May 29, 2020 BY Shayla Bivins
A Catch 22: The Interplay Between Bad Faith and Removal
Federal diversity jurisdiction is established where 1) the opposing parties to a lawsuit are citizens of different states and 2) the amount in controversy exceeds $75,000.1 To successfully remove a state court action to federal court based on diversity jurisdiction, defendants must prove by a preponderance of the evidence that the amount in controversy exceeds the jurisdictional amount where plaintiffs have failed to plead the specific amount of damages and represents to a court that the amount in controversy does not exceed $75,000.2
Defendants must also timely remove a state court action. Defendants must file a notice of removal within thirty days of receiving notice from plaintiffs that a state court action is removable.3 If the initial pleadings of the case do not support removal, a notice of removal may be filed within thirty days after receipt by the defendant, of a copy of an amended pleading, motion, or other paper from which it may be first ascertained that the case is or has become removable.4 However, defendants may not remove a case on the basis of diversity jurisdiction more than one year after the commencement of the state court action, unless the district court finds that plaintiffs have acted in bad faith in order to prevent defendants from removing the action.5
Given each of these statutory requirements that defendants must meet to remove a case, there is a trend amongst plaintiffs to provide lackluster discovery responses or conceal damages in the first year of the case to avoid federal jurisdiction - especially in cases where there are low special damages, but the plaintiff is seeking a large recovery. Then once the one-year removal period expires, plaintiffs unload damages without worrying about the threat of removal. Unfortunately, this sort of strategic gamesmanship is particularly challenging for defendants because plaintiffs who engage in such tactics can delay defendants’ discovery of the amount in controversy until the one-year removal period has passed while also defeating any attempts at proper removal before the one-year mark by failing to produce the evidence defendants need to support removal.6 In these instances, plaintiffs who “hide the ball” essentially spoil defendants’ ability to remove a case.
To that end, the “bad faith” exception is crucial because it is the only way to overcome the one-year removal period when plaintiffs have concealed damages. Indeed, the bad faith exception was specifically added to 28 U.S.C. § 1446(c)(1) in 2011 to address this issue. While many courts in the Eleventh Circuit have not actually interpreted this exception,7 the courts that have examined the exception have typically held there is bad faith where a plaintiff employs affirmative, overt acts to avoid removal.8 For example, in Cameron v. Teeberry Logistics, LLC, the court found bad faith where the plaintiff (1) failed to amend her complaint, or otherwise notify defendants that she considered the amount in controversy to be over $75,000 despite representing that she was seeking no more than $50,000 in damages; and (2) sent a time-limited demand letter exactly one year and four days after commencement of the suit.9
Likewise, in Hill v. Allianz Life Ins. Co. of N.A., the court found an intentional obfuscation of the amount in controversy where the plaintiff had (1) specifically pled that he was seeking damages greater than $15,000.00 but less than $75,000.00 and (2) attempted to amend his complaint to plead damages in excess of $75,000 just over three months after the one year removal window had run.10 The plaintiff offered no explanation for amending his complaint to remove the damages limitation and, perhaps more importantly, the amended complaint contained no additional information that would justify an increase in the damages sought.11 Thus, the court found that the plaintiff’s attempt to ‘restrict’ the amount in controversy was an effort to avoid removal, and therefore, constituted bad faith.12
On the other hand, other courts in this circuit have declined to establish bad faith where there is only a showing of simple negligence or bad lawyering.13 For instance, in Hajdasz v. Magic Burgers, LLC, the court held that the plaintiff had not acted in bad faith to deliberately prevent removal when the defendant did absolutely nothing to compel plaintiff’s response to a crucial damages question and failed to point to any specific statements in plaintiff’s deposition transcript to establish the so-called “bad faith pattern” of failing to disclose the amount in controversy.14 Similarly, in Wilson v. Fresh Market, Inc., the court recently granted plaintiff’s motion to remand because defendant did not exhaust every opportunity at its disposal to compel more complete discovery responses from plaintiff and there was no evidence plaintiff overtly engaged in any bad faith tactics.15
Thus, it appears the bad faith exception is more likely to be implicated in cases that largely concern affirmative, deliberate acts that clearly reflect clear attempts at gamesmanship.16 Should you find yourself in a situation where a plaintiff was withholding information and later discloses evidence to satisfy the amount in controversy, the following steps should be taken to help prove bad faith:
Keep a record of conversations with plaintiff’s counsel about damages;
Ask plaintiff’s counsel to agree to a stipulation on damages which stipulates that plaintiff is not seeking damages in excess of $75,000;
Serve plaintiff with Request for Admissions focused on the amount in controversy issue. Be sure to ask specific questions that will force counsel to confirm what damages plaintiff is seeking, including but not limited to, whether there is ongoing treatment, whether he has provided all of the medical records and bills attributable to the subject incident, and whether a medical expert has provided any causation evidence; and
Repeatedly and relentlessly request that all insufficient discovery responses be supplemented – especially for responses that pertain to special damages, extent and nature of injury, and ongoing medical treatment; and
If plaintiff fails to provide the necessary information, seek state court intervention to compel complete responses and discovery of information.
Proving bad faith is a fairly high bar in addition to the heavy burden defendants bear in establishing federal jurisdiction.17 Completing these recommendations will not guarantee that a court finds bad faith. However, to the extent that a plaintiff fails to comply with discovery or discloses damages after the one-year removal period, these recommendations may help a defendant establish bad faith. In the meantime, plaintiffs who deliberately obfuscate the amount in controversy place defendants in a Catch-22 type scenario.
The Journal is a publication for the clients of Drew Eckl & Farnham, LLP. It is written in a general format and is not intended to be legal advice to any specific circumstance. Legal Opinions may vary when based upon subtle factual differences. All rights reserved.
H. Michael Bagley