w]here a plaintiff has attempted to manipulate the statutory rules for determining federal removal jurisdiction, thereby preventing the defendant" from removing the case within the one-year period. 9 While no other United States Court of Appeals formally recognized an equitable exception for forum manipulation, federal district courts in several states did. 10

   In 2011, an amendment to Section 1446 added an explicit exception to the one-year deadline for removal based upon diversity jurisdiction:

   A case may not be removed under subsection (b)(3) on the basis of jurisdiction conferred by section 1332 more than one year after commencement of the action, unless the district court finds that the plaintiff has acted in bad faith in order to prevent a defendant from removing the action. 11 The stated intent of the amendment was to resolve the patchwork jurisprudence on the "equitable exception" and clarify that the one-year time limit is procedural and, therefore, excusable upon a showing that the "plaintiff acted in bad faith" to prevent removal within that time period. 12 Thus far, however, Congress's attempt at clarification has only generated a new patchwork of cases.

2. Two Roads Diverged...

   District courts have spent the better part of seven years wrestling with the practical application of the bad faith exception. The majority of the resulting decisions can be grouped into two interpretive standards or frameworks. As mentioned above, these frameworks have been characterized in subsequent decisions as being mutually exclusive. While they are not all that dissimilar at their core, each approach has its own weakness.

   1. Intentional Conduct to Deny the Chance to Remove

      In Taylor v. King, 13 the Western District of Kentucky was one of the first courts, if not the first court, to consider the bad faith exception. 14 Taylor arose from a personal injury and insurance wrongful death case in which the out-of-state insurer argued that the plaintiff kept a local defendant in the case for years solely to avoid removal. 15 The court determined that, to retain jurisdiction, it must find that the plaintiffs conduct was "employed specifically to defeat diversity jurisdiction." 16 Since Kentucky law allows plaintiffs to bring insurance bad faith claims simultaneously with underlying tort claims, the court found no evidence of conduct intended to avoid removal. 17 The result in Taylor was largely a function of Kentucky insurance law, but its discussion of the new bad faith exception became the centerpiece for the same court's decision in Hiser two years later.

      In Hiser v. Seay the plaintiff was a rear seat passenger who suffered catastrophic injuries in a single vehicle accident. 18 He filed suit against the driver, the vehicle manufacturer, and an uninsured motorist insurance carrier. The driver and the UIM carrier were local, non-diverse defendants. 19 Both local defendants offered to settle for policy limits within the first two months of litigation, but plaintiff declined the offers until safely past the one-year mark. 20 The vehicle manufacturer, Volkswagen, removed based upon the bad faith exception.

      Building upon its...