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Facts: Sun Capital Partners, Inc. ("Sun") is the parent company of JEVIC Transportation, Inc. ("JEVIC"), which filed for chapter 11 on May 20, 2008 after it closed its transportation facility in New Jersey. The day after JEVIC's filing, William Brown and a number of additional former employees (collectively, "Brown") sued JEVIC as a class action in an adversary proceeding alleging violations of New Jersey's WARN Act. Additionally, a week after JEVIC's bankruptcy, Brown filed a class action claim against JEVIC in New Jersey state court again alleging violations of the New Jersey WARN Act. On June 27, 2008, JEVIC, invoking general and bankruptcy removal statutes, removed the state court claim to the district court for the District of New Jersey. JEVIC also invoked the Class Action Fairness Act of 2005 ("CAFA") in removing the state court case. On July 2, 2008, the district court sua sponte remanded the matter to state court saying that because the stay was not lifted, the debtor could not remove the matter. The next day, on July 3, 2008, Sun (who was not in bankruptcy) invoked the general removal statute and CAFA and again removed the action to the district court. The district court again remanded the case saying "'when an action is initiated after the filing of a Chapter 11 petition, in violation of the accompanying stay, removal is not available.'" Sun then filed for leave to appeal, which was granted.
Issue: "Implicating the Class Action Fairness Act of 2005, we consider whether a defendant is precluded from removing a class action to federal court because a co-defendant is in bankruptcy."
Holding: Reversed and remanded. The remand was improper.
Rule: "Joinder is fraudulent where there is no reasonable basis in fact or colorable ground supporting the claim against the joined defendant, or no real intention in good faith to prosecute the action against the defendants or seek a joint judgment. Š The doctrine of fraudulent joinder represents an exception to the requirement that removal be predicated solely upon complete diversity."
Reasoning: Sun's removal was proper for two reasons: "(1) JEVIC was fraudulently joined as a party; and (2) JEVIC was never served with legal process, so its status as a defendant was of no effect and could not destroy federal jurisdiction." As for the first reason, when Brown filed suit against JEVIC in state court, he plainly violated § 362(a)(1) and, thus, Brown improperly joined JEVIC in the lawsuit. This improper joinder cannot preclude Sun from removing the matter. As for the second reason, JEVIC could not have been properly served with legal process because it was protected by the automatic stay. Thus, the court 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 court stated that its "decision has 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." The court went through each of Brown's arguments in support of the district court's decision and overruled each one.
Facts: Theodore and Deeann Labuzan (the "Labuzans") owned 99% of the limited and 100% of the general partnership interest in Contractor Technology, Ltd. ("CTL"), a construction company. St. Paul Fire & Marine Insurance Company ("St. Paul") provided payment and performance bonds for certain of CTL's projects; the Labuzans personally indemnified St. Paul in the event St. Paul paid claims under those bonds. On May 15, 2005, with several projects in the works, CTL filed for chapter 11 bankruptcy. St. Paul contacted a number of CTL's customers and informed the customers that CTL was in bankruptcy and that if a project owner made a payment to CTL that St. Paul was later required to pay under the bonds, St. Paul would reduce its liability to the project
©2010 Leif M. Clark
