Most litigators know the general rule: a case cannot be removed based on diversity jurisdiction more than one year after it is filed. Because of that limitation, many defendants stop evaluating removal opportunities once the one-year deadline has passed.
A recent order from the United States District Court for the Western District of Texas serves as a reminder that the analysis does not always end there.
In Tafoya v. PHH Mortgage Corporation, No. SA-26-CA-02356-XR (W.D. Tex. June 3, 2026), Judge Xavier Rodriguez denied a motion to remand and held that the plaintiff acted in bad faith to avoid federal jurisdiction, allowing removal nearly five years after the lawsuit was originally filed.
The Bad-Faith Exception
Under 28 U.S.C. § 1446(c)(1), a diversity action generally may not be removed more than one year after commencement of the action. Congress, however, created an exception where "the district court finds that the plaintiff has acted in bad faith in order to prevent a defendant from removing the action."
Although the exception has existed for years, courts apply it sparingly, and defendants often face a significant burden in establishing that a plaintiff's conduct was intended to prevent removal.
What Happened?
The plaintiff originally alleged damages below the federal jurisdictional threshold, resulting in an earlier remand. After the case returned to state court, however, the plaintiff later removed that damages limitation while simultaneously failing to provide meaningful information regarding the amount of damages sought.
According to the court, the plaintiff did not provide substantive damages information for years despite her discovery obligations and supplemented her responses only after the defendants obtained a court order compelling disclosure. Shortly before trial, the plaintiff disclosed that she intended to seek damages up to the jurisdictional limits of the county court.
The defendants then removed the case a second time and argued that the plaintiff's conduct demonstrated bad faith sufficient to invoke the statutory exception.
The court agreed.
Judge Rodriguez found that the plaintiff's removal of the prior damages limitation after expiration of the one-year removal period, coupled with years of delayed damages disclosures, established "by a preponderance of the evidence" that the plaintiff acted in bad faith to avoid federal jurisdiction. The court therefore held that the one-year removal limitation did not apply and denied remand.
Why This Matters
The significance of the order extends beyond the specific facts of the case. The court's analysis provides a practical reminder that defendants should continue monitoring jurisdictional facts throughout the life of a lawsuit, even after the one-year removal deadline has passed.
The order also underscores the importance of damages discovery. Discovery requests, motions to compel, and other efforts to obtain information regarding the amount in controversy may later become critical evidence supporting application of the bad-faith exception.
Perhaps most importantly, the court evaluated the plaintiff's overall litigation conduct rather than focusing on a single event. The combination of amended damages allegations, delayed disclosures, and discovery disputes ultimately persuaded the court that the plaintiff had acted in bad faith to prevent removal.
Key Takeaways
- The one-year removal deadline is not absolute.
- Defendants should continue evaluating removability throughout the life of a case.
- Damages-related discovery can play a critical role in establishing bad faith under Section 1446(c)(1).
- A plaintiff's overall litigation conduct, not merely a single discovery dispute, may support application of the bad-faith exception.
While findings under Section 1446(c)(1) remain relatively uncommon, Tafoya demonstrates that courts remain willing to apply the bad-faith exception where the record shows an effort to prevent removal rather than merely litigate a case in state court. For financial institutions, mortgage servicers, insurers, and other corporate defendants, the order serves as a useful reminder that opportunities for removal may still exist long after the one-year deadline appears to have passed.