The Third Circuit recently issued a precedential decision in Encompass Insurance Company v. Stone Mansion Restaurant, Inc., No.: 17-1479, 2018 U.S. App. LEXIS 23576 (3d Cir. Aug. 22, 2018), authorizing a defense tactic known as “snap removals.” A “snap removal” occurs when a defendant removes a diverse state court action, prior to being served, to avoid the invocation of the forum-defendant rule, 28 U.S.C. § 1441(b)(2). This is the first appellate court ruling in the nation addressing this defense tactic, and it will allow defendants in New Jersey, Delaware, Pennsylvania, and the Virgin Islands to potentially remove state court actions that would otherwise be ineligible for removal.

Encompass involved a settlement between the estate of a drunk driver and the woman passenger in the drunk driver’s car. The driver’s insurance company, Plaintiff Encompass, sued the restaurant where the drunk driver was served alcohol, Defendant Stone Mansion, in Pennsylvania state court. Plaintiff  alleged the restaurant was liable under Pennsylvania’s dram shop law and sought contribution pursuant to the Uniform Contribution Among Tortfeasors Act of 1955 (UCATA) from Stone Mansion for the monies paid toward settlement with the woman passenger. Encompass was a citizen of Illinois, and Stone Mansion was a citizen of Pennsylvania. Complete diversity existed to warrant removal except that, as a Pennsylvania citizen, the forum-defendant rule would preclude Stone Mansion from removing to Pennsylvania federal court because Pennsylvania was its home forum. 

Upon notification of the complaint, Stone Mansion’s attorneys stated in an e-mail they would accept service of the lawsuit, but after receiving the complaint and a service acceptance form, Stone Mansion did not sign and return the service acceptance form. Instead, Stone Mansion removed the case to federal court. Encompass filed a motion to remand, which was denied. Thereafter,  Stone Mansion filed a motion to dismiss, which was granted.  

On appeal, Circuit Court Judges Michael Chigares, Kent Jordan, and Julio Fuentes found the forum-defendant rule, 28 U.S.C. § 1441(b)(2), to be unambiguous and precluded “removal on the basis of in-state citizenship only when the defendant has been properly joined and served.” Encompass, 2018 U.S. App. LEXIS 23576, at *10 (emphasis added). Judge Chigares, writing for the panel, noted that even though Stone Mansion’s evasion of service of the state-court complaint may have been “unsavory,” it was nevertheless proper. The Court entertained the implications of its ruling on snap removals, but concluded that if “the procedural result demonstrates a need for a change in the law . . . it is Congress—not the Judiciary—that must act.” Id. at *13.   Therefore, the Court held that removal to federal court was proper, but reversed the District Court’s interpretation of Pennsylvania’s dram shop law and remanded the matter for further proceedings.  

The takeaway here is that Encompass encourages companies that are frequently sued, and who prefer to litigate in federal court, to monitor state court dockets so that an expeditious analysis of the case can be made and a determination can be reached on whether a snap removal is appropriate.

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