A Nonparty’s Bankruptcy Isn’t Providing Ground for Removal to Federal Court

Courts are not taking kindly to the notion of “related to” jurisdiction based on the bankruptcy of a nonparty.

District judges in Baltimore and Philadelphia handed down decisions this week remanding lawsuits to the state courts from whence they came. Tangential connections to bankruptcies are not persuading judges to allow the removal of big-ticket lawsuits from state courts to federal district courts.

The City of Baltimore sued 26 multinational oil and gas companies for contributing to greenhouse gas emissions and global warming. Entirely based on state law, Baltimore sought damages for rising sea levels on the Maryland coast, among other things.

Chevron Corp. and an affiliate removed the suit to district court, asserting eight grounds for federal jurisdiction. One ground for removal was based on 28 U.S.C. § 1452, which permits removal if the district court has jurisdiction under 28 U.S.C. § 1334. In turn, Section 1334 grants original but not exclusive jurisdiction to “civil proceedings . . . related to a case under title 11.”

In a June 10 opinion, District Judge Ellen Lipton Hollander found no “related to” jurisdiction and remanded the suit to state court.

Chevron said it is the successor to Texaco, which confirmed a chapter 11 plan more than 30 years ago. The oil company argued that some of Baltimore’s claims were discharged in the Texaco plan. Chevron also contended that the Baltimore suit was related to the bankruptcy of coal producer Peabody Energy.

Judge Hollander explained that “related to” jurisdiction exists after confirmation only when there is a “close nexus” to the plan, affecting “an integral aspect of the bankruptcy process.”

According to Judge Hollander, the oil company had not explained how there was a “close nexus” between a recently filed lawsuit and a plan confirmed more than 30 years ago. “At most,” she said, “[the oil company has] only established that some day a question might arise as to whether a previous bankruptcy discharge precludes the enforcement of a portion of the judgment in this case.” [Emphasis in original.]

“This remote connection,” Judge Hollander said, did not give rise to “related to” jurisdiction.”

Because she concluded that none of the seven other grounds for federal jurisdiction held water, Judge Hollander remanded the suit to state court.

Remands are similarly occurring in scores of lawsuits against Johnson & Johnson where plaintiffs contend they contracted ovarian cancer from using talcum powder allegedly containing asbestos. J&J removed suits en masse to federal court, based on “related to” jurisdiction arising from the chapter 11 filing by Imerys Talc America Inc. Imerys had supplied the raw material that J&J used in its talcum powder.

J&J argues there is an effect on the bankruptcy in light of contractual indemnifications going both ways between J&J and Imerys. J&J also argued for “related to” jurisdiction because both companies share the same insurance policies.

Like many other judges, District Judge Mark A. Kearney remanded the suit to state court in his June 11 opinion. He said that J&J had not carried its burden of establishing federal jurisdiction “over these exclusively state law claims.”

The mere filing of the lawsuit in state court did not automatically trigger Imerys’s duty to indemnify, Judge Kearney said.

Applying the “conceivable effect” test for “related to” jurisdiction, Judge Kearney quoted the Third Circuit for the proposition that the lawsuit in state court was “‘a mere precursor to the potential third party claim for indemnification’” because there was “‘no automatic creation of liability.’” Pacor Inc. v. Higgins, 743 F.2d. 984, 995 (3d Cir. 1984).

Even if there were bankruptcy jurisdiction, Judge Kearney said he would exercise discretion to remand the suit to state court since the plaintiff was alleging only state law claims, and a trial was scheduled to begin in seven months.

The opinions are Mayor and City Council of Baltimore v. BP PLC, 18-2357 (D. Md. June 10, 2019); and Kleiner v. Rite Aid Corp., 19-1700 (E.D. Pa. June 11, 2019).