JURIST Guest Columnist Arthur Hellman of the University of Pittsburgh School of Law discusses the impact of the recently passed Jurisdiction and Venue Clarification Act of 2011 on federal and state court litigation in the US…

There was no public ceremony, and if you blinked you missed the announcement, but on December 7, 2011, President Barack Obama signed into law the most far-reaching package of revisions to the Judicial Code since the Judicial Improvements Act of 1990. The bill was HR 394, the Federal Courts Jurisdiction and Venue Clarification Act of 2011 (JVCA), now Public Law No. 112-63. The JVCA will take effect on January 6, 2012.

The amendments made by the JVCA deal primarily with removal and venue. A detailed explanation of the statute, along with a comparison print that shows the changes from current law, can be found in the House Judiciary Committee Report [PDF]. In this article I will note some highlights. A forthcoming article will discuss the unusual process that preceded the enactment of the bill, as well as some provisions that were included in earlier versions but were jettisoned along the way.

From a litigation perspective, the most important elements of the JVCA are those relating to removal jurisdiction and procedure. That is in part because removal legislation, unlike most other provisions in the Judicial Code, affects everyday practice in state as well as federal courts. That is particularly true today. Across a wide spectrum of claims and disputes, plaintiffs have a strong tendency to prefer state over federal court. Defendants prefer the federal forum. Defendants act upon their preference by removing cases that the plaintiff has filed in state court. The plaintiff, seeking to retain the state forum, files a motion to remand. Battles over removal thus occupy a central place in civil litigation today.

Under the general removal statute, 28 USC § 1441, cases may be removed based on federal-question jurisdiction or diversity jurisdiction. The JVCA has only one provision on federal-question removal. This provision completely revises the notoriously troublesome “separate and independent” claim provision of § 1441(c), dealing with the removal of civil actions that include both federal and unrelated state claims. The new law makes clear that the inclusion of unrelated state claims does not defeat removal that is otherwise proper based on the federal claims. It then requires severance and remand of claims not within the original or supplemental jurisdiction of the federal district court. This revision not only protects the defendant’s right to remove; it also avoids the constitutional problems that some courts have perceived in the current provision. Although many commentators (including myself) initially preferred a simple repeal of § 1441(c), I think the JVCA actually provides a better solution because it gives clear and straightforward directions to the district court for the situations within its coverage.

Several provisions of the JVCA deal with removal based on diversity jurisdiction. Note first that § 1446, dealing with the procedure for removal, has been reorganized, and all of the provisions uniquely applicable to removal based on diversity are conveniently contained in a single subsection, § 1446(c). Note too that notwithstanding the label “procedure,” the “requirements” set forth in § 1446(c) will often determine whether or not the defendant can successfully remove the case. They are thus particularly important to litigation practice.

Paragraph (1) of § 1446(c) adopts a carefully crafted “bad faith” exception to the existing statutory provision that prohibits removal of a diversity case more than one year after filing. The one-year rule lent itself to abuse by plaintiffs — for example, as the US District Court for the Eastern District of Virginia observed in Linnen v. Michielsens, plaintiffs’ attorneys would “include in diversity cases a non-diverse defendant only to non-suit that very defendant after one year has passed in order to avoid the federal forum.” Some courts recognized an “equitable exception” to the one-year prohibition, while others regarded the rule as absolute. The newly enacted language gives district courts the authority to nullify blatant gamesmanship, but the exception is, as the House Report states, “limited in scope.” How “limited” remains to be seen.

Paragraph (2) of § 1446(c) resolves several issues relating to the determination of the amount in controversy when a case is removed based on diversity. This has been an extremely knotty aspect of practice, not least because, as I have observed elsewhere, “the plaintiff is in the anomalous position of seeking to minimize the value of the claim, while the defendant argues for the higher amount.” The new statute adopts the “preponderance of the evidence” standard for contested cases and sets forth some procedures for determining whether the standard has been met.

These provisions of the JVCA resolve some conflicts in the lower courts, and for that reason are to be welcomed. But the statute’s approach is less than ideal. The difficulty is twofold. First, it is always tricky to superimpose a handful of statutory procedures on a complex network of rules established through court decisions. Here there is the added challenge of codifying procedures that will integrate in a satisfactory way with the great variety of practices adopted by state systems for asserting and valuing claims.

For these reasons, at a hearing on a predecessor version of the JVCA, I suggested that the preferable approach would be for Congress to adopt the “preponderance” standard and authorize the Judicial Conference of the United States to use its rulemaking powers to devise the detailed procedures for determining whether the standard has been met. Congress did not take that path, but the Judicial Conference may have some limited authority here under the Rules Enabling Act. If the new law does generate conflicts in the lower courts, the Civil Rules Committee should consider whether to engage in rulemaking with respect to purely procedural issues.

Another provision of the JVCA deals with the removal of cases involving multiple defendants. This provision begins by codifying the judicially created “rule of unanimity”: “all defendants who have been properly joined and served must join in or consent to the removal of the action.” But the unanimity rule applies only to cases removed “solely under § 1441(a).” Thus it does not apply, for example, to removals under the federal-officer removal statute, § 1442.

Codification of the rule of unanimity was only a preliminary step toward the main objective of this part of the legislation: resolving a longstanding conflict in the lower courts over the deadline for removal when different defendants are served at different times. The JVCA gives each defendant 30 days in which to initiate removal, thus putting all defendants on an equal footing. This has been the trend in the more recent cases, although in Barbour v. International Union, the US Court of Appeals for the Fourth Circuit rejected the majority approach in a 2011 en banc decision that the JVCA has now abrogated. The new law also provides that if removal is initiated by a later-served defendant, earlier-served defendants may join in or consent to the removal.

The JVCA has only one provision specifically addressing original jurisdiction. That provision narrows the resident-alien proviso now located at the end of § 1332(a). The purpose is to avoid the interpretative and even constitutional problems generated by the current language, which was added by a 1988 amendment to the Judicial Code.

Title II of the JVCA deals with venue and transfer. The new law completely rewrites Chapter 87 on venue, finally abolishing the hairsplitting distinction between backup venue in diversity and federal-question cases and also doing away with the separate provision dealing with “local” as opposed to “transitory” actions in § 1392. The JVCA partially abrogates the Supreme Court decision in Hoffman v. Blaski by authorizing transfer of venue to a district where the action could not have been brought initially, as long as all parties consent.

The venue provisions of the JVCA are based in large part on the venue proposals of the 2004 Federal Judicial Code Project of the American Law Institute (ALI). The jurisdictional sections also draw on the ALI’s work. Other elements of the JVCA are described in the House Report.

The JVCA states that its provisions will apply to newly filed actions starting 30 days after enactment. That makes the effective date January 6, 2012. For removed cases, the statute applies if the action has been “commenced, within the meaning of State law, in State court,” after the effective date.

Arthur Hellman is a Professor of Law at the University of Pittsburgh School of Law. He worked with Congress and the judiciary on the Jurisdiction and Venue Clarification Act at several stages. The views expressed in this article are his own. The author thanks Thomas Rowe for comments on previous versions of the article.

Suggested citation: Arthur Hellman, The Federal Courts Jurisdiction and Venue Clarification Act is Now Law, JURIST – Forum, Dec. 30, 2011, http://jurist.org/forum/2011/12/arthur-hellman-jvca.php.