Virginia Lawyers Weekly

In a practice that seems counterintuitive, some plaintiffs’ lawyers are staying out of federal court by demanding far less money than they think their cases actually are worth.

The technique has been used when a plaintiff’s lawyer needs to sue an out-of-state defendant in a case with major damages, such as serious injury or death. Using federal “removal” rules to their advantage, lawyers often file a lawsuit in a Virginia state court asking for damages of just less than $75,000 – right below the minimum “amount in controversy” necessary to allow the out-of-state defendant to remove the case to federal court. The lawyer then seeks to increase the initial demand after a year has passed, when it’s too late for removal under the federal rules.

Some judges take a dim view of the practice, with one federal judge accusing a lawyer of “bad faith” in trying to “manipulate the system.” Nevertheless, the Supreme Court of Virginia appeared to countenance the tactic in an opinion last year.

It’s a technique with extra incentive in Virginia, lawyers say, because Virginia law discourages judges from dismissing civil cases before trial, in sharp contrast to federal practice. In the federal courts, defendants can use discovery depositions and affidavits to move for summary judgment prior to trial.

Virginia law also favors the practice because plaintiffs are required to state the amount of their demand in a lawsuit, and courts are encouraged to allow increases in the demand prior to trial.

The value to plaintiffs of staying in state court is illustrated by a recent $5 million verdict for an injured shipyard worker.

Virginia Beach lawyer William D. Breit filed suit against a German ship owner on behalf of longshoreman Sherman Whitaker in Portsmouth Circuit Court in 2004. He demanded only $74,000, even though Whitaker, with two ruptured disks, claimed more than $100,000 in past and future medical expenses and more than $500,000 in past and future lost wages.

The ship owner’s lawyers removed the case to federal court, but later agreed to have the case sent back to Portsmouth Circuit Court because they had waited too long to remove after getting information about the claimed medical expenses and lost wages.

In circuit court, Breit twice moved to increase his demand, but Judge James A. Cales Jr. denied the motions, saying the original demand was made “in bad faith” with the intention of “evading federal jurisdiction.” The ship owner, Cales ruled, was prejudiced by Breit’s maneuver. The judge entered judgment for $74,000, the original demand.

On appeal, however, the Supreme Court of Virginia appeared to brush aside any suggestion of bad faith. The defendant’s delay in removal – not the ad damnum strategy of the plaintiff – was what kept the defendant from its preferred venue in federal court, according to the court. Denying Breit’s motion to increase his demand was an abuse of discretion, the court held. The court remanded the case for a trial limited to the issue of damages. The case is Whitaker v. Heinrich Schepers GMBH & Co. KG, VLW 008-6-066.

At trial last month, Breit asked the jury for $10 million. On May 29, after three days of evidence, the Portsmouth jury returned a $5 million verdict for Whitaker.

The low-ball demand maneuver to avoid removal caught the attention of one former Virginia lawyer – now a law professor – who recently wrote a law review article on the tactic. Michael W. Lewis, who teaches law at the Ohio Northern University law school, said he saw numerous plaintiff’s shops in the Hampton Roads area use the ploy “routinely” when he practiced in the region.

Breit, he said, was one of the regulars. “Clearly, he has the playbook and has used it more than once, and obviously successfully.”

Breit agrees he’s an old hand at evading removal. “I’ve been in and out of this a zillion times,” although he acknowledged he has not filed any more “low ball” cases since he got on the bad side of U.S. District Judge Henry Coke Morgan in a 2004 case. “I don’t want to run afoul of the federal court,” he said.

In that case, Breit’s tactic earned a rebuke from the judge, who refused to remand the case after the defendant removed it to federal court. Breit candidly acknowledged at a hearing that he intended to later amend his suit to demand more than $75,000.

According to the court’s opinion, Breit also refused to admit or stipulate that the amount in controversy did not exceed $75,000.

Nevertheless, Breit sought remand based on the lack of any hard evidence that his case was worth more than $75,000. “Judge Morgan was not having any of it,” commented Johan Conrod, one of the lawyers for the defendant.

“Plaintiff’s attempt to manipulate the system constitutes bad faith by plaintiff’s counsel and will not be tolerated by this court,” the judge wrote in Schwenk v. Cobra Mfg. Co. (VLW 004-3-166).

Morgan’s rebuke failed to dissuade other lawyers, however, and a recent decision from a Richmond federal court makes it clear the removal-avoidance maneuver is not always met with disfavor.

In Gross v. Wal-Mart Stores East, LP (VLW 009-3-030), the slip-and-fall plaintiff sued Wal-Mart in Petersburg Circuit Court ostensibly seeking $74,900. In discovery, the plaintiff claimed nearly $64,000 in medical bills and stated that his condition was permanent. Pointing to those big-dollar damages, the Wal-Mart removed the case to federal court.

Despite the evidence that suggested a claim well in excess of the jurisdictional minimum, U.S. District Judge Henry E. Hudson agreed with plaintiff’s counsel Charles H. Cuthbert Jr. to send the case back to Petersburg. “Defendant has produced no evidence proving that the alleged damages are more than $75,000,” Hudson wrote.

Cuthbert defends the practice of low balling the initial demand to try to stay in state court. “There is certainly no bad faith involved,” he said. “I don’t see anything bad faith about it.”

Cuthbert notes the wide use of the maneuver is driven by the marked difference between state and federal civil practice, especially in the Eastern District where local rules mandate fast dockets. “One of the factors that’s truly at play here is the relaxed rules of procedure and discovery in the state court system,” he said. “It’s a more leisurely approach to letting you explore and do discovery in state court,”

The federal rules, he said, mean there is almost no opportunity to develop new information before trial if your case lands in federal court. “If you’ve got a case that requires any kind of discovery, you’re not going to get it done,” he said.

Cuthbert points to the Gross case as an example. His client slipped on water at the defendant’s store, he said, but the nature of the case could change when he finds out where that water came from. That information could lead to more discovery and possibly additional parties. “Federal court does not give the plaintiff that option, that ability,” Cuthbert said.

Defendants prefer federal court because they have a chance of knocking a case out of court before trial if liability is questionable. “You have a shot at it in federal court where typically you don’t in state court,” said Richmond lawyer Stanley P. Wellman, president of the Virginia Association of Defense Attorneys.

Defense lawyers explain that a summary judgment motion – asking the court to dismiss a case before trial – is often based on deposition testimony or affidavits. Those methods generally are not available in state courts under Virginia law.

The technique of evading removal depends to a large extent on a defendant’s lack of vigilance, Breit said. He notes that, under the case law, almost any written document indicating a value over $75,000 is sufficient to support removal. The defendant, however, has only 30 days under federal law to remove the case.

In Whitaker, for instance, the removal action foundered because the defense had waited well past 30 days after getting interrogatory answers showing large special damages.

In other cases, a “settlement letter” asserting damages of $75,000 was deemed sufficient to keep a case in federal court (Rodgers v. Northwestern Mutual Life Ins. Co., VLW 097-3-043) but an oral statement by plaintiff’s counsel declining to settle for $50,000 was not explicit enough for federal jurisdiction (Williams v. Garden Ride Mgmt. Inc., VLW 004-3-216).

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