Getting Out of Dodge: May Defendants Remove a State Case to Federal Court Based Solely on a Federal Preclusion Defense?

This article previews the issues and arguments in Rivet v. Regions Bank of Louisiana, on the Supreme Court’s 1997-98 appellate docket. The Court will address the question whether a federal district court has removal jurisdiction over a state court case involving mortgage rights in real property based on the removing defendants' assertion that the plaintiffs' state litigation is barred by a prior federal bankruptcy judgment?A plaintiff as a general matter may bring a lawsuit either in state or federal court. If the plaintiff chooses to sue in state court, the defendant may elect to "remove" the case from state court to federal district court. See generally 28 U.S.C. §§ 1441-1452.Removal, however, presupposes jurisdiction. Unlike most state courts, federal courts are courts of limited jurisdiction and generally do not decide purely state-law claims. Accordingly, a defendant may remove a state-court case to federal court under only one of two conditions: (1) the plaintiff's complaint alleges a claim under federal law, i.e., a claim based on the Constitution; a federal statute, rule, or regulation; or a treaty; or (2) the parties to the dispute are citizens of different states or countries. The former is known as federal-question jurisdiction, 28 U.S.C. § 1331; the latter is known as diversity jurisdiction, which refers to the different states or countries of citizenship of the parties, 28 U.S.C. § 1332.The federal judicial system has long recognized a defendant's right of removal in cases in which a federal court has jurisdiction. But since the 19th century, federal courts have recognized some well-delineated qualifications to the removal right. One limitation is the well-pleaded complaint rule. The Supreme Court has stated that federal-question jurisdiction must be established by the plaintiff's claims themselves, and jurisdiction cannot be established by defenses (or anticipated defenses) that a defendant might raise in answer to the complaint. Under the well-pleaded complaint removal jurisdiction by reference to the plaintiffs’ claims, not to the defenses asserted in a defendant's answer.Federal courts also have attempted to cabin a state plaintiffs ability to use so-called artful pleading to defeat a defendant's removal right. Artful pleading refers to various techniques a plaintiffs lawyer uses to avoid removal: fraudulently naming a non-diverse defendant to defeat a federal court's diversity jurisdiction, or disguising a suit with what appear to be purely state-law claims, when the claims really are based on federal law, to defeat the court's federal-question jurisdiction.Federal courts have developed various devices to pierce a plaintiff’s complaint to ferret out artful pleading intended to defeat a defendant's removal right. This case involves the intersection of these three technical aspects of civil procedure -- a defendant's removal right, the well-pleaded complaint rule, and the doctrine of artful pleading. The case gives the Supreme Court the opportunity to address a vexing problem concerning removal jurisdiction inspired by an ambiguous footnote in a case the Court decided almost 17 years ago, Federated Department Stores, Inc. v. Moitie, 452 U.S. 394, 397 n.2 (1981). There, the Court said that it would not question a district court's factual finding that the plaintiff attempted to use artful pleading to defeat the defendant's removal right.In this case, the plaintiffs, who originally filed their action in Louisiana state court, contend that the federal district and appellate courts erroneously upheld the defendants' removal of their case based on claim preclusion, i.e., that the claims in the state case are the same claims involving the same parties and property that were the subject of a final judgment in an earlier federal bankruptcy proceeding. The defendants, for their part, contend that removal was entirely proper and that the plaintiffs' alleged attempt to recast the bankruptcy court's final judgment into new state-law claims to avoid removal is artful pleading of the sort disapproved of in the Moitie footnote and intended to give the bankruptcy losers two bites of the litigation apple.