Second Circuit Affirms District Court’s Denial Of Motions To Remand, Finding That Removal Prior To Service Of The Complaints Was Proper Under The “Forum Defendant Rule”
Securities Litigation
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  • Second Circuit Affirms District Court’s Denial Of Motions To Remand, Finding That Removal Prior To Service Of The Complaints Was Proper Under The “Forum Defendant Rule”
    On March 26, 2019, the United States Court of Appeals for the Second Circuit affirmed the removal and dismissal of claims brought against two pharmaceutical companies.  Gibbons v. Bristol-Myers Squibb Company and Pfizer Inc., No. 17-2638 (2d. Cir. Mar. 26, 2019).  Plaintiffs asserted over a dozen claims across multidistrict litigation (“MDL”) against defendants alleging that plaintiffs or their decedents suffered injuries as a result of the allegedly improper design of and insufficient warning labels for a certain blood-thinning drug used to reduce the risk of stroke in patients with atrial fibrillation that was manufactured and distributed by defendants. 
    In two rulings in 2017 (“Original Actions”), United States District Court Judge Denise Cote of the Southern District of New York dismissed 68 of plaintiffs’ complaints on numerous grounds, including that: (1) plaintiff’s negligence and strict liability claims were preempted by the Food, Drug, and Cosmetics Act (“FDCA”) to the extent they were based on a design defect theory, and to the extent they were based on a “failure to warn” theory, they were preempted by the FDCA and failed due to the label’s adequacy as a matter of law; (2) the breach of warranty claims failed to state a claim; (3) the fraudulent concealment and negligent misrepresentation claims failed under Rule 9(b); and (4) the state law consumer protection claims were preempted and, in any event, failed to state a claim.  Subsequent to the Original Actions, different plaintiffs represented by the same law firm voluntarily dismissed without prejudice numerous separate lawsuits that were pending in federal court in California awaiting transfer to the MDL, and refiled them in Delaware state court (“Transferred Actions”).  Two days after those complaints were filed, defendants removed the Transferred Actions to the United States District Court for the District of Delaware prior to service of those complaints.  Plaintiffs in the Transferred Actions consented to the transfer of those removed actions to the MDL, and then asked Judge Cote to remand the suits to Delaware state court.  Judge Cote denied the motions for remand and otherwise dismissed the complaints for the same reasons that the Original Actions were dismissed.  Plaintiffs in the Transferred Actions appealed the denial of the motions to remand and the granting of the motions to dismiss, and their appeals were consolidated with the pending appeals from the Original Actions.            
    The Second Circuit first considered whether the removal of the Transferred Actions from Delaware state court was appropriate.  Plaintiffs argued that “because the only basis for federal court jurisdiction [was] diversity of citizenship, and because [defendants] were sued in the state courts of their home state (Delaware), removal was barred by the forum defendant rule.”  The Second Circuit disagreed, stating that under the plain language of 28 U.S.C. § 1441(b)(2) (referred to as the “forum defendant rule”), a suit that is “otherwise removable solely on the basis of . . . [diversity of citizenship] 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.”  Because defendants “removed each of the Transferred Actions to federal court after the suit was filed in state court but before any [d]efendant was served,” the Second Circuit found that “such removal was proper.”  In resolving what had previously been a split among district courts within the circuit, the Second Circuit emphasized the plain language of the statute and cited similar reasoning by the Third Circuit, which notably is “the only other Court of Appeals to address the propriety of pre-service removal by a defendant sued in its home state” and had similarly concluded that “the language of the forum defendant rule . . . is unambiguous.” 
    The Second Circuit further noted that plaintiffs “do not even attempt to argue that the text of Section 1441(b)(2) supports their position”; instead plaintiffs argue that “the Court should depart from the plain meaning of Section 1441(b)(2) because applying the text of the statute (1) produces an absurd result and (2) will lead to non-uniform application of the removal statute depending on the provisions of state law.”  In considering plaintiffs’ first point, the Second Circuit stated that “[a]llowing a defendant that has not been served to remove a lawsuit to federal court ‘does not contravene’ Congress’s intent to combat fraudulent joinder.”  According to the Second Circuit, “Congress may well have adopted the ‘properly joined and served’ requirement in an attempt to both limit gamesmanship and provide a bright-line rule keyed on service, which is clearly more easily administered than a fact-specific inquiry into a plaintiff’s intent or opportunity to actually serve a home-state defendant.”  The Second Circuit was similarly unpersuaded by plaintiffs’ argument that the plain language interpretation of the statute would result in non-uniform application of the statute.  While observing that its interpretation “might mean that defendants sued in some states—those that require a delay between filing and service, like Delaware—will be able to remove diversity actions to federal court while defendants sued in others—those that permit a plaintiff to serve an action as soon as it is filed—will not,” the Court stated that “state-by-state variation is not uncommon in federal litigation, including in the removal context” and the existence of variation does not mean the Court should “look beyond the plain text of Section 1441(b)(2).”  As such, the Second Circuit stated it had “no reason to depart from the statute’s express language and must affirm the district court’s denial of [p]laintiffs’ motions to remand.”  Finding that the district court properly had denied plaintiffs’ remand motions, the Second Circuit next considered and affirmed the district court’s decision to dismiss the Transferred Actions on the same grounds the Original Actions had been dismissed.
    This decision is significant because it resolves a split among district courts within the Second Circuit and provides a potential road map for defendants who are sued in diversity actions in the state courts of their home state to seek to remove such actions after the complaints are filed but prior to service.  This strategy will require defendants in those circumstances to analyze and take steps immediately to remove those complaints because the ability to remove could disappear the moment the complaint is served.  Moreover, notwithstanding the views set forth by some district courts that previously have granted remand in similar circumstances on the basis that the forum defendant rule is designed to protect defendants from unfair bias in the courts of a plaintiff’s home state, the Second Circuit squarely held that the plain and unambiguous language of 28 U.S.C. § 1441(b)(2) prevails.
    CATEGORIES: PreemptionRemoval