Second Circuit Adopts ‘Bright Line’ Removal Rule

New York Law Journal

Starbucks is known to many of its aficionados for its grand selection of coffees but it was a cup of tea, literally, that got it into hot water with Rachel Moltner, a 76—year-old New York resident. Little did Starbucks or Ms. Moltner know on Feb. 19, 2008, what the spillover effects would be—that the events involving them would result in a significant ruling by the U.S. Court of Appeals for the Second Circuit nearly three years later that would clarify the timing of removal of state court lawsuits to federal court.

The Nov. 2 ruling is called Moltner v. Starbucks Coffee Co.¹  It is a short, per curiam opinion, barely occupying four Federal Reporter pages, but it packs a wallop and, for litigators, can jolt the reader into wakefulness perhaps faster than an early a.m. Starbucks brew. For those who prefer to be in state court and shun the federal forum, Moltner is an important alert. For those who want out of the state venue and find more comfort in federal proceedings, the new ruling is must reading. As for Ms. Moltner’s saga, so far as we know, the case is still brewing and the ending has yet to be written.

Here is what happened. Nearly three years ago, Rachel Moltner purchased a “Venti”-sized cup of tea at the Starbucks shop at 80th Street and York Avenue. Her tea was served double-cupped and with a lid. At a table she tried to remove the lid to add sugar but had difficulty. While trying to pry the lid off, the tea spilled onto her left leg and foot. The burns were severe enough to require a skin graft and a hospital stay where she was further beleaguered by secondary injuries including bed sores and a fractured sacrum and herniated discs caused by a fall out of bed.

Her attorneys filed an action in New York State Supreme Court on July 31, 2008. Consistent with state practice (see CPLR §3017(c)), the complaint described her injuries but did not specify an amount of damages being sought. Defendant Starbucks served its answer on Aug. 26 and also served a Request for Supplemental Demand for Relief. Under CPLR §3017(c), such a supplemental demand is to set forth, within 15 days of the Request, the total damages to which the pleader deems himself entitled. Ms. Moltner responded to Starbucks’ Request by letter dated Oct. 21, stating she sought damages not to exceed $3 million. On Oct. 29, defendants filed a notice of removal to the U.S. District Court for the Southern District of New York.

On Nov. 12, 2008, plaintiff moved in federal court to remand the case back to the state court. The district court denied the motion. The U.S. Court of Appeals for the Second Circuit affirmed in its per curiam opinion issued on Nov. 2, 2010. Under 28 U.S.C. §1446(b), the notice of removal is to be filed within 30 days of the defendant’s receipt “of a copy of the initial pleading setting forth the claim for relief upon which such action is based.”

If the initial pleading does not set forth a removable case, then the notice of removal may be filed within 30 days after defendant’s receipt of a copy of “an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable.” An outside limit of one year after commencement of the action stops the removal clock.

Here, Starbucks’ notice of removal was filed after 30 days from its receipt of Ms. Moltner’s complaint. So, argued the plaintiff, the removal was untimely. Starbucks argued, “no,” since the removal clock actually did not begin to run until it received the first paper from which it could ascertain that the case was removable. This was Ms. Moltner’s Oct. 21, 2008, letter stating that she sought damages not to exceed $3 million. Was Starbucks correct and the removal timely? The court held “yes.”

Removal Clock

The appellate panel referred to its holding in the Whitaker decision issued in 2001 as lending “strong support” to Starbucks’ position.²  In Whitaker, the state court summons with notice did not provide the address of one of the defendants although it specified the states of incorporation of the other two defendants. The complaint was served some six weeks later and gave sufficient information to determine the citizenship of all defendants.

The defendant served its notice of removal 27 days after service of the complaint. Plaintiff unsuccessfully moved to remand contending the removal was untimely. The Second Circuit in Whitaker held that the 30-day period did not begin to run until defendant had received the first document from which all of the facts giving rise to removability were evident. This was the complaint.

The court in Whitaker observed that the initial pleading creates removability when, from the face of such pleading, the defendant is able to “intelligently ascertain” removability by being provided with “the necessary facts to support the removal petition.” In diversity of citizenship cases, “the facts required to support the removal petition include the amount in controversy and the address of each party.” While this standard requires a defendant to apply “a reasonable amount of intelligence in ascertaining removability, it does not require a defendant to look beyond the initial pleading for facts giving rise to removability.”³

Ms. Moltner argued that Starbucks, by applying “a reasonable amount of intelligence” to its reading of the complaint, should have deduced from the complaint’s description of her injuries that the amount in controversy would exceed the $75,000 jurisdictional amount. Plaintiff cited a number of district court cases from other circuits holding that the removal clock runs from service of the complaint, even when the latter does not specify the amount of damages sought, when the defendant can reasonably discern from the complaint that the damages sought will meet the amount-in-controversy  requirement.⁴

The Second Circuit rejected this approach. “To the extent that our holding in Whitaker does not foreclose this argument, we now reject it.”⁵ The court stated that it joins the U.S. Court of Appeals for the Eighth Circuit as well as all of the district courts in the Second Circuit in holding that “the removal clock does not start to run until the plaintiff serves the defendant with a paper that explicitly specifies the amount of monetary damages sought.”⁶

Plaintiff asserted that this approach would “invite gamesmanship.” Thus, a defendant may delay serving a request for specification of the damages sought “for up to a year while it tests the waters in state court,” and then remove to federal court only if and when the defendant determines that the state court is not a favorable forum. The appellate panel answered by noting that this argument “finds no support in the facts of Moltner’s own case.” Starbucks served its request for specification of the damages sought on the same date it served its answer. Rather, it was Ms. Moltner who delayed matters by filing her response to this request beyond the 15-day window specified in CPLR §3017(c). Eight days later, Starbucks filed its timely notice of removal. The court also saw “no evidence of gamesmanship in the district court cases that have addressed similar situations.”

The Second Circuit panel found that a “bright line rule is preferable” because requiring a defendant to read the complaint and “guess the amount of damages” that the plaintiff seeks “will create uncertainty and risks increasing the time and money spent on litigation.” Under plaintiff’s approach, if a defendant were to wait with removal until the damages have been specified, the parties “will dispute, upon removal, whether the defendant should have known from the complaint that the jurisdictional threshold was met.” Accordingly, Ms. Moltner’s motion to remand was properly denied.

Conclusion

The Moltner decision now supplies a “bright line” rule for operation of the removal clock, at least in the Second Circuit. That clock starts ticking when the defendant is served with a paper that explicitly specifies the amount of damages sought as well as information from which one can intelligently ascertain requisite diversity of citizenship. In New York state courts the initial pleading may be unclear due to the practice of not stating the amount of damages sought. If the complaint does not do it, then the first paper served on defendant that does it is the trigger. For those whose cup of tea is litigating in federal court, please take notice.

Michael Hoenig is a member of Herzfeld & Rubin.

Endnotes

1. 624 F.3d 34 (2d Cir. 2010).
2. Moltner, 624 F.3d at 36—37 (citing Whitaker v. American Telecasting Inc., 261 F.3d 196 (2d Cir. 2001)).
3. Moltner, 624 F.3d at 37 (quoting from Whitaker, 261 F.3d at 205—06).
4. Moltner, 624 F.3d at 37 (citing and quoting e.g. Granowsky v. Pfizer Inc., 631 F.Supp.2d 554, 563 (D. N.J. 2009);McCraw v. Lyons, 863 F.Supp. 430, 434 (W.D. Ky. 1994)).
5. Moltner, 624 F.3d at 37—38.
6. Moltner, 624 F.3d at 37 (citing and quoting In re Willis, 228 F.3d 896, 897 (8th Cir. 2000) (per curiam) (“We find the thirty-day time limit of section 1446(b) begins running upon receipt of the initial complaint only when the complaint explicitly discloses the plaintiff is seeking damages in excess of the federal jurisdictional amount.”); Quintana v. Werner Enters., Inc., No. 09 Civ. 7771, 2009 U.S. Dist. LEXIS 105861, 2009 WL 3756334 (S.D.N.Y. Nov. 2, 2009); Gourgue v. Red Lobster Rest., No. 07-3072, 2008 U.S. Dist. LEXIS 121657, 2008 WL 822129 (E.D.N.Y. Mar. 26, 2008); Pinson v. Knoll, Inc., No. 07 Civ. 1739, 2007 U.S. Dist. LEXIS 44201, 2007 WL 1771554 (S.D.N.Y. June 18, 2007); Yonkosky v. Hicks, 409 F. Supp. 2d 149 (W.D.N.Y. 2005))