Pryor Cashman attorneys Todd E. Soloway and Joshua D. Bernstein recently achieved a significant victory on behalf of clients Gator Stony Point LLC (“Gator”) and Stuart Goldsmith (“Goldsmith”) in a case of first impression concerning the propriety of the removal of a multi-defendant state court action to federal court where service upon an in-state defendant is not complete at the time of removal.

The Stop & Shop Supermarket Company, LLC (“Stop & Shop”) brought an action in New York State Supreme Court, Rockland County, seeking a declaration that its lease with Pryor Cashman’s clients had terminated. Concerned about the potential “home field” advantage Stop & Shop might have in state court, Gator, a Florida limited liability company, removed the case to the U.S. District Court for the Southern District of New York on the basis that there was complete diversity of citizenship between the parties.

Stop & Shop immediately moved to remand the case back to the state court, arguing that the removal was improper because the other defendant, Goldsmith, who it alleged to be a New York citizen, could not and did not join in the removal petition. In its motion, Stop & Shop relied on the general rule that in a case where a Federal Court only has jurisdiction based upon diversity of citizenship, all defendants “properly joined and served” must both (1) consent to the removal of the action to Federal Court and (2) not be citizens of the forum state. The only exception to these rules, known, respectively, as the “Rule of Unanimity” and the “Forum Defendant Rule” is where a defendant has not been “properly joined and served” at the time of removal.  

Stop & Shop argued that the exception to those rules was inapplicable because it served Goldsmith the day before the removal petition was filed pursuant to the CPLR provision authorizing “leave and mail service.”

In opposition, Pryor Cashman argued that although service of process upon Goldsmith began on the day before Gator filed the removal petition, as a matter of state law, service upon Goldsmith was not complete until well after the case had been removed. Specifically, Pryor Cashman argued that because Stop & Shop served Goldsmith by leaving a copy of the Summons and Complaint with his doorman and then mailing a copy to his last known address, pursuant to CPLR 308(2) service upon Goldsmith was not complete until Stop & Shop filed an affidavit of service, which it did not do until ten days after Gator removed the case. Accordingly, Pryor Cashman argued that Goldsmith had not been “properly joined and served” at the time Gator filed the removal petition and, therefore, the Rule of Unanimity and the Forum Defendant Rule were inapplicable.

In one of the first decisions to address the effect of “leave and mail” service on the removal of a diversity case since the U.S Supreme Court’s decision in Murphy Bros., Inc. v. Michetti Pipe Stringing, Inc. clarified that courts must look to state law to determine the propriety of the timing of removal, U.S. District Judge Kenneth M. Karas of the Southern District of New York agreed with Pryor Cashman’s argument.

Recognizing that “[t]he law is unsettled as to whether federal jurisdiction is affected by New York’s requirement that proof of service be filed, and ten days pass, before service is ‘complete,’” Judge Karas in his March 31, 2011 decision held that “Gator’s removal satisfies the exception to both the rule of unanimity and the forum-defendant rule, as Goldsmith, at the time the Notice was filed, had not yet been properly served under New York law.”  Judge Karas therefore denied Stop & Shop’s motion to remand in its entirety.

To read the March 31, 2011 decision of Judge Karas, please click here.