Class action defendants, particularly in cases of national scope, often prefer to litigate in federal forums, while plaintiffs often prefer state court. A recent decision from the United States Court of Appeals for the Fifth Circuit, Tedford v. Warner-Lambert Co, 327 F.3d 423 (5th Cir. 2003), will assist class action defendants removing cases to federal forums. Although not a class action case, Tedford is the first circuit court to recognize an "equitable exception" to 28 U.S.C. § 1446(b)'s one-year time limit for removing cases based on diversity jurisdiction. Several district courts have already applied Tedford's rule. Other district courts - outside the Fifth Circuit - have rejected Tedford's reasoning and adhered to the position that the "one year" limit for removing an action under § 1446(b) is not subject to an equitable exception. Whether other circuit courts will follow Tedford remains to be seen.
Thwarting A Federal Forum And Tedford's Cure
A plaintiff is able to choose the forum in which to sue, and plaintiffs commonly attempt to thwart a defendant's ability to remove a case by crafting a "removal proof" complaint. For example, plaintiffs will avoid pleading federal questions, name only non-diverse defendants, or disclaim damages exceeding the $75,000 amount in controversy requirement of 28 U.S.C. § 1332. Such tactics, and others like them, can result in significant preliminary litigation on jurisdictional issues as defendants attempt to remove under 28 U.S.C. § 1446 (b) notwithstanding what appears on the face of the complaint. For example, a defendant may try to remove an action where the amount in controversy exceeds $75,000 and diversity of citizenship exists but for a fraudulently joined defendant. A challenge of "fraudulent joinder" means that the defendant must show that the plaintiff's pleadings commit "outright fraud" or that "there is no possibility, based on the pleadings, that the plaintiff can state a cause of action against the non-diverse defendant in state court." See Whitaker v. American Telecasting, Inc., 261 F.3d 196, 207 (2d Cir. 2001) (internal citation and quotation omitted). In many circumstances, however, fraudulent joinder either may not exist at all or may be discovered one year after the initial filing of the complaint - at which time, § 1446(b) states that removal no longer is possible.
The Tedford decision recognizes the potential injustice that may be done to a defendant's right to removal in such situations. Plaintiffs sometimes will join non-diverse defendants against whom they know they have no claim, or have a claim they have no intention of actually prosecuting, keeping that defendant in the case only until the one-year anniversary passes. Calling this type of conduct "forum manipulation" and refusing to condone it, the Tedford court held that such conduct may justify an equitable exception to the one-year removal rule.
In Tedford, Texas citizens Jeretta Kay Tedford and Maria Castro brought a lawsuit in Johnson County, Texas, against various defendants including Warner-Lambert Co., the maker of the pharmaceutical Rezulin. Tedford alleged the drug caused her liver to fail. Castro had taken the drug, but did not allege any injury caused by it. Dr. Stan Johnson, who prescribed Rezulin to Castro, but who had no connection to Tedford's claims, was the only named non-diverse defendant. Upon Warner-Lambert's motion, the state court severed Tedford's claims from Castro's and transferred Tedford's case to her county of residence, Eastland County, Texas. Tedford, 327 F.3d at 424-25.
Warner-Lambert informed Tedford that it intended to remove the case to federal court based on diversity of citizenship, because Dr. Johnson (the only non-diverse defendant) was not properly named in Tedford's case, since he did not treat Tedford. "A mere three hours later," Tedford amended her pleading to name her own treating physician, Texas citizen Dr. Robert DeLuca, as a defendant. Warner-Lambert removed the case and alleged fraudulent joinder of both Dr. Johnson and Dr. DeLuca. The district court, however, granted Tedford's motion to remand the case to state court. Id. at 425.
It was not until one year had passed, and Tedford dismissed her claims against DeLuca that enough facts were ascertainable to show that Dr. DeLuca had indeed been joined inappropriately. "Without taking any discovery from DeLuca, Tedford signed and post-dated a Notice of Nonsuit before the one-year anniversary of the commencement of her action, but did not notify Warner-Lamber of the DeLuca nonsuit until after the expiration of the anniversary." Id. Warner-Lamber then again removed the case to federal court, arguing that Tedford's "pattern of forum manipulation - particularly her eleventh-hour joinder and then nonsuit of Dr. DeLuca - justified application of an equitable exception to the one-year limit on removal." Id. Both the district court and the Fifth Circuit agreed.
The Fifth Circuit recognized that 28 U.S.C. § 1446(b) prohibits removal on the basis of diversity jurisdiction "more than 1 year after commencement of the action." Id. But the court concluded that this one-year limit is subject to equitable exception. Reasoning that "[t]ime requirements in lawsuits between private litigants are customarily subject to equitable tolling," and that other courts (including the Supreme Court) have recognized that the "time limit for removal is not jurisdictional," but "is merely modal and formal and may be waived," the Tedford court held that "the conduct of the parties may affect whether it is equitable to strictly apply the one year limit." Id. at 426 (internal citations and quotations omitted). In support, the court noted that "[s]trict application of the one-year limit would encourage plaintiffs to join nondiverse defendants for 366 days simply to avoid federal court, thereby undermining the very purpose of diversity jurisdiction." Id. at 427. The court also found support in the American Law Institute's proposed revision to the Federal Judicial Code, under which "[n]ew § 1447(b) substitutes for the currently overbroad and easily abused one-year time limit on diversity removal a more flexible and limited approach allowing remand of a diversity case in the 'interest of justice.'" Id. at 427 n. 10.
Post-Tedford Decisions
Although still a very recent decision, several courts have applied Tedford's reasoning to allow a diversity-based removal of a case after one year has lapsed. It was perhaps most recently applied to deny the plaintiffs' motion to remand in Ardoin v. Home Depot U.S.A., Inc., et al., No. 02-CV-2502, a putative class action that was removed to the United States District Court for the Western District of Louisiana. In Ardoin, defendants succeeded in removing a case to federal court on their second try, based upon plaintiffs' forum manipulation. Judge Patricia Minaldi adopted a May 15, 2003 Report and Recommendation of Magistrate Judge Alonzo P. Wilson, which pointed to many examples of plaintiffs' bad-faith attempts to avoid federal court, including their joinder of non-diverse defendants who were dismissed shortly after the one-year filing anniversary of the case, and false allegations relating to the non-diverse defendants contained in plaintiffs' petition, later disproved by a named plaintiff's own deposition testimony. The Report and Recommendation also pointed to plaintiffs' counsel's pattern of fraudulently joining defendants as evidenced in a related class action, Miller v. Home Depot, U.S.A., Inc., 199 F.Supp.2d 502 (W.D. La. 2001), which plaintiffs abandoned after their motion to remand that case to state court failed. Accordingly, even though the Ardoin case was not removed until all non-diverse defendants were dismissed - more than one year after the case had been filed - Judge Minaldi applied Tedford and refused to remand the case in light of plaintiffs' abusive forum manipulation.
Another court within the Fifth Circuit has applied Tedford and denied a motion to remand where bad-faith forum manipulation by plaintiffs was demonstrated. The Northern District of Mississippi followed Tedford and held, in evaluating the evidence on a second removal to federal court, that the record was "resplendent with evidence tending to demonstrate that Plaintiffs had no intention to pursue bona fide claims against the local [non-diverse] defendant." Brooks v. American Bankers Ins. Co. of Florida, 2003 WL 22037730 (N.D. Miss. Aug. 20, 2003). For example, the plaintiffs had failed to propound discovery against that defendant for over three years, they never sought a default judgment despite the defendant's failure to answer, and the only plaintiffs who conceivably could have brought a claim against the defendant were voluntarily dismissed from the case. Id. The Brooks court concluded that defeating diversity jurisdiction was plainly plaintiffs' only motive and so, to prevent forum manipulation, retained jurisdiction of the case. Id. Courts outside the Fifth Circuit have also relied upon Tedford. See, e.g., in re Rezulin Products Liab. Litig., 2003 WL 21355201 (S.D. N.Y. June 4, 2003) (timing of plaintiffs' non-suit of non-diverse defendant - five days after one-year anniversary of action's commencement - along with plaintiffs' failure to take discovery from defendant and benefits of allowing defendants to participate in the consolidated multi-district litigation underway in the court - warranted adoption of Tedford's equitable exception to the one-year rule).
Deviations From Tedford
Few courts have outright disagreed with Tedford. In one such decision, Mantz v. St. Paul Fire and Marine Ins. Co., 2003 WL 21383830 (S.D. W.Va. June 13, 2003), the court concluded that the "plain language" of § 1446(b) allows no equitable exception. Similarly, in Caudill v. Ford Motor Co., 271 F.Supp.2d 1324, 1327 (N.D. Okla. 2003), the court stated that it believed that "the one year limitation should be strictly interpreted and enforced." The Caudill court also concluded, however, that an equitable exception would not apply in any event because the defendants' fraudulent joinder arguments could have and should have been raised within the one year period. Id. To date, no circuit court of appeals has disagreed with Tedford.
Conclusion
In light of defendants' right to litigate in a federal forum when jurisdiction exists, particularly in class action cases, and in light of all courts' interests in preventing plaintiffs from abusing the judicial process and engaging in forum manipulation, the Tedford court's "equitable exception" to the one-year removal rule of § 1446(b) is sound.