In the recent decision in Smith v. Detroit Entertainment, LLC, Slip Copy, 2013 WL 119673 (E.D.Mich. Jan. 9, 2013), the federal court in the Eastern District of Michigan highlighted a growing circuit split over removal statutes - and contributed to the split by leading the Sixth Circuit into the fray. At issue in this action by an employee for unpaid wages was whether the removal statute, 28 U.S.C. § 1441, would permit the employer to to remove a case to federal court from a state administrative agency, as opposed to a state court. This was a question of first impression in the Sixth Circuit.
As the court notes, however, several circuits have already split over this question. The First and Seventh Circuits have adopted a "functional" test, looking at "1) the functions, powers, and procedures of the state tribunal and ... 2) the respective state and federal interests in the subject matter and in the provision of a forum.” See Floeter v. C.W. Transport, Inc., 597 F.2d 1100, 1101-02 (7th Cir.1979). "A federal court should assume jurisdiction only if the agency functions as a court and federal interests predominate over state interests." Id. (The Floeter court allowed removal because the state administrative proceedings were "essentially judicial").
In contrast, the Ninth and Tenth Circuits have rejected the functional approach and have adopted a literal approach to the statute instead, which the court in this case (the Eastern District of Michigan) follows as well, arguing that that this approach is more faithful to the text of the federal removal statute. The court thus remanded the case to the Michigan Administrative Hearing System.
A problem with the literal approach, which the court acknowledged, is that it allows plaintiffs to pre-empt, perhaps for the strategic purposes, a federal claim by filing in a state administrative office first - the federal case will not proceed until the administrative proceedings are complete. The court in Detroit Entertainment suggested that Congress should resolve this problem rather than the courts.