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En Banc Eighth Circuit Reverses Precedent and Holds Forum-Defendant Rule Is a Nonjurisdictional Defect Plaintiffs Can Waive

In Holbein v. TAW Enterprises, Inc., --- F.3d ---, No. 18-2892, 2020 WL 7755451 (8th Cir. Dec. 30, 2020) (en banc), the Eighth Circuit, sitting en banc, overruled its prior cases dealing with a specific application of the “forum-defendant rule,” under which a defendant that is a citizen of the forum state cannot remove a lawsuit from state court to federal court. The court joined all the other federal circuits that have considered the issue in concluding that violation of the forum-defendant rule is not a jurisdictional defect and therefore must be raised as a basis for remanding a case back to state court within 30 days after removal or the argument is waived. In the Eighth Circuit, this decision has several practical consequences, explained below. In particular, it places greater emphasis on plaintiffs who believe a defendant has improperly removed a case in violation of the forum-defendant rule: The plaintiff cannot lie in wait, and must seek remand within 30 days of removal or waive remand entirely.

Background

At its core, the case concerned one of the ways of removing a case from state court to federal court. Defendants can remove a state-court lawsuit to federal court if the federal court would have had jurisdiction over the lawsuit if it had been filed there. 28 U.S.C. § 1441(a). Federal courts have diversity jurisdiction over cases in which all defendants are citizens of different states than all plaintiffs. 28 U.S.C. § 1332(a). Thus, defendants can generally remove state-court lawsuits to federal court if they are citizens of different states than the plaintiffs.

This case deals with an exception to that general rule, known as the “forum-defendant rule.” Under 28 U.S.C. § 1441(b)(2), when removal is based solely on diversity jurisdiction, a defendant that is a citizen of the forum state cannot remove a lawsuit to federal court. For example, if a plaintiff who is a citizen of Minnesota sues a citizen of Iowa in Iowa state court, the defendant cannot remove the lawsuit to federal court in Iowa.

Under 28 U.S.C. § 1447(c), when a lawsuit is improperly removed to federal court, the plaintiff may ask the federal court to remand the action to state court. But there is a time limit for doing so. If the motion to remand is based on any defect in the removal process “other than lack of subject matter jurisdiction,” the plaintiff has to move for remand within 30 days after the defendant filed its notice of removal. Id. If the plaintiff fails to move to remand on time, it waives any objection to the removal. Lack of subject-matter jurisdiction is an exception to that rule because lack of subject-matter jurisdiction can be raised at any time; it cannot be waived. See Fed. R. Civ. P. 12(h)(3).

For many years, the Eighth Circuit had held that the prohibition on forum-state defendants removing to federal court was not just a procedural rule; it was jurisdictional in nature, so that a federal court lacked jurisdiction over any lawsuit that was removed in violation of the forum-defendant rule. In other words, even if a plaintiff waited longer than 30 days in seeking to remand the case to state court, he could still seek a remand — even much later — because the forum-defendant rule was jurisdictional. See Hurt v. Dow Chemical Co., 963 F.2d 1142, 1146 (8th Cir. 1992), and Horton v. Conklin, 431 F.3d 602, 605 (8th Cir. 2005) (reaffirming Hurt). And if the forum-defendant rule was jurisdictional, then even the federal court acting on its own could raise the defect at any time. Id.

Remarkably, the Eighth Circuit was alone among the other circuits in holding that violation of the forum-defendant rule was jurisdictional, rather than a mere procedural defect that can be waived. Nine other circuits had addressed whether the forum-defendant rule is jurisdictional in nature. Unlike the Eighth Circuit, all of them concluded that violation of the rule is nonjurisdictional, so that a plaintiff must raise the violation as a basis for removal within 30 days of removal or the argument is waived. Holbein, 2020 WL 7755451, at *3 (collecting cases from other circuits).

The Decision

The Eighth Circuit took up the issue en banc, as the question was whether to overturn prior panel decisions and only the court sitting en banc may do that. And the full court did so, announcing: “We now eliminate th[e] lopsided circuit split and conclude that violation of the forum-defendant rule is a nonjurisdictional defect in removal that is waived if not raise in ‘[a] motion to remand … made within 30 days after the filing of the notice of removal.’” Holbein, 2020 WL 7755451, at *3. Unanimously, the en banc court agreed with other circuits that Congress did not mandate that the forum-defendant rule be treated as jurisdictional largely because, “[u]nlike other statutory provisions that unequivocally govern district-court jurisdiction…neither § 1441(a) nor § 1441(b)(2) ‘speak in jurisdictional terms,’ suggesting Congress did not mean for them to have ‘jurisdictional attributes.’” Id. The forum-defendant rule simply “strips forum defendants of the statutory right to remove; it does not strip district courts of jurisdiction they otherwise have to adjudicate the sorts of actions forum defendants might attempt to remove.” Id. at *4.

What It Means

We suspect that few defendants intentionally violate the forum-defendant rule by trying to remove a case to federal court in their home states. But it happens from time to time due to inadvertence or lack of information. Say, for example, that a limited-liability company formed under Delaware law and headquartered in New York is sued in Minnesota state court. Many believe (incorrectly) that the citizenship of an LLC is determined like the citizenship of a corporation — i.e., it is a citizen of its state of its incorporation and of the state where it has its principal place of business. Thus, the LLC may believe that complete diversity exists and it may remove to federal court — and, believing that it is a citizen only of Delaware and New York, it believes that the forum-defendant rule does not prevent it from removing the case from Minnesota state court. But under principles dating back to the Supreme Court’s decision in Carden v. Arkoma Associates, 494 U.S. 185 (1990), a non-corporation, including a limited-liability company, is a citizen of every state in which any of its members is a citizen. See OnePoint Solutions, LLC v. Borchert, 486 F.3d 342, 346 (8th Cir. 2007). If our hypothetical LLC had 100 members, one of which was a Minnesota citizen, the LLC itself would be a citizen of Minnesota (as well as every other state in which its members were citizens) and could not remove the case. Under the Eighth Circuit’s holding, a plaintiff would have 30 days to discover the issue and ask for removal; failing to do so would waive the issue and the case would stay in federal court.

In some circumstances, we suspect defendants may also choose to remove cases even when they suspect or know they are a citizen of the forum state, on the chance that the plaintiff will agree to federal court or will otherwise waive remand. The decision whether to remove in such circumstances would be similar to a plaintiff’s decision to bring a case even knowing that an affirmative defense might otherwise bar the claim: Because affirmative defenses (such as the statute of limitations) are waivable, there might be some benefit in taking an action that the rules otherwise prohibit. But such decisions come with significant risks. In the context of removal, a forum-state defendant removing the case bears the risk of a motion to remand and payment of the plaintiff’s attorneys’ fees incurred in connection with removal. See 28 U.S.C. § 1447(c). Before any forum-state defendants remove a state court case based solely on diversity jurisdiction to federal court, they should carefully weigh the risks and benefits under the facts of their case.

The Eighth Circuit’s decision also has one important practical consequence for plaintiffs. Now that failure to follow the forum-defendant rule is nonjurisdictional, and thus waivable, plaintiffs who file in state court and whose cases are removed solely on the basis of diversity jurisdiction face a 30-day clock: Either move to remand the case, or risk waiving remand by waiting longer than 30 days. In this regard, the decision is entirely sensible: It prevents plaintiffs whose cases are removed by forum-state defendants from lying in wait and seeking to remand the cases years later, only after adverse developments. For that reason, among others, the unanimous en banc court decided to join all other federal circuits on this core issue of federal jurisdiction.

© 2021 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.National Law Review, Volume XI, Number 4
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Chuck Webber Trial Attorney Faegre Drinker
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Chuck Webber is a commercial trial and appellate lawyer. He has represented clients in trying and winning complex commercial cases involving medical devices, financial transactions, commercial contracts and business torts. He is a Fellow of the American College of Trial Lawyers, a Member of the American Board of Trial Advocates and a Fellow of the International Society of Barristers.

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Jeffrey P. Justman Litigation Attorney Faegre Drinker Biddle & Reath Minneapolis, MN
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Jeff Justman is a legal strategist and advocate who represents clients in shareholder lawsuits, securities litigation, and appellate matters in state and federal courts across the country.

Jeff’s excellence in these areas has been recognized by his peers and clients: Minnesota Lawyer recognized Jeff as a “Super Lawyer” in securities and corporate finance litigation in each of the last three years. Most recently, Chambers USA’s 2019 guide ranked Jeff as one of only a dozen recognized experts in appellate litigation in Minnesota. Jeff is the youngest recognized...

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