Class Action Filed in State Court Against Defendant and Co-Defendant Debtor in Bankruptcy Removable to Federal Court under CAFA (Class Action Fairness Act) because Co-Defendant Sued in Violation of Automatic Stay and because Co-Defendant’s Bankruptcy does not Preclude Defendant from Removing Class Action to Federal Court Third Circuit Holds
Plaintiffs filed a putative class action against JEVIC Transportation and its parent company, Sun Capital Partners, alleging labor law violations; specifically, the class action complaint alleged that defendants violated New Jersey’s WARN Act which, “[l]ike its federal counterpart, …requires advance notice of a plant closing under certain circumstances.” Brown v. JEVIC, 575 F.3d 322, 325 (3d Cir. 2009). JEVIC had filed for bankruptcy protection, and the class action was filed as an adversary proceeding in the United States Bankruptcy Court, id. One week later, and despite the automatic stay afforded by the bankruptcy proceeding, plaintiffs filed a class action in New Jersey state court against JEVIC and Sun Capital Partners. Id. Defense attorneys for JEVIC removed the state court class action to federal court under the Class Action Fairness Act (CAFA); the district court remanded the class action sua sponte on the grounds that the automatic stay precluded the debtor’s petition for removal. Id. Defense attorneys for Sun Capital then removed the state court class action to federal court under CAFA; the district court again remanded the class action, ruling that “[w]hen an action is initiated after the filing of a Chapter 11 petition, in violation of the accompanying stay, removal is not available.” Id., at 325-26. The Third Circuit granted Sun Capital’s petition for leave to appeal the remand order, id., at 326. The Circuit Court explained at page 325, “In this appeal 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. We hold that it is not.”
The Third Circuit began its analysis by noting that Sun Capital bore the “heavy burden” of establishing federal court jurisdiction. Brown, at 326 (citation omitted). Central to the Circuit Court’s analysis was the fact that Sun Capital was not in bankruptcy, so the district court’s reliance “on cases dealing with debtor defendants who attempted to remove actions” were inapplicable. Id. Also central to its analysis was the fact that the state court class action against JEVIC was improper because it was filed in knowing violation of the automatic stay, so plaintiffs had “improperly joined JEVIC in the [state court class action], [and] that joinder cannot prevent Sun from removing the action.” Id. In essence, plaintiffs fraudulently joined JEVIC in the state court class action. Id., at 326-27. The Third Circuit summarized its holding at page 327: “In sum, because [plaintiffs] had no reasonable basis to believe that JEVIC was amenable to suit, we hold that JEVIC was a fraudulently joined party and its status as a Defendant could not be used to defeat otherwise proper federal jurisdiction.” (The Third Circuit also held that the district court erred in remanding the class action to state court because JEVIC had never been served with legal process and therefore was not properly before the district court. See id., at 327. We do not here analyze that aspect of the Circuit Court’s opinion.) Accordingly, the Circuit Court reversed the district court order remanding the class action to state court, id., at 329.
NOTE: The Third Circuit observed at page 327, “Finally, we note that our 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.”