Removing Class Actions to Federal Court: Beware of Opposition Based on Alleged One-Year Limitation

March 9, 2011

When faced with class action allegations in state court, it is no secret that most defendants prefer to do battle in federal court. Although removal to federal court is ideally pursued at the outset of a case, early removal is not always possible. In some cases, grounds for removal may only become apparent as discovery progresses, or when plaintiffs amend their pleadings to include new claims or greater amounts in controversy. When defendants seek to remove later in the game, they may be surprised to encounter an argument by plaintiffs’ counsel that the time period for removal is limited to one year after the initial filing of the case.

The federal statute governing removal, 28 U.S.C. § 1446, generally allows defendants thirty days to file their notice of removal following receipt of a pleading, order or other paper from which it may be ascertained that the case is removable. Although § 1446(b) of the removal statute imposes a one-year limitation on the time to remove certain cases, Congress exempted class actions from this one-year limitation as part of the Class Action Fairness Act of 2005 (CAFA).

CAFA’s section governing removal of class actions is codified at 28 U.S.C. §1453. For purposes of this section, CAFA sets forth a broad definition of “class action.” Specifically, § 1453 (b) provides that the term “class action” should be defined as set forth by Congress at 28 U.S.C. § 1332(d)(1), which in turn broadly defines “class action” as “any civil action filed under rule 23 of the Federal Rules of Civil Procedure or similar State statute.”

Following its broad definition of “class action” in § 1453(a), § 1453(b) of CAFA then goes on to provide, as follows:

A class action may be removed to a district court of the United States in accordance with section 1446 (except that the 1-year limitation under section 1446(b) shall not apply)…

Based on the express statutory language set forth above, a defendant faced with any class action filed under Rule 23 or similar state rule should be permitted to remove the case to federal court without regard to the one-year limitation. For example, in Richards v. Unum Life Insurance Company of America, 2009 WL 650355 (N.D. Ohio 2009), a single plaintiff filed a lawsuit initially asserting only individual claims against corporate defendants. Approximately fourteen months later, the plaintiff amended his complaint to add class allegations. Defendants removed the case to federal court based on diversity, contending that, as a result of the class allegations, the case now met the jurisdictional requirement that there be at least $75,000 in controversy.

The plaintiffs in Richards argued that the defendant’s attempted removal was untimely because more than one year had passed since the initial filing of the case. Although the Richards court declined to accept jurisdiction on other grounds, it properly rejected plaintiffs’ timeliness argument. Based on the clear and unambiguous language of § 1453 of CAFA, the court explained that the one-year limitation imposed by 28 U.S.C. §1446(b) did not apply to class actions.

Not all courts, however, have arrived at the same conclusion regarding application of CAFA’s exception to the one-year limitation on removal. In Hughes v. UPS, 2010 WL 1257724 (W.D. Ky. 2010), for example, defendant attempted to remove a class action approximately one year and 10 months after the case was initially filed. Defendants’ asserted basis for removal at that juncture was uncontested diversity of the parties and plaintiffs’ written refusal to stipulate that the amount in controversy was below $75,000. Plaintiffs opposed removal on the grounds it was barred by the one-year limitation set forth in § 1446(b).

In considering the same timeliness argument raised in the Richards case, the Hughes court reached the opposite conclusion. Holding that defendants’ notice of removal was barred by the one-year limitation set forth in § 1446(b), the Hughes court relied not on the broad definition of “class action” set forth in § 1453(a) of CAFA, but instead on an entirely different section of CAFA codified at 28 U.S.C. § 1332(d)(2). This latter section provides that federal courts have original jurisdiction where a class member and a defendant are of diverse citizenship and the matter in controversy exceeds the sum or value of $5,000,000.00. Without explanation, the Hughes court assumed that the CAFA exemption from the one-year limitation on removal only applied to those class actions described in § 1332(d)(2) of CAFA. [1]

Contrary to the outcome in Hughes, CAFA’s legislative history indicates that Congress’ intended purpose in eliminating the one-year removal deadline for class actions was to enable more class actions to be removed to federal court. In keeping with this intent, and with the express language of the statute, defendants can and should continue to assert removal rights when developments occur after one year that justify removal of any class action. However, when considering litigation strategy and negotiating discovery deadlines for class actions that do not meet the criteria set forth in 28 U.S.C. 1332(d)(2), defendants are wise to keep in mind that removal after one year is not a guarantee.

[1] Frost Brown Todd represents UPS in the Hughes v. UPS, 2010 WL 1257724 (W.D. Ky. 2010) case referenced in this article.