Don't Bet the Business

So you got sued in a state court, and worse yet it’s not even your own state. That's bad enough, but now the reality of having to defend yourself on the plaintiff’s home court begins to set in. 

You do have options. One of the most readily available options may simply be to “remove” the case from the state court to federal court. 

There are a lot of reasons why lawsuits get filed where they do. The location can be dictated by the subject matter of the action. For example, real property disputes typically are litigated where the property is located. The parties to a contract also may have contractually agreed for dispute resolution in a particular state, or in a particular county within a state. 

Once the forum state is selected, where the action should be decided within the state can be controlled by a venue statute. “Venue” is a lawyer word which simply means where something is going to happen. Venue statutes often list several places, in order of priority, where a case can be decided. Unlike jurisdiction, venue is not mandatory and an improper venue can be waived either intentionally or by the defendant’s failure to raise a timely challenge. 

Venue questions aside, often the state chosen in which to file a lawsuit simply is where the plaintiff wants to be. That choice is not without limits.  For example, a Michigan plaintiff cannot choose to sue in Idaho if the defendant has no contacts with Idaho. Even if the defendant has some relationship with Idaho, the case may not be properly brought there if the dispute has no relationship with that forum. 

Typically, however, the plaintiff chooses to file in the plaintiff’s home state or in the state the plaintiff finds to be most convenient. All things being equal, in law school we learned that as a defendant what the plaintiff wants is quite often not what you want. Enter the federal court removal option.

Specifically, federal law permits some types of state court actions to be “removed” to federal court if certain conditions are met. Under 28 USC 1441, removal can occur in a variety of circumstances.  The most common types of removals are those involving complete diversity of citizenship between the parties and cases that raise federal questions of law.

Under 28 USC 1332, a case can be removed if the parties’ citizenship is “completely diverse” and if there is at least $75,000 at issue. Unless a federal statute says otherwise, diversity is determined by a party’s state of residence.  For an individual, your state of residence typically is where you keep your permanent homestead. For a corporation, the courts will look at where the corporation is incorporated and where the corporation has its principal place of business.

There are different rules for partnerships, limited liability companies, class actions, cases involving decedents, minors and incompetents, case involving insurance companies, among others. The facts of the particular case will control.

The amount in controversy is determined from the claims the plaintiff pleads in its complaint. Simply stated, the amount or value the plaintiff seeks to recover must be at least $75,000 before interest and the cost of the litigation are considered. Some claims can be aggregated to reach the $75,000 threshold, but others cannot.

Significantly, in all diversity cases all plaintiffs must be completely diverse to all defendants. And in cases with more than one defendant, all defendants properly named in the action and timely served with a summons and a copy of the complaint must consent to the removal or you cannot do it.

Similarly, under 28 USC 1331 cases involving “federal questions” can be removed from state to federal court. A case involves a federal question when it involves issues to be decided by application of the Constitution, federal laws or treaties of the United States.

The most common federal question removal involves a federal statute that actually states that a dispute arising under the statute can be heard by a federal court. If the statute does not say that, the courts may, nonetheless, have interpreted the statute to provide for federal court jurisdiction. Note, however, some federal statutes allow for concurrent state court jurisdiction.  So you always need to check to be sure that the federal statute underlying your case permits removal. 

Equally true, there are some federal statutes that require all claims arising under the statute be brought in federal court. Those statutes vest the federal courts with “exclusive” jurisdiction to decide cases arising under those laws.

Examples of cases involving exclusive federal court jurisdiction are suits between two states, cases involving ambassadors or other high-ranking governmental officials, federal crimes, bankruptcy, patent, copyright and trademark cases, admiralty, antitrust, securities, banking regulation and others specifically designated by a federal statute. Should such claims be filed in a state court they are removable as a matter of right. 

To complicate things a bit more, some cases may look like they involve federal questions but, by statute, they simply cannot be removed. Knowing which is which takes experience and, lacking that, a lot of thought and possibly some research to be sure. 

To remove a case, rules must be followed as provided in 28 USC 1446. If you do it wrong you can be sent back – or remanded – to state court. The law also only gives you a finite amount of time to decide if you are going to remove your case. If you wait too long, the federal court will have no choice but to remand the case back to state court. The removal procedure also comes with some additional costs, and if you do it wrong you can waste significant time and resources. Experience in this area definitely is an advantage.

There are many reasons to remove a case to federal court, and also reasons to stay in state court even if that is the plaintiff’s first choice. Those reasons may be practical ones or they may have significant legal implications.  Before you decide your lawyer should explain to you if removal is permitted and, if it is, all of the pros and cons involved with a removal. If you are not sure how to proceed call us, we can help.