Brett Venn, partner with Jones Walker. (Courtesy photo)

A Texas limited liability company sues a New York corporation and two individual Louisiana citizens in Louisiana state court claiming millions of dollars in damages. Five days after the suit is filed—after the New York corporation is served with process but before the Louisiana individuals are served—the New York corporation "snap removes" the case to federal court. Does the "forum defendant rule" in 28 U.S.C. § 1441(b)(2) prohibit the out-of-state defendant from removing the case and require remand to state court?

Last month, in Texas Brine Company, L.L.C. v. American Arbitration Association, 955 F.3d 482 (5th Cir. 2020), the Fifth Circuit decided this question for the first time and approved the practice known as "snap removal," affirming the district court's holding that a case filed in Louisiana state court was properly removed to federal court by a nonforum defendant before the in-state co-defendants were served.

With its ruling, the Fifth Circuit joined three other circuits who have interpreted Section 1441(b)(2) as allowing snap removal: the Second Circuit in Gibbons v. Bristol-Meyers Squibb Co., 919 F.3d 699 (2d Cir. 2019); the Third Circuit in Encompass Ins. Co. v. Stone Mansion Rest. Inc., 902 F.3d 147 (3d Cir. 2018); and the Sixth Circuit, in a footnote, in McCall v. Scott, 239 F.3d 808, 813 n.2 (6th Cir. 2001).

While the circuits' rulings suggest emerging approval of snap removal, the divide on the issue among district courts in other circuits persists. Some district courts continue to reject snap removal and order remand. See, e.g., Timbercreek Asset Mgmt. v. De Guardiola, No. 9:19-CV-80062, 2019 WL 947279, at *8 (S.D. Fla. Feb. 26, 2019).  Until other appellate courts decide the issue, there will be uncertainty in those circuits.

In Texas Brine, Texas Brine (a Texas limited liability company) filed suit against the AAA (a New York corporation) and two arbitrators (individual Louisiana citizens) in the Civil District Court for the Parish of Orleans, Louisiana. Texas Brine requested over $12 million in damages and equitable relief, alleging that the defendants engaged in intentional and wrongful fraudulent conduct in connection with an arbitration. Five days after suit was filed, the AAA removed the case to the Eastern District of Louisiana federal court. At the time of removal, the AAA had been served with process, but the two arbitrators had not been served.

Texas Brine moved to remand. The defendants moved for dismissal on the pleadings. The federal district court denied Texas Brine's remand request and dismissed the case on the grounds that the defendants enjoyed arbitral immunity barring suit against them and the Federal Arbitration Act provided the exclusive remedy for Texas Brine's complaints.

On appeal, the Fifth Circuit agreed with the district court that "snap removal" by a nonforum defendant before service of forum defendants is permitted. The Fifth Circuit affirmed the dismissal of the case on exclusive-remedy grounds.

To resolve the snap removal question, the Fifth Circuit considered the language of the "forum defendant" rule in 28 U.S.C. § 1441(b)(2), which states that a "[a]civil action otherwise removable solely on the basis of [diversity of citizenship under 28 U.S.C. §1332(a)] may not be removed if any of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought" (emphasis added). The Fifth Circuit noted that, by Section 1441(b)(2)'s terms, the case would not have been removable had the arbitrators, i.e., the "forum defendants," been served at the time of removal. However, by the plain language of the statute, the rule was "irrelevant" when AAA removed the case because the only defendant "properly joined and served" at that time was the AAA, which was not a forum defendant.

Texas Brine accepted that Section 1441(b)(2)'s plain language allows snap removal but argued that such a result is absurd and defeats Congress' intent. The Fifth Circuit reasoned that snap removal "is at least rational" and a "reasonable person could intend the results of the plain language," noting that the Second and Third Circuits rejected the same absurdity argument in upholding snap removal.

The Fifth Circuit explained that it was "[o]f some importance that the removing party [the AAA] was not a forum defendant" because diversity jurisdiction and removal "exist to protect out-of-state defendants from in-state prejudices" (notably, a rationale that did not apply in Encompass and Gibbons wherein the Third and Second Circuits upheld snap removal even though the removing parties were in-state defendants).

Texas Brine also argued that the Fifth Circuit should decline to read Section 1441(b)(2) literally because Texas Brine did not have a "reasonable opportunity" to serve the in-state defendants before the AAA removed the case. The Fifth Circuit declined, stating "we will not insert a new exception in Section 1441(b)(2)."

The Fifth Circuit's ruling is significant for defendants sued by diverse plaintiffs in state courts of Texas, Louisiana and Mississippi. Under Texas Brine, out-of-state defendants sued with in-state defendants can successfully remove their cases to federal district court before all forum defendants are served with process.  In-state defendants should also consider snap removal because, although not in the facts of Texas Brine, such removals been approved by the Second and Third Circuit in their rulings cited in Texas Brine.  Any potential or frequent defendant should consider closely monitoring state court dockets so that they can evaluate whether to "snap remove" a case filed against them quickly, before all forum defendants are served.

Brett S. Venn is a partner in the Litigation Practice Group at Jones Walker LLP. He focuses on business and commercial disputes.