Circuit Splits

Federal Practice

Circuit Splits

Gregory P. Joseph*

This article explores persisting splits among the Circuits on selected, significant issues of removal, deposition procedure, arbitration, and statutes of limitations.

Removal

Flexibility of One-Year Time Limit. Under 28 U.S.C. § 1446(b), the defendant in a diversity action may remove within 30 days after a case becomes removable, but the right to remove expires one year after commencement of the action. Is the one-year limit an absolute bar, or is it subject to equitable tolling and extension, depending on the circumstances? (This is another way of asking whether the one-year time limit set forth in § 1446(b) is jurisdictional.) The Fifth Circuit held that the one-year limit is subject to equitable tolling, most recently in Brower v. Staley, Inc., 2008 U.S. App. LEXIS 26184, *4 (5th Cir. Dec. 23, 2008) (citing Tedford v. Warner-Lambert Co., 327 F.3d 423, 426 (5th Cir. 2003)). The Fourth Circuit takes the view that § 1446(b) presents an absolute bar to removal after one year. See Lovern v. General Motors Corp., 121 F.3d 160, 163 (4th Cir. 1997). The Third Circuit has indicated that it may be in the Fifth Circuit’s camp, ruling in Ariel Land Owners, Inc. v. Dring, 351 F.3d 611, 615-16 (3d Cir. 2003) that removing after the one-year time limit did not present a jurisdictional defect.

Note: The preceding discussion does not apply to cases arising under the Class Action Fairness Act because the one-year time limit does not apply in CAFA actions. See 28 U.S.C. § 1453(b).

30-Day Time Limit — Effect of Service by Mail. 28 U.S.C. § 1446(b) contains the requirement that the notice of removal must be filed within 30 days after service of the initial pleading, if that pleading is removable. The Supreme Court ruled in Murphy Bros., Inc. v. Michetti Pipe Stringing, Inc., 526 U.S. 344 (1999), that the 30-day period commences upon formal service. There is a split in the caselaw as to whether service of the initial pleading by mail extends the 30-day removal period by three days, pursuant to Fed. R. Civ. P. 6(d). The majority rule is that Rule 6(d) does not extend the 30-day period. The authorities are collected in Knight v. J.I.T. Packaging, Inc., 2008 U.S. Dist. LEXIS 96927 (N.D. Ohio Nov. 24, 2008) .

30-Day Time Limit — Accrual. Section 1446(b) does not explicitly address multi-party litigation (it is written in the singular, unlike § 1446(a), (c), (d) and (e)). The Circuits are divided as to whether the 30-day period begins to run upon service on the first defendant or by service on the last. The effect of the first-served defendant rule is to divest any defendant served more than 30 days after initial service of any right to remove. The effect of the last-served defendant rule is to extend the removal period for early-served defendants. In adopting the last-served defendant rule, the Eleventh Circuit in Bailey v. Janssen Pharmaceutica, Inc. , 536 F.3d 1202, 1205-06 (11th Cir. 2008) (which collects the cases), observed that “the trend in recent case law favors the last-served defendant rule.”

Depositions

Substantive Changes to Deposition Testimony. Fed. R. Civ. P. 30(e)(1) provides that, on request, a deponent is entitled to 30 days within which to review the transcript and, “if there are changes in form or substance, to sign a statement listing the changes and the reasons for making them.” Given the seemingly clear language of the Rule, most courts permit any change, including substantive changes, to deposition testimony. See Betts v. General Motors Corp. , 2008 U.S. Dist. LEXIS 54350 (N.D. Miss. July 16, 2008).

There is, however, tension between this approach and the sham affidavit rule, which is also applied in most courts and which bars the submission on summary judgment of an affidavit that contradicts the affiant’s deposition testimony. The Seventh, Ninth and Tenth Circuits hold that, on summary judgment, a substantive Rule 30(e) correction should be stricken, just like a sham affidavit. See Hambleton Bros. Lumber Co. v. Balkin Enters. , 397 F.3d 1217, 1225 (9th Cir. 2005); Burns v. Bd. of County Comm’rs, 330 F.3d 1275, 1282 (10th Cir. 2003); Thorn v. Sundstrand Aerospace Corp. , 207 F.3d 383, 389 (7th Cir. 2000).

If substantive Rule 30(e) changes are appropriately rejected for summary judgment purposes because they do not raise a genuine issue of material fact, why should they permitted to raise a genuine issue of material fact at trial?

Right to Depose Non-Testifying Expert Previously Designated as Testifying. An opponent has the right to depose a testifying expert (after the report is issued) under Fed.R.Civ.P. 26(b)(4)(A) but may depose a non-testifying expert only in “exceptional circumstances” under Rule 26(b)(4)(B). There are divergent views about what test to apply where a testifying expert is later re-designated a non-testifying expert. The majority rule, which was applied in Federal Ins. Co. v. St. Paul F & M Ins. Co. , 2008 U.S. Dist. LEXIS 25927 (N.D. Cal. March 19, 2008), holds that the “exceptional circumstances” test governs, rather than a balancing test. Conflicting authorities are collected in Estate of Manship v. United States, 240 F.R.D. 229, 235-37 (M.D. La. 2006).

Federal Arbitration Act

Determining the Amount in Controversy. The Federal Arbitration Act empowers the federal courts to confirm or vacate arbitration awards that fit the statutory criteria, but the FAA does not confer federal jurisdiction. Therefore, an independent ground of jurisdiction must exist. When diversity jurisdiction is invoked under 28 U.S.C. § 1332(a), the Court must determine the amount in controversy. There is a three-way split of authority concerning how to do so — the demand approach, the award approach and the remand approach.

Under the demand approach, the Court looks to the amount sought in the arbitration demand. Under the award approach, the demand is ignored and the Court looks to the amount actually awarded. Under the remand approach, which applies if the petition includes a request to remand and reopen the arbitration proceeding, a Court that would otherwise apply the award approach determines looks to the amount asserted in the demand that the claimant seeks to arbitrate on remand. The most recent decisions to address this issue, Karsner v. Lothian, 532 F.3d 876, 882-883 (D.C. Cir. 2008) and U-Save Auto Rental of Am., Inc. v. Furlo, 2009 U.S. Dist. LEXIS 26341 (S.D. Miss. Mar. 31, 2009) both adopt the demand approach and collect the authorities.

“Manifest Disregard” After Hall Street. One would have thought that the Supreme Court’s decision in Hall Street Assocs. v. Mattel, Inc. , 128 S.Ct. 1396, 1403 (2008), precluded any argument that “manifest disregard of the law” remained a viable ground for vacating or modifying an arbitration award independent of the statutory grounds set forth in 9 U.S.C. § 10 and 11. That was the conclusion of the First and Fifth Circuits in Ramos-Santiago v. United Parcel Serv. , 524 F.3d 120, 124 n.3 (1st Cir. 2008), and Citigroup Global Mkts. Inc. v. Bacon, 2009 U.S. App. LEXIS 4543, at *24-25 (5th Cir. Mar. 9, 2009). The Sixth Circuit held that “manifest disregard” does survive Hall Street as an independent ground for vacatur of an arbitration award in Coffee Beanery, Ltd. v. WW, LLC, 300 F. App’x 415, 2008 U.S. App. LEXIS 23645 (6th Cir. Nov. 14, 2008) (unpublished). The Second and Ninth Circuits more or less agree with the Fifth, holding that “manifest disregard” maintains vitality only as shorthand for 9 U.S.C. § 10(a)(4) (which authorizes vacatur “where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made”). See Hall Street. Stolt-Nielsen SA v. AnimalFeeds Int'l Corp. , 548 F.3d 85, 93-95 (2d Cir. 2008); Comedy Club Inc. v. Improv West Assocs. , 553 F.3d 1277, 1290 (9th Cir. 2009).

Statutes of Limitations

Contractual Statutes of Limitations. It is common in agreements for the acquisition of businesses to provide that representations and warranties either do not survive the closing of the transaction or do so for only a limited period of time. The question in Western Filer Corp. v. Argan, Inc. , 540 F.3d 947 (9th Cir. 2008), was whether a provision that the representations and warranties “shall survive the Closing for a period of one year” constituted an implicit contractual statute of limitations reducing the longer state-law statute to a one-year period. Applying California law, the Ninth Circuit held that the provision did not clearly or explicitly shrink the statutory statute of limitations and, therefore, did not do so. In contrast, in State Street Bank & Trust Co. v. Denman Tire Corp. , 240 F.3d 83, 88 (1st Cir. 2001), the First Circuit, applying Illinois law, held that a contract providing that the representations and warranties “shall expire on the second (2nd) anniversary of the Closing” did constitute a contractual statute of limitations.

Class Actions: American Pipe Tolling. In Am. Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974), the Supreme Court held that the pendency of a class action suspends the statute of limitations for putative class members until class certification is denied. The Circuits are split as to whether American Pipe applies to an individual action filed before class certification is decided. The Second and Ninth Circuits agree that American Pipe tolling does benefit plaintiffs who file their actions before a decision on class certification. In re Hanford Nuclear Reservation Litig. , 534 F.3d 986, 1009 (2008); In re WorldCom Sec. Litig. , 496 F.3d 245, 256 (2d Cir. 2007). The Sixth Circuit, relying on the later-reversed District Court decision in WorldCom, came to the conclusion that the purposes of class action tolling under American Pipe “are not furthered when plaintiffs file independent actions before decision on the issue of class certification.” Wyser-Pratte Mgmt. Co., Inc. v. Telxon, 413 F.3d 553, 569 (6th Cir. 2005).

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Mr. Joseph, of Gregory P. Joseph Law Offices LLC, New York, is a fellow of the American College of Trial Lawyers and a former Chair of the Litigation Section of the American Bar Association. He may be reached at gjoseph@josephnyc.com. ©2009 Gregory P. Joseph

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