Virginia Decides Issue of First Impression: Unserved Defendant Cannot Remove Diversity Case to Federal Court
- March 27, 2013
- May Law, LLP
- Civil / Business Law
- 0 Comments
According to a recent ruling in a case of first impression arising out of the Norfolk Division of the Eastern District of Virginia, a defendant who is a citizen of the forum state cannot remove a diversity case to federal court, even if the defendant has not yet been served with formal process, because to hold otherwise would be “absurd.”
In Campbell v. Hampton Bankshares, Inc., et al., two Virginia banks were sued by their former employee, a North Carolina citizen, and the banks attempted to remove the lawsuits from Virginia state court to federal court. Federal courts have limited jurisdiction, and can decide only two types of cases. The first is “federal question,” and involves cases that are based upon any federal law. The second type of jurisdiction is “diversity of citizenship,” which means that the parties involved in the lawsuit must be citizens of different states, and there must be at least $75,000 at stake.
When the Court refused to allow the banks to remove the case to federal court based on federal question jurisdiction, the banks argued for removal on diversity grounds. The sole dispute before the Court revolved around the interpretation of the statutory rule which prevents removal to federal court “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.” 28 U.S.C. § 1441(b)(2) (emphasis added). The banks argued that even though they were citizens of Virginia, which normally would prevent them from removing the case to federal court, they should nonetheless be permitted to remove to federal court because the banks had not yet been formally “served” with a summons and copy of the Complaint. The Plaintiff argued that the banks were trying to win on a technicality by removing an otherwise irremovable action. Both parties agreed that if the banks had been served previously, they would not be permitted to remove the matter to federal court; thus, the Plaintiff contended that the Court should not allow the banks to perform an act which contradicts the purpose of the statute.
There has been no unifying authority on this issue, and the federal courts that have addressed it are deeply divided. Some give precedence to the literal meaning of the statute, and allow defendants to remove cases to federal court as long as removal is accomplished before formal service. Others have decided that allowing removal would be contrary to the Congressional purpose of the statute.
The case marks the first time the Virginia Federal Court addressed the issue. The Court stated that the plain meaning of the statute was clear on its face, and prevents a defendant from removing a case to federal court if: (a) the defendant was a citizen of the state in which the case was originally filed, and (b) the defendant had been properly joined and served. Since the defendants here had not been served, a literal reading of the statute would mean that removal by the defendants was appropriate. However, the Court held that the literal reading of the statute would lead to an absurd result, so it should not be interpreted that way. The Court instead looked towards the purpose of the statute, which was to prevent a plaintiff from trying to outsmart the system by adding an in-state party to a lawsuit for the sole purpose of stopping other legitimate defendants from removing the case to federal court. Such a wrongful purpose did not apply to this case because the banks here were both Virginia citizens and were both seeking removal to federal court. Therefore, the Court held that removal to federal court would be improper in this matter, and remanded the case back to Virginia state court.
After this case, Virginia Courts will emphasis the word “properly” in the statute, and consider whether all of the defendants were properly joined and served, or whether any one of the defendants was joined fraudulently in order to prevent the other defendants from removing the case to federal court. If it appears that any forum-state defendant is joined fraudulently, or not actually made a party to the action by delivery of a summons and complaint, Virginia courts are likely allow the other defendants to remove the case to federal court, assuming jurisdictional prerequisites are met.