As most practitioners know, the difference between litigating in federal and state court may impact everything from the mode of expert discovery and the availability of certain types of interim relief, to the geographic area from which the jury pool is drawn and the amount of damages ultimately awarded. Where a federal forum is desirable, a defendant may transfer (“remove”) a case filed in state court to federal court, pursuant to federal statute. Defendants weighing the removal option should add a new factor to their calculus—the growing willingness of New York federal district courts, the Western District in particular, to award costs and attorneys’ fees to plaintiffs who defeat a removal petition.

Removal is available when a defendant can demonstrate that federal subject-matter jurisdiction exists at the time of removal. See 28 U.S.C. § 1441. Generally, federal subject-matter jurisdiction exists if (1) the state-court complaint presents a question of federal law, or (2) the parties are “diverse”—i.e., they are citizens of different states. If the defendant can establish either basis for subject-matter jurisdiction, and follows the removal statute’s procedural predicates, it may remove the case to federal court.

Establishing subject-matter jurisdiction can be particularly difficult for a defendant seeking to remove. Rarely do plaintiffs file in state court and expressly allege a claim arising under federal law. Instead, as the master of the complaint, plaintiffs may disguise what is, in essence, a federal claim, as one arising under a more favorable state or common-law standard. Early in litigation, usually on the basis of a single pleading, it may be difficult for a defendant to show that the complaint presents a federal question, and a district court may choose to remand the matter back to state court, a decision that is not reviewable by a federal court of appeals, see 28 U.S.C. § 1447(d).

For a defendant, being wrong about whether the case is removable means a remand from the federal district court back to state court. Being very wrong can be costly. Under 28 U.S.C. § 1447(c), a district court’s remand order may “require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal.” Such an order is appropriate where the defendant’s basis for removal was objectively unreasonable. See Martin v. Franklin Capital Corp., 546 U.S. 132, 136 (2005). The district court determines the objective reasonableness (or unreasonableness) of a defendant’s decision to remove based on the circumstances that existed at the time of removal. See Williams v. Int’l Gun-A-Rama, 416 F. App’x 97, 99 (2d Cir. 2011).

Courts have found it “objectively unreasonable” for a defendant to remove a case when the defendant knew, or should have known, that one of the procedural predicates to removal had not been met, but filed a removal petition anyway. For example, a suit against multiple defendants may be removed only if all served defendants consent. See, e.g., Bradford v. Harding, 284 F.2d 307, 309 (2d Cir. 1960). Where a defendant knows of other defendants who had been served in the matter but either did not, or could not, obtain their consent to the removal petition, then that defendant’s removal was objectively unreasonable and an award of costs may be properly assessed against it.

The Western District has consistently shown a willingness to order remand awards against removing defendants who failed to comply with the procedural requirements of removal. See, e.g., Zanghi v. Laborers’ Int’l Union of N. Am., No. 00-CV-0242E(F), 2000 WL 743986, at *1 (W.D.N.Y. June 6, 2000) (imposing remand award against defendants who failed to secure consent of all served co-defendants); Ecology & Env’t, Inc. v. Automated Compliance Sys., Inc., No. 00-CV-0887, 2001 WL 1117160, at *6 (W.D.N.Y Sept. 4, 2001) (granting plaintiff’s remand motion and awarding it costs and reasonable attorneys’ fees where defendants’ notice of removal was untimely). Hence the need to strictly comply with the procedural predicates of removal.

Even where the defendant follows the procedural rules, a district court’s remand order may still award the plaintiff fees and costs if the defendant’s substantive legal basis for asserting federal subject-matter jurisdiction (i.e., the existence of federal-question or diversity jurisdiction) was objectively unreasonable. This evaluation requires that a district court assess the defendant’s rationale for removal, in instances where the district court has already found such jurisdiction to be lacking. While a defendant may not have met its burden of establishing federal subject-matter jurisdiction in its removal petition, unless that petition clearly lacked a basis in law, a court will usually deny a request for a remand award.

The Western District, however, has shown an increasing readiness to issue remand awards against removing defendants even on substantive legal grounds. For example, in HealthNow New York, Inc. v. Meridian Technologies, Inc., No. 11-CV-00483(S)(M), 2011 WL 7459188 (W.D.N.Y. Sept. 29, 2011), Meridian removed to federal court on the basis of diversity jurisdiction, alleging in part that the plaintiff HealthNow had fraudulently joined a non-diverse party so as to defeat diversity jurisdiction. In denying Meridian’s removal petition, the Western District reviewed the operative pleadings and related affidavits and found that, contrary to Meridian’s assertions, HealthNow had properly alleged a basis for liability against the non-diverse party in its amended complaint. In awarding HealthNow reasonable costs and attorneys’ fees incurred in connection with its remand motion, the Western District held that Meridian lacked a “colorable or objectively reasonable basis” to allege, in its removal petition, that the non-diverse party did not have any responsibility in the underlying dispute, and was, therefore, fraudulently joined, where HealthNow’s amended complaint articulated a basis for the non-diverse party’s liability. See id. at *5. Similarly, in Williams v. Beemiller, Inc., No. 05-CV-836S, 2009 WL 1812819, at *9 (W.D.N.Y. June 25, 2009), the Western District issued a remand award against a removing defendant after finding that it was objectively unreasonable for the defendant to rely, as the basis for its removal petition, on a legal exception that was accepted in other circuits but had not yet been endorsed by the Second Circuit. See id. Accordingly, defendants contemplating removal should be extremely diligent in the expression and description of the legal bases for their removal petition, and ensure that those bases are consistent with precedent from the Second Circuit, as well as with statements made in their prior pleadings.

Although a federal district court’s decision to remand a case to state court is not itself appealable, see 28 U.S.C. § 1447(d), a court of appeals may review the district court’s issuance of a § 1447(c) remand award. For example, in Williams v. International Gun-A-Rama discussed above, the Second Circuit reversed the district court’s remand award, holding that the removing defendant was not objectively unreasonable in relying on the legal exception as a basis for removal, as “there was no binding precedent to guide the instant removing defendants at the time of removal.” 416 F. App’x at 99. Thus, while the costs of an appeal will likely outweigh the value of the remand award, the right to such an appeal is nonetheless a powerful weapon in a defendant’s limited post-remand arsenal. Defendants considering removal, especially to the Western District, would do well to include in their analysis the prospect of paying a plaintiff’s costs, expenses and reasonable attorneys’ fees should the removal petition prove unsuccessful, as district courts have shown an increased willingness to issue remand awards in recent years.