Bankruptcy Status of Louisiana Defendant Does Not Provide Grounds For Removal United States District Court, Eastern District of Louisiana, July 26, 2018

LOUISIANA — The plaintiff filed suit against multiple defendants alleging that he contracted mesothelioma as a result of exposure to asbestos products at various worksites from 1960-1979. The plaintiff initially filed suit against 20 defendants in the Civil District Court for the Parish of Orleans. On July 23, 2018 Defendants Union Carbide Corporation and Bayer CropScience, Inc. filed a notice of removal, stating that the plaintiff had settled with all remaining parties and alleging that complete diversity existed. Concurrently, the plaintiffs filed a motion to remand, arguing that a nondiverse defendant, Reilly-Benton Company, Inc., still remained in the case.

Reilly-Benton filed for bankruptcy after the plaintiff filed suit, “meaning all claims asserted against Reilly-Benton are subject to an automatic stay.” Reilly-Benton is a Louisiana citizen. The defendants argued that Reilly-Benton’s citizenship should be disregarded for three reasons: The plaintiff voluntarily discontinued his claim against Reilly-Benton by electing to proceed to trial only against Union Carbide and Anchem; Reilly-Benton would be a nominal defendant and its citizenship would be disregarded for the purposes of diversity jurisdiction; and Reilly-Benton was improperly joined and there is no reasonable possibility that the plaintiff could recover against Reilly-Benton at trial.

The court rejected all three arguments, stating that “removing defendants attempt to ignore the fact that Reilly-Benton is in bankruptcy and that pre-bankruptcy petition claims against Reilly-Benton, such as the instant suit, are barred under automatic stay, with resulting penalties and punitive damages.” The plaintiff’s case against Reilly-Benton was not discontinued nor abandoned due to any voluntary act of the plaintiff, but rather stayed due to bankruptcy. The presence of Reilly-Benton, a citizen of Louisiana, destroys complete diversity.

The court remanded the case back to state court. 

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