You just received a new case that was filed in state court against one of your clients. You are running up against the removal deadline, but you are not sure if you can remove the case. You know the basic rules: the parties have to be completely diverse and the amount in controversy has to be at least $75,000. But the complaint does not include a request for specific damages, and you do not know where the plaintiff LLC's members are located. And if you do remove, you are unsure whether you could have the case dismissed on a Rule 12(b)(6) motion. So what do you do?
Conventional wisdom is that corporate defendants prefer to be in federal court. See, e.g., Adam N. Steinman, What Is the Erie Doctrine? (And What Does It Mean for the Contemporary Politics of Judicial Federalism?), 84 Notre Dame L. Rev. 245, 248 (2008) (stating that "corporate and business interests tend to favor federal court, while their political and litigation adversaries tend to favor state court"). Although some plaintiffs will file a lawsuit in federal court if they have the chance, others will fight removal to the bitter end. See id. at 298 ("[P]laintiffs craft lawsuits with an eye toward keeping them in state court, and defendants strive mightily to justify removal of such lawsuits to federal court."). With limited information and limited time, defendants often face serious difficulties removing a case to federal court. See 28 U.S.C. § 1446(b) (providing 30 days to file the notice of removal). As the hypothetical above shows, although the removal rules are relatively easy to state, applying them can be troublesome. As part of this process, several potential pitfalls may arise regarding the amount in controversy, the citizenship of the parties, and the difference between state and federal pleading standards. Some of the nuances of these three crucial areas are discussed in more detail below.
The Amount in Controversy
By statute, federal district courts have original jurisdiction over matters in which the parties are completely diverse and "where the matter in controversy exceeds the sum or value of $75,000." 28 U.S.C. § 1332(a). However, state procedural rules often only require plaintiffs to allege a general demand for relief. See, e.g., Ala. R. Civ. P. 8(a); Fla. R. Civ. P. 1.110(b). And many states even prohibit plaintiffs from alleging a specific number. See, e.g., Ariz. R. Civ. P. 8(g); Cal. C.C.P. § 425.10; Colo. R. Civ. P. 8(a); Del. R. Civ. P. 9(g); Kan. Stat. Ann. § 60-208(a)(2); N.C. R. Civ. P. 8(a)(2); N.Y. C.P.L.R. § 3017(c). So what happens if, on behalf of a defendant, you want to remove a case to federal court but are unsure of the amount in controversy?
Generally, the party with the burden of proof to show that federal jurisdiction is proper is the "party who seeks the exercise of jurisdiction in his favor." McNutt v. Gen. Motors Acceptance Corp. of Ind., 298 U.S. 178, 189 (1936). Removal is proper if the district court finds that the amount requirement is satisfied "by the preponderance of the evidence." 28 U.S.C. § 1446(c)(2)(B). Over time, courts have used varying standards to assess the value of an unspecified amount of damages. See, e.g., Tapscott v. MS Dealer Serv. Corp., 77 F.3d 1353, 1357 (11th Cir. 1996) (preponderance of the evidence); Thompson v. Fritsch, 966 F. Supp. 543 (C.D. Mich. 1997) (reasonable probability); White v. J.C. Penney Life Ins. Co., 861 F. Supp. 25, 27 (S.D. W. Va. 1994) (legal certainty); Hale v. Billups of Gonzales, Inc., 610 F. Supp. 162, 163-64 (C.D. La. 1985) (inverse legal certainty). But even under the most lenient standard, the removing party must show that it is more likely than not that the amount in controversy requirement is satisfied. Indeed, "an unsupported conclusion that the amount in controversy exceeds $75,000" is not enough. Necessary v. State Farm Auto. Ins. Co., 359 F. App'x 807, 809–10 (9th Cir. 2009). See also Baghdassarian v. Baghdassarian, No. 12-55458, 2014 WL 171248 (9th Cir. Jan. 16, 2014).
Furthermore, the U.S. Supreme Court long ago found that a plaintiff can avoid federal court jurisdiction by "resort[ing] to the expedient of suing for less than the jurisdictional amount." St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 294 (1938). This strategy must be used before removal, however, because "[e]vents occurring subsequent to the institution of suit which reduce the amount recoverable below the statutory limit do not oust jurisdiction." Id. at 289–90. Regardless, few plaintiffs' attorneys need to worry about this issue because given their underlying reluctance to acquiesce to federal court jurisdiction, plaintiffs can still choose to demand less than $75,000 in their complaints. Courts have hinted that representations made "merely to defeat diversity jurisdiction" are improper and can lead to sanctions under Federal Rule 11. See Federated Mut. Ins. Co. v. McKinnon Motors, LLC, 329 F.3d 805, 808 (11th Cir. 2003). But the plaintiffs' bar continues to engineer creative arguments to skirt the amount in controversy requirement and keep cases in state courts. The general rule is that a defendant is bound by the amount specified in a plaintiff's complaint. However, even with a specific demand, "the plaintiff's pleadings are not wholly dispositive . . . [because] the Court must examine not just the amount claimed by the plaintiff, but also his actual legal claims. The amount in controversy is measured by a reasonable reading of the value of the rights being litigated." Harvey v. Liberty Mut. Grp., Inc., No. 13-cv-04693, 2014 WL 1244059, at *2 (E.D. Pa. Mar. 26, 2014) (internal citation omitted).
Moreover, although ambiguities are generally "construed against removal because the removal statute should be strictly construed in favor of remand," Manguno v. Prudential Prop. & Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002), courts do not always look favorably on plaintiffs' attempts to avoid federal court jurisdiction. Last year, for example, the Supreme Court unanimously found that a lead plaintiff for a potential class could not defeat federal court jurisdiction by stipulating that the class would seek less than the required amount in controversy. Standard Fire Ins. Co. v. Knowles, 133 S. Ct. 1345 (2013). A plaintiff cannot bind a class before the class is certified, and therefore the stipulation was insufficient to defeat federal court jurisdiction. Id. at 1348–49.
Similarly, the Third Circuit recently rejected a plaintiff's argument that because the proposed class could never be certified in the Third Circuit, the amount in controversy was limited to the value of his individual claim. Hoffman v. Nutraceutical Corp., No. 13-3482, 2014 WL 1387365, at *2 (3d Cir. Apr. 10, 2014). The court explained that the amount in controversy requirement is analyzed before the class certification issue. Id. The Fifth Circuit rejected a plaintiff's argument that the case should be remanded because her state court complaint included a hospital bill for $23,500 that was in actuality only $235.00. Robinson v. Wal-Mart Stores Tex., LLC, No. 12-41411, 2014 WL 1379180, at *1 n.3 (5th Cir. Apr. 9, 2014). Thus, the federal appellate courts have shown some reluctance to permit the plaintiffs' bar to avoid federal court jurisdiction. See, e.g., S. Fla. Wellness, Inc. v. Allstate Ins. Co., No. 14-10001, 2014 WL 576111, at *4 (11th Cir. Feb. 14, 2014) ("Estimating the amount in controversy is not nuclear science; it does not demand decimal-point precision.").
Ironically, plaintiffs may even argue that the requirement is not satisfied because an affirmative defense might bar part of their claim. Not surprisingly, courts have rejected this approach as well. For example, one plaintiff argued that the amount in controversy was not met because part of the claim could be barred by the statute of limitations. McGee v. Sentinel Offender Servs., LLC, 719 F.3d 1236, 1241 (11th Cir. 2013). The court rejected this argument and explained that "courts cannot look past the complaint to the merits of a defense that has not yet been established." Id. at 1241–42 (quotation omitted).
But it becomes trickier if there is simply no way to determine the amount a plaintiff seeks. Federal statute does allow a defendant to assert the amount in controversy in the notice of removal if the initial pleading seeks nonmonetary relief or if the state procedural rules do not require a specific demand as described above. 28 U.S.C. § 1446(c)(2). But the defendant still needs to provide some evidence that the amount is correctly stated. Courts have provided some guidance on how a defendant can satisfy this burden. Judge Easterbrook stated that this could be accomplished "by contentions interrogatories or admissions in state court; by calculation from the complaint's allegations; by reference to the plaintiff's informal estimates or settlement demands; or by introducing evidence, in the form of affidavits from the defendant's employees or experts, about how much it would cost to satisfy the plaintiff's demands." Meridian Sec. Ins. Co. v. Sadowski, 441 F.3d 536, 541–42 (7th Cir. 2006) (internal references omitted). In making this showing, defendants are not necessarily bound by the rules of evidence. Raskas v. Johnson & Johnson, 719 F.3d 884, 888 (8th Cir. 2013). Therefore, defense attorneys should be aware that a defendant may be able to satisfy the jurisdictional requirement even if it seems unlikely at first blush.
For example, imagine that a plaintiff brings a complaint based on breach of contract but does not allege a specific amount of damages. To satisfy the amount requirement, you must show that there is at least $75,000 in dispute. You can do so by establishing the value of the contract. If the agreement was for the delivery of 100,000 pounds of corn, valued at $1.00 each, then you have likely met the defendant's burden. Then, the plaintiff would be required to show that the amount actually in controversy is less than the jurisdictional limit.
Citizenship of the Parties
In addition to the amount in controversy requirement, defendants may only remove a case based on diversity jurisdiction "if there is complete diversity between all named plaintiffs and all named defendants, and no defendant is a citizen of the forum State." Lincoln Prop. Co. v. Roche, 546 U.S. 81, 84 (2005). In many cases, where a business entity is considered a "citizen" for diversity purposes becomes an important question that needs an answer.
The Supreme Court has long held that corporations are citizens of the states in which they are incorporated. See Louisville, Cincinnati & Charleston R.R. Co. v. Letson, 43 U.S. 497 (1844). Congress apparently acquiesced in this view. Thus, the statute on diversity jurisdiction now declares that "a corporation shall be deemed to be a citizen of every State and foreign state by which it has been incorporated and of the State or foreign state where it has its principal place of business." 28 U.S.C. § 1332(c)(1). In 2010, the Supreme Court held that a corporation's "principal place of business" is determined by the corporation's "nerve center." Hertz Corp. v. Friend, 559 U.S. 77 (2010).
National banks create another issue because they are statutorily deemed citizens of the state in which they are "located." 28 U.S.C. § 1348. The Supreme Court has held that "located" means the location of a bank's principal office, as set forth in its articles of association. Wachovia Bank v. Schmidt, 546 U.S. 303, 307 (2006). Although it did not address the issue directly, the Court seemed to reject the argument that a national bank should also be a citizen of its principal place of business. See id. at 317 n.9. For incorporated entities and national banks, the citizenship question is relatively straightforward. But what about entities that are not corporations?
In Carden v. Arkoma Associates, the Supreme Court addressed "whether, in a suit brought by a limited partnership, the citizenship of the limited partners must be taken into account to determine diversity of citizenship among the parties." 494 U.S. 185, 186 (1990). Justice Scalia, writing for a five-justice majority, said yes. Although he recognized the authority of Letson, Justice Scalia emphasized a subsequent line of cases that found that entities other than corporations are not citizens for purposes of diversity jurisdiction. The Court had previously found that "a mere partnership" and "a limited partnership association" were not corporate "citizens," and therefore a limited partnership was not to be treated the same as a corporation either. Id. at 189—90. Justice Scalia acknowledged that the opinion could be regarded as "technical, precedent-bound, and unresponsive to policy considerations raised by the changing realities of business organization." Id. at 196. But, he characteristically punted the issue to the legislature: "having entered the field of diversity policy with regard to artificial entities once (and forcefully) in Letson, we have left further adjustments to be made by Congress." Id.
Carden did not address the citizenship of other entities, such as limited liability companies (LLCs). When the issue first arose, district courts used the same test for LLCs as they did for corporations. See Carlos v. Adamany, No. 95 C 50264, 1996 U.S. Dist. Lexis 5764, at *9 n.4 (N.D. Ill. Apr. 17, 1996). The court used this rationale:
A limited liability company is a hybrid form of doing business that combines the tax advantages and operating flexibility of a partnership with the limits on shareholder liability of a corporation. In terms of decision-making, unless provided otherwise by agreement, decisions are made by the members of the limited liability company.
Id. (citations omitted).
Similarly, the U.S. District Court for the Eastern District of Pennsylvania analyzed a motion for remand following the impleader of an LLC and explained that the motion for remand did not "include information on the state of incorporation or principal place of business" of the LLC. White v. Pulver Sys., Inc., No. 96-CV-6788, 1997 WL 5184, at *1 (E.D. Pa. Jan. 6, 1997). At least in the beginning, courts apparently assumed that the citizenship of an LLC would be analyzed in the same way as analyzing the citizenship of a corporation.
But times changed. In 1997, Judge Young of the U.S. District Court for the District of Massachusetts found—apparently for the first time—that "for purposes of diversity jurisdiction, a limited liability partnership is a citizen of every state in which one of its partners resides." Reisman v. KPMG Peat Marwick, LLP, 965 F. Supp. 165, 176 (D. Mass. 1997). Judge Young relied exclusively on Carden as the authority for his decision. See id. But even Judge Young was "particularly troubled" that a large organization had "effectively immunized itself from the reach of the diversity jurisdiction of the federal courts simply by organizing itself as a limited liability partnership rather than a corporation." Id. at 177.
Despite Judge Young's reservations, however, other courts quickly followed suit. In 1998, the Seventh Circuit was the first court of appeals to reach the issue and held "that the citizenship of an LLC for purposes of the diversity jurisdiction is the citizenship of its members." Cosgrove v. Bartolotta, 150 F.3d 729 (7th Cir. 1998).Other circuits quickly fell in line so that by now, courts in every circuit follow the same rule. See Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412 (3d Cir. 2010); Delay v. Rosenthal Collins Grp., LLC, 585 F.3d 1003 (6th Cir. 2009); Harvey v. Grey Wolf Drilling Co., 542 F.3d 1077 (5th Cir. 2008); Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894 (9th Cir. 2006); Pramco, LLC ex rel. CFSC Consortium, LLC v. San Juan Bay Marina, Inc., 435 F.3d 51 (1st Cir. 2006); Gen. Tech. Applications, Inc. v. Exro Ltd., 388 F.3d 114 (4th Cir. 2004); GMAC Rolling Greens MHP, L.P. v. Comcast SCH Holdings, LLC, 374 F.3d 1020 (11th Cir. 2004); Commercial Credit LLC v. Dillard Dep't Stores, Inc., 357 F.3d 827 (8th Cir. 2004); Handelsman v. Bedford Vill. Assocs. Ltd. P'ship, 213 F.3d 48 (2d Cir. 2000). See also Gabler v. HA Housing, LP, No. 12-cv-02671-PAB-KMT, 2012 U.S. Dist. Lexis 147089, at *6 (D. Colo. Oct. 12, 2012) ("Although the Supreme Court and the Tenth Circuit have not spoken specifically on the issue of citizenship of LLCs, the consensus in this District and throughout the circuits is that an LLC, much like a partnership, is deemed to be a citizen of all of the states of which its members are citizens."); Cunningham & Assocs., PLC v. Arag, LLC, 842 F. Supp. 2d 25, 27 n.2 (D.D.C. 2012) ("The citizenship for diversity jurisdiction purposes of limited liability companies is determined by the citizenship of its members."). The same rule has been applied to other entities, such as syndicates of insurance underwriters. Underwriters at Lloyd's, London v. Osting-Schwinn, 613 F.3d 1079 (11th Cir. 2010).
The Supreme Court has yet to address the issue, but at least some members of the Court have hinted that they would follow the same rule. See Grupo Dataflux v. Atlas Global Grp., L.P., 541 U.S. 567, 585 n.1 (2004) (Ginsburg, J., dissenting) (noting that "Courts of Appeals have held the citizenship of each member of an LLC counts for diversity purposes").
Although courts continue to address the issue, they do not do so in an effort to clarify or to refine the law. Instead, they seem to address the issue in response to the carelessness or forgetfulness of counsel. But that is not to say that the issue is meaningless. To the contrary, the citizenship of an LLC can have a major effect on litigation. A forgetful attorney may be tasked with a simple job of filing an amended notice of removal, or a statement detailing the citizenship of the LLC's members, or an amended complaint. See Moore v. Tex. Roadhouse of Fort Wayne, LLC, No. 1:2012-cv-00379 (N.D. Ind. Oct. 3, 2012) (amended removal notice); Godiciu v. JP Morgan Chase Bank, NA, No. 12-60533-CIV-COHN/SELTZER (S.D. Fla. Oct. 24, 2012) (LLC members' citizenship statement); Stevenson v. Starr Global Accident & Health Ins. Agency, LLC, No. 4:11-cv-1162, 2012 WL 5183587 (C.D. Ill. Oct. 18, 2012) (amended complaint).Counsel may be ordered to show cause why the matter should not be dismissed. See, e.g., KPC, LLC v. Validas, Inc., No. 8:12-cv-01310 (C.D. Cal. Oct. 1, 2012). Or a court may simply dismiss the matter for lack of subject matter jurisdiction. See, e.g., O'Neil Data Sys., LLC v. CVS Pharmacy, Inc., No. CV 12-8370-JFW (C.D. Cal. Oct. 29, 2012). Of course, a court does not need to wait for the opposing party to file a motion and can address the issue of its own accord. See, e.g., Gabler v. HA Housing, LP, No. 12-cv-02671-PAB-KMT, 2012 WL 4856734 (D. Colo. Oct. 12, 2012); Paintball Players Prods., LLC v. Majesco Entm't Co., No. 2-12-06143 (WJM), 2012 WL 4863048 (D.N.J. Oct. 11, 2012). In addition, there is also the ever-present threat of attorney fees. Some courts have been willing to grant such fees after a matter has been remanded to state court. See, e.g., Ada Cnty. Highway Dist. v. Nw. Pipeline GP, No. 1:12-cv-00184-BLW, 2012 WL 4737869 (D. Idaho Oct. 3, 2012).
There are problems with the rule defining citizenship as the citizenship of all members. For example, the rule ignores the similarities between corporations and limited liability entities. See, e.g., Gardner, 966 F. Supp. at 553–54 (reaffirming the above rule but recognizing that "[t]he members of a limited liability company are like shareholders of a corporation in that they are not personally liable for the debts of the company"). Similarly, all of the cases seem to rely on Carden, but Carden did not address entities that are formed under state limited liability statutes. As the number of limited liability entities has increased, state statutes have correspondingly evolved to delineate the rights and responsibilities of those entities. Courts have also failed to acknowledge the supreme irony that results from such a decision. An entity chooses to organize under the laws of a certain state, seeking the rights and protections available under that state's laws. Yet for purposes of litigation, the entity is not even a citizen of that state. See, e.g., In re Phoenix Envtl., LLC, No. 11-11-15031 SA, 2012 WL 4739941, at * (Bankr. D.N.M. Oct. 3, 2012) (concluding under the above rule that a New Mexico limited liability company was a Georgia citizen and therefore complete diversity existed).
That irony is compounded when courts examine where a limited liability entity is subject to personal jurisdiction. Thus, a California LLC may be solely a citizen of Nevada but would not necessarily be subject to personal jurisdiction there. How ironic that it would be deemed to "reasonably anticipate being haled into court" in a state where it is not even a citizen. Of course, personal jurisdiction is a separate inquiry. See, e.g., Goforit Entm't LLC v. Digimedia.com L.P., 513 F. Supp. 2d 1325, 1331 (M.D. Fla. 2007) (explaining that the rule for measuring citizenship in diversity cases does not mean that a limited partnership necessarily is subject to personal jurisdiction in every state of which its partners are citizens; "A limited partnership does not necessarily derive any benefit from the forum merely by virtue of having a limited partner there, nor does it necessarily do business there."). Regardless of a limited liability entity's contacts with the state under a due process analysis, the question for diversity purposes is the citizenship of the entity's members. See, e.g., Jennings v. HCR ManorCare, Inc., 901 F. Supp. 2d 649 (D.S.C. 2012) (denying a motion to remand even though the defendant operated the nursing home in the forum state because the defendant's sole member was not a citizen of South Carolina).
The current state of the law may create a predicament for defendants wishing to remove a case to federal court. Unlike for corporations, state secretaries of state generally do not provide information about limited liability entities. Therefore, defendants may not be able to determine the citizenship of limited liability plaintiffs. Unless plaintiffs release that information willingly, defense attorneys should gather as much information as possible and affirmatively state the citizenship as best as they can in a notice of removal. Until Congress or the Supreme Court changes the law, limited liability entities can be a significant hindrance to removal, and there is a risk of possible dismissal and even sanctions. See, e.g., Meyerson v. Showboat Marina Casino P'ship, 312 F.3d 318 (7th Cir. 2002) (per curiam).
In short, removing defendants are responsible for showing that jurisdiction is proper. Defendants should not base the citizenship of other parties upon information and belief. See, e.g., Carroll v. Gen. Med. Co., 53 F.R.D. 349, 350 (D. Neb. 1971) (explaining that an allegation based on a party's information and belief "is not an affirmative allegation of facts on which the court must conclude that jurisdiction prevails") (quotation omitted); Eckert/Wordell Architects, Inc. v. FJM Props. of Willmar, LLC, No. 12-968 (RHK/JJG), 2012 U.S. Dist. Lexis 67348, at *7–8 (D. Minn. May 15, 2012) (requiring the plaintiff to "affirmatively alleg[e] facts demonstrating the existence of diversity jurisdiction" and reminding the plaintiff that "an allegation based upon information and belief . . . will result in dismissal of this case") (internal quotation omitted). Indeed, courts have even reprimanded and imposed sanctions on counsel for failing to describe the citizenship of parties properly. See BondPro Corp. v. Siemens Power Generation, Inc., 466 F.3d 562 (7th Cir. 2006) (per curiam); Cincinnati Ins. Co. v. E. Atl. Ins. Co., 260 F.3d 742, 747–48 (7th Cir. 2001).
However, if there is doubt about a plaintiff's citizenship, some courts seem to be willing to grant a removing defendant additional time to assert diversity properly. See, e.g., Icard Stored Value Solutions, LLC v. W. Suburban Bank, No. 4:07-CV-1539 CAS, 2007 U.S. Dist. Lexis 74408, at *4 (E.D. Mo. Oct. 4, 2007) (granting the defendant additional time "to establish the existence of the requisite diversity of citizenship of the parties"). Indeed, the federal statute states that "[d]efective allegations of jurisdiction may be amended, upon terms, in the trial or appellate courts." 28 U.S.C. § 1653.
The Federal Rules of Civil Procedure require a plaintiff to include in a complaint "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). In 2007, the Supreme Court released a watershed opinion interpreting this rule, which now requires a complaint to include "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). If plaintiffs "have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed." Id. Two years later, the Court reaffirmed the Twombly holding and clarified that it applies to all actions in federal court. Ashcroft v. Iqbal, 556 U.S. 662, 678, 684 (2009).
But the Federal Rules of Civil Procedure only govern proceedings in federal court. States have their own rules, and they have treated Twombly differently. For example, five jurisdictions have explicitly adopted the standard announced in Twombly, and many others have quoted the case or seemed to rely on it. See Potomac Dev. Corp. v. D.C., 28 A.3d 531 (D.C. 2011); MYD Marine Distrib., Inc. v. Int'l Paint Ltd., 76 So.3d 42 (Fla. Dist. Ct. App. 2011); Iannacchino v. Ford Motor Co., 888 N.E.2d 879 (Mass. 2008); Doe v. Bd. of Regents of Univ. of Neb., 788 N.W.2d 264 (Neb. 2010); Sisney v. Best Inc., 754 N.W.2d 804 (S.D. 2008). See also Hawkins v. TACA Int'l Airlines, S.A., 223 Cal. App. 4th 466 (2014); Bridgeport Harbour Place I, LLC v. Ganim, 32 A.3d 296 (Conn. 2011); Charles H. Wesley Educ. Found., Inc. v. State Election Bd., 654 S.E.2d 127 (Ga. 2007); Pavsek v. Sandvold, 279 P.3d 55 (Haw. Ct. App. 2012); Espinosa v. Jefferson/Louisville Metro Gov't, No. 2008-CA-000944-MR, 2009 WL 277488 (Ky. Ct. App. Feb. 6, 2009); Tuban Petroleum, L.L.C. v. SIARC, Inc., 11 So.3d 519 (La. Ct. App. 2009); Blackhouse v. Doe, 24 A.3d 72 (Me. 2011); Bahr v. Capella Univ. 788 N.W.2d 76 (Minn. 2010); Historic Green Springs, Inc. v. Va. Dep't of Envtl. Quality ex rel. Va. State Water Control Bd., No. 2082-10-2, 2011 WL 3276225 (Va. Ct. App. Aug. 2, 2011); Core Tech Int'l Corp. v. Hanil Eng'g & Constr. Co., 2010 Guam 13 (Sept. 13, 2010).
On the other hand, 14 jurisdictions have outright rejected Twombly, and a few have implicitly rejected it. McKelvin v. Smith, 85 So.3d 386 (Ala. Civ. App. 2010); Cullen v. Auto-Owners Ins. Co., 189 P.3d 344 (Ariz. 2008); Med. Lien Mgmt., Inc. v. Allstate Ins. Co., No. 12CA0691, 2013 WL 2450632 (Colo. App. June 6, 2013); Winshall v. Viacom Int'l, Inc., 76 A.3d 808 (Del. 2013); Droscha v. Shepherd, 931 N.E.2d 882 (Ind. Ct. App. 2010); Hawkeye Foodservice Distr., Inc. v. Iowa Educators Corp., 812 N.W.2d 600 (Iowa 2012); Landrith v. Jordan, No. 107,959, 2013 WL 5187269 (Kan. Ct. App. Sept. 13, 2013); Brilz v. Metro. Gen. Ins. Co., 285 P.3d 494 (Mont. 2012); Madrid v. Village of Chama, 283 P.3d 871 (N.M. Ct. App. 2012); Artis v. Random House, Inc., 936 N.Y.S.2d 479 (N.Y. Supr. Ct. 2011); Tuleta v. Med. Mut. of Ohio, No. 100050, 2014 WL 504833 (Ohio Ct. App. Feb. 6, 2014); Edelen v. Bd. of Comm'rs, 266 P.3d 660 (Okla. Civil App. 2011); Webb v. Nashville Area Habitat for Humanity, Inc., 346 S.W.3d 422 (Tenn. 2011); Colby v. Umbrella, Inc., 955 A.2d 1082 (Vt. 2008); McCurry v. Chevy Chase Bank, FSB, 233 P.3d 861 (Wash. 2010) (en banc); Roth v. DeFeliceCare, Inc., 700 S.E.2d 183 (W.V. 2010); Data Key Partners v. Permira Advisors LLC, 837 N.W.2d 624 (Wis. Ct. App. 2013); Syed v. Mobil Oil Mariana Islands, Inc., No. 090467, 2012 WL 6738436 (N. Mar. I. Dec. 31, 2012).A few states have acknowledged the standard but declined to decide the issue. Davenport v. GMAC Mortg., No. 56697, 2013 WL 5437119 (Nev. Sept. 25, 2013); Holleman v. Aiken, 668 S.E.2d 579 (N.C. Ct. App. 2008); Chhun v. Mortg. Elec. Registration Sys., Inc., No. 2012-298-Appeal, 2014 WL 358934 (R.I. Feb. 3, 2014); Peak Alarm Co. v. Salt Lake City Corp., 243 P.3d 1221 (Utah 2010).
And appellate courts in the remaining 16 states—Alaska, Arkansas, Idaho, Illinois, Maryland, Michigan, Mississippi, New Hampshire, Missouri, New Jersey, North Dakota, Oregon, Pennsylvania, South Carolina, Texas, and Wyoming—have not decided one way or the other. Thus, Twombly's status in a state court will vary by jurisdiction.
So what happens when a complaint is filed in state court, where proceedings may or may not be governed by Twombly, and then the case is removed to federal court? Does the Twombly/Iqbal standardapply? Courts have invariably said yes. See, e.g., Brooks v. Mortg. Investors Corp., No. WDQ-13-1566, 2014 WL 105477, at *4 (D. Md. Jan. 8, 2014); Gharwal v. Fed. Nat'l Mortg. Ass'n, No. 13-CV-0685 (PJS/JSM), 2013 WL 4838904, at *2 (D. Minn. Sept. 11, 2013); Levitt v. Sonardyne, Inc., 918 F. Supp. 2d 74, 83 (D. Me. 2013). The federal rules apply to proceedings in federal court, regardless of their origin. And this rule even applies to pure state law claims. See, e.g., Redd v. McDowell Cnty. Bd. of Educ., No. 1:13-2015, 2013 WL 5461852 (S.D.W.V. Sept. 30, 2013); Ko v. Mut. Pharm. Co., No. C-13-00890-RMW, 2013 WL 3338596 (N.D. Cal. July 1, 2013); Watkins v. Lincoln Cmty. Health Ctr., Inc., No. 1:12CV1250, 2013 WL 2285250, at *3 n.3 (M.D.N.C. May 23, 2013); Sellers v. S.C. Autism Soc'y, Inc., No. 3:11-2163-CMC-JRM, 2012 WL 1015807, at *3 (D.S.C. Feb. 22, 2012).
But that is not to say that courts apply Twombly in the same manner. For example, one district court referred to "the questionable logic of retroactively applying federal pleading standards to cases filed in state court." In re Darvocet, Darvon & Propoxyphne Prods. Liab. Litig., 889 F. Supp. 2d 931, 940 n.11 (E.D. Ky. 2012). Other courts have said that they would not blame a plaintiff for bare allegations that may suffice under a state's rules. White v. State Farm Mut. Auto. Ins. Co., 479 F. App'x 556, 561 (5th Cir. 2012) (per curiam); JTS, Inc. v. City of Seattle, No. C13-663RAJ, 2013 WL 5913229, at *5 (W.D. Wash. Nov. 4, 2013). However, other courts suggest that when removal is a possibility, plaintiffs should understand the federal standards and proceed accordingly. See, e.g., Christiansen v. W. Branch Cmty. Sch. Dist., 674 F.3d 927 (8th Cir. 2012) (internal quotation and citation omitted); Scott v. Giant Eagle, Inc., No. 1:12-cv-03074, 2013 WL 1874853, at *4 (N.D. Ohio May 3, 2013); Rensch ex rel. N. Oil & Gas, Inc. v. Reger, No. 10-3679 (SRN/JJK), 2012 WL 1593237, at *3 n.4 (D. Minn. May 7, 2012).
The difference may be important. See, e.g., Williams v. S. Ill. Riverboat/Casino Cruises, Inc., No. 06-cv-664-JPG, 2007 WL 3253239, at *3 (S.D. Ill. Nov. 5, 2007) (stating that a claim that would have survived pre-Twombly law could not survive under the current standard); Bush v. Bank of N.Y. Mellon, 720 S.E.2d 370 (Ga. Ct. App. 2011) (stating, even though the Supreme Court of Georgia cited Twombly with favor, that the standards were not identical); Sykes v. Health Network Solutions, Inc. 2013 NCBC 55 (Dec. 5, 2013) (stating that the outcome could be different depending on which standard is used). Crafty plaintiffs' lawyers are attempting to combat motions to dismiss in federal court by arguing that Twombly does not apply to claims pleaded in state court.
Defense attorneys should also remember that the Twombly/Iqbal standard has created a split among courts about whether the standard applies to a defendant's pleadings, specifically affirmative defenses. Aggressive plaintiffs' attorneys have filed motions to strike bare-boned affirmative defenses, and courts have responded with varying results. Compare, e.g., Bradshaw v. Hilco Receivables, LLC, 725 F. Supp. 2d 532 (D. Md. 2010) (applying Twombly), with Tyco Fire Prods. LP v. Victaulic Co., 777 F. Supp. 2d 893 (E.D. Pa. 2011) (finding that it does not apply).Even judges in the same court may reach different results. Compare Francisco v. Verizon S., Inc., No. 3:09cv737, 2010 U.S. Dist. Lexis 77083 (E.D. Va. July 29, 2010)(applying Twombly), with Pennell v. Vacation Reservation Ctr., LLC, No. 4:11cv53, 2011 U.S. Dist. LEXIS 150763 (E.D. Va. Sept. 20, 2011) (not applying it).If Twombly applies, courts may grant a plaintiff's motion to strike. See, e.g., Aguilar v. City Lights of China Rest., Inc., No. DKC 11-2416, 2011 WL 5118325 (D. Md. Oct. 24, 2011). Or they may grant a motion for more definite statement. See, e.g., Amerisure Ins. Co. v. Thomas, No. 4:11CV624 JCH, 2011 WL 3021205 (E.D. Mo. July 21, 2011). Or courts maydeny a defendant's motion to amend. See, e.g., Shinew v. Wszola, No. 08-14256, 2009 WL 1076279 (E.D. Mich. Apr. 21, 2009). Or courts may even raise the issue sua sponte and order that defendants forfeit affirmative defenses. See, e.g., Keith v. Allstate Ins. Co., No. 11 C 6638, 2012 U.S. Dist. Lexis 1594 (N.D. Ill. Jan. 6, 2012). Some judges may even strike defenses without leave to amend. See, e.g., Burget v. Capital W. Sec., Inc., No. CIV-09-1015-M, 2009 WL 4807619 (W.D. Okla. Dec. 8, 2009). Other courts have created their own rule of thumb. See, e.g., EEOC v. Courtesy Building Servs., Inc., No. 3:10-CV-1911-D, 2011 U.S. Dist. Lexis 5938 (N.D. Tex. Jan. 21, 2011) (deciding not to decide and using another standard instead); Kaufmann v. Prudential Ins. Co. of Am., No. 09-10239-RGS, 2009 U.S. Dist. LEXIS 68800 (D. Mass. Aug. 6, 2009) (only applying heightened requirements to defenses not listed in Rule 8(c)(1)). When filing a responsive pleading, defense attorneys should be aware that their pleading may be scrutinized under the new standard.
Removal procedure is generally governed by statute, but judicial interpretation can create significant problems for a defendant seeking federal court jurisdiction. Thus, defense attorneys need to be aware of potential pitfalls that may challenge removal. Plaintiffs may attempt to avoid diversity jurisdiction by limiting their damages to less than the amount in controversy. Determining citizenship for limited liability plaintiffs may prove difficult for purposes of diversity jurisdiction. And plaintiffs may receive a friendly judicial ear by arguing that a complaint complied with state pleading standards. If they continue to seek entrance into federal court, defense attorneys seeking removal should recognize these issues and plan accordingly.
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