Co-Defendant’s Bankruptcy Filing Did Not Result In A “Certain and Final Dismissal” For Purposes Of Removal Under Diversity Jurisdiction

The plaintiff and his wife commenced this action in Louisiana state court, alleging that his mesothelioma was caused by his exposure to several asbestos-containing products, including products supplied by various Louisiana companies. At the time of commencement, diversity jurisdiction did not exist and the action was therefore not removable to federal court. Several defendants settled, leaving defendants Foster Wheeler and Eagle as the only remaining defendants.  oster Wheeler is a diverse company for purposes of removal, Eagle is not. Eagle filed for bankruptcy during the pendency of the action, resulting in an automatic stay of all actions against the company. With the action stayed against Eagle, Foster Wheeler filed a Notice of Removal alleging that the federal courts have subject matter jurisdiction based upon diversity of citizenship.

The plaintiff moved to remand, arguing that complete diversity must exist when the suit is initially filed in state court for it to be removable. Foster Wheeler argued that the action became removable when it received notice that the last Louisiana company other than Eagle had settled and that Eagle became a “nominal” party upon the filing of the company’s bankruptcy petition because no court can render a judgment against Eagle after the bankruptcy court automatically stayed all actions against the company. The court granted the plaintiff’s motion, remanding the case to state court on the grounds that removal is only proper if the bankruptcy court stays all actions against the non-diverse party before the plaintiff files suit, which did not occur in this case. The court held that “because plaintiffs did not voluntarily dismiss Eagle, its citizenship is still relevant for determining whether diversity jurisdiction exists.  The presence of Eagle, a citizen of Louisiana, in the lawsuit at its inception and at the time of removal destroys complete diversity.”

Read the full decision here.