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Removal to Federal Court: Dealing with the “Artful Dodger”

By Andrew J. Mihalick

Consider the following scenario: Your institutional client has been served with a first-notice personal injury suit filed in a historically plaintiff-friendly county in Texas state court.  You believe that removing the case to federal court will level the playing field, and your out-of-state client prefers federal court.  In this scenario, diversity of citizenship is not an issue.  However, the notice-pleading filed by Plaintiff under the Texas rules provides only the vaguest factual allegations.  To comply with the pleading requirements of Texas Rule of Civil Procedure 47, our Plaintiff alleges that the monetary relief sought is “$100,000 or less.”[1] Plaintiff further states that the monetary relief will not exceed $75,000.00. There goes removal, right?  Not necessarily.

Diversity Removal, and the Amount in Controversy

Federal Courts have subject matter jurisdiction and are authorized to entertain causes of action only where a question of federal law is involved, or where there is diversity of citizenship between the parties and the amount in controversy exceeds $75,000.00. See 28 U.S.C. §1331, 1332. In order to determine whether jurisdiction is present in a removed action, the claims set forth in the state court petition are considered as of the date of removal. See Wisconsin Dep't of Corr. V. Schacht, U.S. 381, 391 (1998).

The amount in controversy “demanded in good faith in the initial pleading shall be deemed to be the amount in controversy.” 28 U.S.C. § 1446 (c)(2). An exception to this general rule is where “the State practice either does not permit demand for a specific sum or permits recovery of damages in excess of the amount demanded.”  28 U.S.C.§ 1446(c)(2).

Texas Federal Courts have determined that specific damage allegations such as the one in the foregoing scenario not only fail to comply with Texas pleading requirements, but actually smack of bad faith:

Texas law simply does not permit a plaintiff to plead that he or she seeks damages not to exceed $75,000. Thus, a specific demand such as Plaintiff's cannot be deemed the amount in controversy because “[s]uch manipulation is surely characterized as bad faith.”  Garcia v. Kellogg USA, Inc., No. 7:13-CV-00347, 2013 WL 4735169, at *1 (S.D. Tex. Sept. 3, 2013) (citing De Aguilar, 47 F.3d at 1410); see also Ford v. United Parcel Serv., Inc. (Ohio), No. 3:14-CV-1872-D, 2014 WL 4105965, at *2 (N.D. Tex. Aug. 21, 2014) (holding that plaintiff who pleaded an award not to exceed $74,000 “purposefully contravened the Texas rules governing pleading requirements so as to avoid federal jurisdiction.”). These considerations inform the Court that instead of pleading a legitimate estimation of damages in this case, “[a]s a functional matter, [Plaintiff is] attempting to avoid federal jurisdiction.” De Aguilar, 47 F.3d at 1410. Thus, Plaintiff's specific sum does not control the Court's analysis.

Chavez v. State Farm Lloyds, No. 7:15-CV-487, 2016 WL 641634, at *2 (S.D. Tex. 2016) (emphasis added).

The Fifth Circuit noticed this opportunity for manipulation and prescribed the following solution:

We have nevertheless remained vigilant to the potential for manipulation by the plaintiff who prays for damages below the jurisdictional amount even though he knows that his claim is actually worth more,” this Circuit has observed that Texas plaintiffs desiring to prevent removal “must file a binding stipulation or affidavit with their complaints.”

St. Paul Reinsurance Co., 134 F.3d at 1254 n. 18 (quoting De Aguilar v. Boeing Co., 47 F.3d 1404, 1412 (5th Cir. 1995)) (emphasis added). So, when a Plaintiff fails to supply such a stipulation or affidavit with their complaint (or an amended complaint after discussing the matter), further analysis should be performed to determine whether the case is a proper candidate for removal.

Challenging the Removal—Plaintiff Files a Motion to Remand

If it is not apparent from the face of the petition that the amount in controversy exceeds $75,000, the removing party “[h]as an affirmative burden to produce information, through factual allegations or an affidavit” that is sufficient to demonstrate the requisite jurisdictional amount.” Simon v. Wal-Mart Stores, Inc., 193 F.3d 848, 851 (5th Cir. 1999).  If it is facially apparent that the amount in controversy likely exceeds $75,000 or if the defendant produces sufficient evidence that the jurisdictional amount is satisfied, remand is not warranted unless the plaintiff establishes “to a legal certainty that the claim is really less than the jurisdictional amount….”Ray Mart, Inc. v. Stock Building Supply of Texas, LP, 435 F.Supp.2d 578, 586 (E.D. Tex. 2006)(quoting St. Paul Mercury Indem. Co. v. Red Cab. Co., 303 U.S. 283, 289; 58 S.Ct.586, 82 L.Ed. 845 (1938).[2]  This is hard to do, especially since any affidavits or stipulations purporting to limit the damages sought supplied after removal will not count. De Aguilar v. Boeing Co., 47 F.3d at 1411.

In Salinas v. Allstate Vehicle and Prop. & Ins. Co., CASE NO. 7:15-CV-434, 2016 WL 8650475 at *2 (S.D. Tex. Sept. 28, 2016), Plaintiff argued for remand on the basis that her stated actual damages totaled $32,621.41. Reviewing the petition, however, the Court determined that Plaintiff also sought attorney’s fees (and took judicial notice of the range of fees in the jurisdiction) as well as punitive (trebled) damages available under statute. Salinas, at *2.  Adding these all together, the Court found that found that despite Plaintiff’s protestation, the amount in controversy exceeded $75,000 and sustained the removal.

If the state-court pleadings are unclear as to the amount in controversy, pursue early, targeted discovery to ferret out this information. Remember that “…if the case stated by the initial pleading is not removable,” a defendant can remove “within 30 days after receipt … of a copy of an amending pleading motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable.” Morgan v. Huntington Ingalls, Inc., 879 F.3d 602, 607 (5th Cir. Jan. 11, 2018).

Early this year, the Fifth Circuit held that deposition transcripts are “other documents” and that the “removal clock began on receipt of the deposition transcript, not the date of the deposition.” Morgan at 607.   So, even if removal at the pleading stage seems untenable, be mindful that discovery can turn up information sufficient to support removal. In any event removal must be perfected within one year of receiving notice of the lawsuit. 28 U.S.C.A. § 1446(b).

A petition complying with Texas Rule of Civil Procedure 47 involving diverse parties should be removable on its face, absent a binding stipulation that that the total recovery sought is less than the removal threshold.   Without such a stipulation, however, the prudent practitioner must read between the lines and calculate the upper limit of Plaintiff’s available recovery.  In a diversity case, if a jury could award damages based on the petition that exceed $75,000, and Plaintiff has not tendered a binding stipulation that she will take less than that amount, removal remains a viable option.

[1]Texas Rule of Civil Procedure 47 requires parties seeking affirmative relief to identify one of five damage ranges for their claims. The lowest range, which may place a case on an expedited docket with restricted discovery, is “$100,000 or less.”   Tex. R. Civ. P. 47 (c).

[2] De Aguilar v. Boeing Co., 47 F.3d 1404, 1411 (5th Cir. 1995) (Pointing out that “…this is not a burden-shifting exercise…plaintiff must make all information known at the time he files the complaint); Gebbia v. Wal-Mart Stores, Inc., 233 F.3d 880, 883 (5th Cir. 2000).