Plaintiffs’ Motion to Remand Granted Due to Untimely Notice of Removal by Bankrupt Defendant

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NEW YORK – On Nov. 29, 2016, the plaintiffs, Anna and Guido Nocelli, both citizens of New York, filed an action in the Supreme Court of New York alleging 11 causes of action related to Anna Nocelli’s, alleged asbestos-related disease. The initial complaint named multiple defendants, including the Union Carbide Corp., that were citizens of New York. The plaintiffs allege they were legally barred from naming Kaiser Gypsum Company  as a defendant in the initial complaint because Kaiser filed for Chapter 11 bankruptcy protection in the bankruptcy court in the Western District of North Carolina two months before the plaintiffs filed the action, leading to an automatic bankruptcy stay pursuant to 11 U.S.C. Section 362. The plaintiffs allege that but for Kaiser’s pending bankruptcy action, the plaintiffs would have named Kaiser as an additional defendant from the outset of litigation.

On Aug. 9, 2018, the bankruptcy court issued an order lifting the automatic stay as to certain asbestos-related personal injury claims, the effective date of which was Oct. 29, 2018. In the interim, the plaintiffs engaged in settlement negotiations with the defendants named in the initial complaint. On Oct. 9, just before trial, the plaintiffs resolved their claims against the initial defendants and the Supreme Court of New York then marked the case disposed and settled before trial.

On Nov. 1, 2018, three days after the effective date of the order lifting the bankruptcy stay, the plaintiffs filed a third amended complaint in the Supreme Court of New York naming Kaiser. Kaiser was incorporated in North Carolina and maintains its principal place of business in California. On Jan. 31, 2019, the plaintiffs served Kaiser with the third amended complaint. On March 1, 2019, Kaiser removed the action to federal court on the grounds of diversity jurisdiction. On March 22, 2019, the plaintiffs filed the instant motion to remand.

The plaintiffs advanced two arguments:

  1. Removal was untimely under 28 U.S.C. Section 1446(c)(1) because Kaiser filed its notice of removal more than one year after the commencement of the action even though the plaintiffs did not act in bad faith to prevent Kaiser from removing the action
  2. Removal is improper under 28 U.S.C. Section 1441(b)(2) because complete diversity does not exist between the parties in interest

In response, Kaiser argued the following:

  1. The plaintiffs did act in bad faith to prevent removal by naming Kaiser as a defendant in their third amended complaint after settling their claims against all non-diverse defendants
  2. The bankruptcy stay tolled the one-year time limit under 28 U.S.C. Section 1446(c)(1)
  3. The court has diversity jurisdiction over the action because the plaintiffs have settled their claims with all non-diverse parties and that the court has bankruptcy jurisdiction

First, the court held that it does have diversity jurisdiction over the instant matter. The court further found that Kaiser’s notice of removal was untimely and that Kaiser has failed to establish that the plaintiffs acted in bad faith to prevent removal. Lastly, the court concluded that the automatic bankruptcy stay did not toll the one-year limit on removal. As such, the case was remanded back to state court.

Read the case decision here.