Brown v. Jevic, — F.3d —-, 2009 WL 2342731 (3rd Cir. (N.J.), Jul 31, 2009)(NO. 08-478).
In this appeal implicating CAFA, the Third Circuit reversed the district court’s order and held that a defendant, the parent company, was not precluded from removing a class action to federal court because a co-defendant, the subsidiary, was in bankruptcy.
Sun Capital Partners, Inc., is the parent company of JEVIC Transportation, Inc., which filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Delaware following the closure of its transportation facility in New Jersey. The day after JEVIC’s bankruptcy filing, several former JEVIC employees (“the plaintiffs”) filed an adversary proceeding in the Bankruptcy Court, which was styled as a class action and alleged violations of the Millvale Dallas Airmotive Plant Jobs Loss Notification Act (“New Jersey WARN Act”).
One week after the JEVIC bankruptcy filing and despite the automatic stay provided for in 11 U.S.C. § 362(a)(1), the plaintiffs filed a class action against JEVIC and Sun in the state court of New Jersey, also alleging violation of the New Jersey WARN Act, replicating their claim in Bankruptcy Court.
In derogation of the automatic stay of § 362(a)(1), JEVIC removed the case to the district court. The district court, sua sponte remanded the action to state court, stating that when an action is filed post-petition, in violation of the stay, the debtor must wait until the stay is lifted before filing a petition to remove.
The day after the district court remanded the case to state court; Sun — which was not in bankruptcy — removed the case to federal court, invoking the general removal statutes and CAFA. The district court, once again remanded the case to state court, stating that when an action was initiated after the filing of a Chapter 11 petition, in violation of the accompanying stay, removal was not available.
On Sun’s appeal, the Third Circuit observed that the plaintiffs suing JEVIC in state court just one week after JEVIC had filed for bankruptcy protection was plainly improper under the automatic stay.
The Third Circuit, however, found that because the plaintiffs improperly joined JEVIC in the action, that joinder could not prevent Sun from removing the action. In support of its findings, the Third Circuit relied on Wecker v. Nat’l Enameling & Stamping Co., 204 U.S. 176, 186 (1907), where the Supreme Court stated that “Federal courts should not sanction devices intended to prevent a removal to a Federal court where one has that right.” The Third Circuit, in In re Briscoe, 448 F.3d 201, 216 (3d Cir. 2006) has adhered to this principle in the context of fraudulent joinder used to defeat diversity jurisdiction. Thus, the Third Circuit concluded that to the extent JEVIC’s status as a debtor not subject to removal deprived Sun and the other defendants of a federal forum to which they were otherwise entitled, the plaintiffs’ joinder of JEVIC was fraudulent.
Second, the Third Circuit observed that the district court erred in remanding the case as JEVIC was not before the district court because it was never served with legal process. JEVIC could not have been served with legal process once it was protected by the automatic stay. The Third Circuit, citing 14C WRIGHT & ARTHUR MILLER, FEDERAL PRACTICE & PROCEDURE § 3731 (3d ed. 2008), held that a non-debtor defendant in a multi-defendant action may remove the case to federal court when a debtor defendant is not amenable to service of legal process. The Third Circuit also noted that Chilton Private Bank v. Norsec-Cook, Inc., 99 B.R. 402, 403 (N.D. Ill. 1989) and Consumers Distrib. Co. v. Tele-Save Merch. Co., 553 F. Supp. 974, 976 (D.N.J. 1982) have considered this issue and found that the presence of claims against a debtor defendant protected by the automatic stay does not preclude removal by a non-debtor defendant.
Finally, the Third Circuit noted that its decision had the salutary effect of preventing a plaintiff from inappropriately defeating federal jurisdiction by bringing a class action in state court and naming as a defendant a debtor in bankruptcy protected by the automatic stay. To hold otherwise would do violence to both the Bankruptcy Code and CAFA.
Next, the Third Circuit noted that 28 U.S.C. §§ 1441-52, does not categorically prohibit the filing of a second removal petition following remand. If subsequent pleadings or conduct by the parties or various other circumstances brings a case that was not previously removable within the removal jurisdiction of the federal courts, a second notice of removal is permissible. Further, to the plaintiffs argument that the district court’s initial remand order applied to the entire action–including Sun’s claims–because even under CAFA actions were removed not individual claims, the Third Circuit found that this principle was not dispositive here because JEVIC was never a proper party to the lawsuit as it was fraudulently joined and not amenable to service of process.