Timing a Petition to Remove

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It’s no secret the federal court is the preferred forum for litigating insurance coverage issues. When considering whether to remove, one factor to always consider is whether any defendant is a citizen of the State in which the action will be brought. Should that be the case, the Forum Defendant Rule dictates that the matter is no longer removable once the forum defendant has been properly joined and served. How does this impact a yet-to-be served forum defendant who is keen on removing? A Pennsylvania restaurant decided to find out.

In Encompass Insurance Company v. Stone Mansion Restaurant, Inc., an Illinois-based insurance company commenced suit in Pennsylvania state court against a Pennsylvania restaurant, seeking contribution under the Pennsylvania Dram Shop Law following settlement of the underlying bodily injury action. Counsel for the restaurant informally agreed, via email, to accept service of the insurer’s state court complaint. The insurer provided a copy of the complaint, the docket number, and the required Acceptance of Service form. Counsel for the restaurant delayed in returning the Acceptance of Service form, and ultimately informed the insurer that the restaurant was considering filing for removal on the basis that a resident defendant can remove prior to being served.

True to their word, the restaurant removed the matter to federal court. Since the restaurant’s counsel had not yet accepted service of the complaint, the court reasoned that removal was proper. On appeal, the decision was affirmed on the grounds that the language of the Forum Defendant Rule was unambiguous and clearly precluded removal on the basis of in-state citizenship once the forum defendant has been properly joined and served. Despite the insurer’s argument that it was “inconceivable” that Congress intended the “properly joined and served” language to permit an in-state defendant to remove any action by delaying formal service of process, the court was not convinced that the restaurant had engaged in the type of gamesmanship by delaying process prohibited by the Rules of Professional Conduct.

Insurers considering removing a coverage dispute to federal court will benefit from this affirmation of the Forum Defendant Rule. The plain language interpretation of the Rule adopted by the court indicates that defendants who remove state court actions prior service on the forum defendant will likely be able to remain in federal court. Putting this into practice, insurers should closely monitor state court dockets in order to take advantage of removal before service on a forum defendant forecloses the opportunity.