New Federal Rules Take Effect for Removal and Venue

President Obama recently signed the first big change (in quite a while) to the federal statutes regarding removal, jurisdiction, and venue. The Federal Courts Jurisdiction and Venue Clarification Act of 2011 (text available here) affects cases filed or removed on or after January 6, 2012. Viewed together, the amended rules provide defendants with broader rights in federal litigation.

Highlights

I. Removal:

Multiple defendants.  The legislation resolves a circuit split over the timing of removal for cases involving multiple defendants (i.e., Does each defendant have 30 days after being served to file for removal, or does the 30-day clock start for all defendants upon the service of the first defendant?). The new statute provides that each defendant has 30 days to file for removal after being served.

Amount in controversy in the context of removal. New 1446(c) states that a sum demanded in good faith in the initial pleading is deemed the amount in controversy. However, if the pleading is silent about the amount in controversy, and the defendant wishes to remove, the defendant can establish the amount in controversy in the removal notice (and the evidentiary standard for defendant's asserted amount is preponderance of the evidence). For background on this rule change, see Rogers v. Wal-Mart Stores, Inc., 230 F.3d 868 (6^th Cir. 2000).

II. Supplemental jurisdiction:   

If a defendant successfully removes a case under federal-question jurisdiction, and there are unrelated state-law claims attached to the federal claim, the federal court must sever and remand the state-law claims. However, the statute gives the federal court discretion to retain state-law claims that are within the court's "original or supplemental jurisdiction." The previous version of Section 1441 did not require severance and remand, which means the new version emphatically protects (in a way the previous language did not) a defendant's right to remove federal-question cases even if there are ancillary state-law claims over which a federal court lacks jurisdiction.

III. Venue:

Transfer of venue.  The biggest change is to Section 1404, which covers transfer of venue. Parties now may stipulate to a transfer of venue that would otherwise not be allowed by statute. 

Defining residency.  A rewritten 1391(c) does a much better job of defining, for venue purposes, the residency of incorporated and unincorporated entities.  1391(c)(2) now provides that "an entity with the capacity to sue or be sued ... shall be deemed to reside, if a defendant," in any district in which the defendant is subject to personal jurisdiction. The previous version of 1391(c) referred only to "corporations," a word freighted with considerable baggage in federal courts.

Venue vs. subject matter jurisdiction.  On an interesting but not terribly practical note, Congress wrote a brand new Section 1390 to distinguish venue from subject-matter jurisdiction.