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Rivas v. Bowling Green Associates, L.P.

United States District Court, S.D. New York

July 24, 2014

JOSE RIVAS, et ano., Plaintiffs,
v.
BOWLING GREEN ASSOCIATES, L.P., et ano., Defendants.

MEMORANDUM AND ORDER IMPOSING RULE 11 SANCTION

P. KEVIN CASTEL, District Judge.

An action lawfully commenced in a state court may be removed to federal court in circumstances specified in one of the several removal statutes. 28 U.S.C. § 1441 et seq. The effect of the filing of the notice of removal is immediate. It ousts the state court of jurisdiction. Mindful of the power vested solely in the hands of the removing party, lawmakers have subjected a notice of removal to the strictures of Rule 11, Fed.R.Civ.P. 28. U.S.C. § 1446(a).

It has long been a feature of federal removal practice that the removing party may not be a citizen of the state where the district court sits. Martin v. Snyder , 148 U.S. 663, 663-64 (1893) (citing Act of March 3, 1887, ch. 373, 24 Stat. 552). 28 U.S.C. § 1441(b)(2). Here, there is no dispute that one of the removing patties, defendant Braun Management, Inc. ("Braun"), is a corporation organized under the laws of New York with its principal place of business in New York.[1](Notice of Removal ¶ 9(b), Docket# 1.)

This Court ordered William H. Grae and the law firm of The Chartwell Law Offices, LLP ("Respondents") to show cause why they should not be sanctioned under Rule 11 for (a) removing an action based upon diversity of citizenship on behalf of a citizen of the state in which the action was brought in violation of 28 U.S.C. § 1441(b)(2); and (b) stating in the notice of removal, a document signed under the strictures of Rule 11, as follows: "... this action may be removed to this Court pursuant to 28 U.S.C. § 1441." (Notice of Removal ¶ 12); Rule 11(c)(3).

In their response to the order to show cause, Respondents note that removal by an in-state defendant does not destroy subject matter jurisdiction and plaintiffs have forfeited their right to seek remand based upon the prohibition on in-state defendant removals because they failed to timely move to remand. The assertion is entirely correct. 28 U.S.C. § 1447(c); Shapiro v. Logistec USA, Inc. , 412 F.3d 307, 313 (2d Cir. 2005) (citing Woodward v. D. H. Overmyer Co. , 428 F.2d 880, 882-83 (2d Cir. 1970)). But a lawyer has no right to improperly remove a case in the hope that the removal defects will not be timely asserted by opposing counsel. Cardona v. Mohabir, No. 14-cv-1596 (PKC), 2014 WL 1088103, at *1 (S.D.N.Y. Mar. 18, 2014).

Rule 11(a)(2) provides that "[b]y presenting to the court a pleading, written motion, or other paper-whether by signing, filing, submitting, or later advocating it-an attorney or unrepresented party certifies that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances:... the... legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law...."

Rule 11 sanctions should not be imposed "for minor, inconsequential violations of the standards prescribed by subdivision (b)." Rule 11, 1993 Advisory Committee's Notes. The Second Circuit has concluded that in the case of court-initiated Rule 11 sanctions, where the "safe-harbor" provision of Rule 11(c)(1)(A) does not apply, the standard to be applied is not one of objective unreasonableness, but subjective bad faith. Muhammad v. Walmart Stores E., L.P. , 732 F.3d 104, 108-09 (2d Cir. 2013) (citing In re Pennie & Edmonds LLP , 323 F.3d 86, 90 (2d Cir. 2003)). The facts supporting such a finding must be "characterized by a high degree of specificity." Schlafer Nance & Co. v. Estate of Warhol , 194 F.3d 323, 338 (2d Cir. 1999).

Rule 11(b)(1) sets forth an "improper purpose" requirement and 28 U.S.C. § 1927 has a "vexatious[ness]" requirement. But Rule 11(b)(2) has neither. To satisfy the subjective bad faith standard for a sanction under Rule 11(b)(2), the lawyer must have known that the legal contention was not warranted by existing law or its modification or extension. Cardona v. Mohabir, No. 14-cv-1596 (PKC), 2014 WL 1804793, at *3 (S.D.N.Y. May 6, 2014). Proof of actual knowledge, and not merely what a reasonable attorney should have known, is required. See Muhammad , 732 F.3d at 108-09. As in a criminal case, actual knowledge may be proven by circumstantial evidence and conscious avoidance may be the equivalent of knowledge. United States v. Svoboda , 347 F.3d 471, 479 (2d Cir. 2003).

Respondents do not argue that the notice of removal was proper nor do they argue that they were ignorant of, misunderstood, or misapprehended the requirements of 28 U.S.C. § 1441(b)(2). Indeed, Respondent Grae acknowledges that "[i]n court on July 1, 2014, when pressed, Your Declarant acknowledged an awareness of the strictures of Section 1441(b)(2) and the defendant-forum rule." (First Grae Decl. ¶ 21.)

The crux of the argument advanced by Respondents is as follows:

It is respectfully submitted that the distinction, at least in Your Declarant's mind, can be analogized to the difference between a void as opposed to a merely voidable instrument. While violation of the defendant forum rule may render a Notice of Removal subject to remand-i.e., voidable'-this defect does not render such a Notice facially void', as would constitute an improper filing with the scope of Rule 11. Misrepresentation or concealment of a party's genuine citizenship, or failure to make proper inquires, would clearly constitute improper conduct within the scope of Rule 11. By contrast, Your Declarant believed that he was asserting a legal argument grounded on well-established precedent, insofar as the Second Circuit has concluded that notwithstanding Congress' language, an action pending in a State court can be removed to a federal court by a citizen of that State so long as complete diversity and amount in controversy requirements are satisfied.

(Id. ¶ 22 (emphasis in original).) Elsewhere, Respondents are described as having engaged in "permissible advocacy." ( Id. ¶ 3.)

Respondents' argument has two parts to it. First, removal by an in-state defendant contravenes the statute but the removal occurs nonetheless and the defect may be waived or forfeited if not timely asserted by the non-removing party and does not affect the court's subject matter jurisdiction. This first part is unassailably correct. Second, Respondents argue that, because of this circumstance, it is "permissible advocacy" to remove a non-removable case provided (a) the defect is not concealed, and (b) the defect does not affect subject matter jurisdiction.

It is this second part that is profoundly wrong. The statute's prohibition on removal by a forum-defendant is unambiguous: "A civil action otherwise removable solely on the basis of the jurisdiction under section 1332(a) of this title may not be removed if any of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought." 28 U.S.C. § 1441(b)(2). The forfeiture doctrine (in cases where removal was improper but subject matter jurisdiction exists) was not created to provide a would-be removing party with an additional option. It arose to prevent parties pursing litigation in a federal forum to have a late-in-the game remand back to state court thereby creating wasteful work in at least one forum. See French v. Hay , 89 U.S. (22 Wall.) 238, 244-45 (1874) ("The objection... was not made in the court below until the ...


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