Nocelli v. Kaiser Gypsum Company, Inc.

Background

Anna Nocelli and Guido Nocelli, both identified in the opinion as New York citizens, filed an asbestos-related personal-injury action in New York Supreme Court on November 29, 2016. The initial complaint asserted eleven causes of action and named defendants including Union Carbide Corporation, which was a New York citizen. The Nocellis alleged that they could not initially name Kaiser Gypsum Company, Inc. because Kaiser had filed for Chapter 11 bankruptcy protection, triggering an automatic bankruptcy stay.

After a bankruptcy-court order lifted the stay for certain asbestos-related claims, the Nocellis settled their claims against the initial defendants. The New York court marked the case “disposed” and “settled before trial,” but the parties did not file a formal stipulation discontinuing the action or obtain an order of discontinuance. On November 1, 2018, the Nocellis filed a Third Amended Complaint naming Kaiser. Kaiser was incorporated in North Carolina and had its principal place of business in California. After being served, Kaiser removed the action to federal court on March 1, 2019, asserting diversity jurisdiction.

Arguments

The Nocellis moved to remand, meaning they asked the federal court to send the case back to state court. They argued that removal violated the one-year limit in 28 U.S.C. § 1446(c)(1) and that complete diversity did not exist because Union Carbide had not been formally discontinued from the case.

Kaiser argued that the settlement had removed the nondiverse defendants from the case for purposes of diversity jurisdiction. It also argued that the Nocellis acted in bad faith by adding Kaiser only after settling with the nondiverse defendants, and that the bankruptcy stay tolled, or paused, the one-year removal period. Kaiser alternatively asserted that the federal court had bankruptcy jurisdiction.

Court’s Analysis

The court first held that it had diversity jurisdiction. It concluded that the settlement with the nondiverse defendants was sufficiently final for Kaiser to determine that those defendants were no longer true parties to the dispute. The New York court’s docket entries stating that the case was “disposed” and “settled before trial” were enough to show that complete diversity existed between the Nocellis and Kaiser. The court therefore rejected the Nocellis’ argument that a formal discontinuance was required before removal could be based on diversity jurisdiction.

The court nevertheless held that Kaiser’s removal was untimely. The action began on November 29, 2016, but Kaiser did not remove it until March 1, 2019—more than one year later. The court explained that the one-year limit has a narrow exception when a plaintiff acts in bad faith to prevent removal. Kaiser had the burden of proving that exception.

The court found that Kaiser did not meet that burden. It considered the Nocellis’ explanation—that the bankruptcy stay prevented them from naming Kaiser earlier and that Anna Nocelli’s health created an urgent reason to pursue the claims against the initial defendants—at least as plausible as Kaiser’s claim of strategic efforts to block removal. The court found no sufficient evidence of gamesmanship intended to prevent removal.

The court also held that the automatic bankruptcy stay did not toll the one-year removal period. In the court’s view, the stay prevents certain legal actions but does not stop the passage of time. The removal statute expressly created a bad-faith exception but did not create an exception for a defendant’s bankruptcy proceedings, so the court declined to add one.

Attorneys’ Fees and Disposition

The court found that Kaiser’s removal had an objectively reasonable legal basis, given limited appellate guidance about the bad-faith exception and the circumstances concerning the settled defendants. It therefore denied the Nocellis’ request for attorneys’ fees.

The court granted the Nocellis’ motion to remand, denied their request for attorneys’ fees, directed the Clerk to terminate the pending motions, and directed that the case be remanded to state court. The opinion states that the court did not need to decide whether Kaiser had waived its alternative bankruptcy-jurisdiction argument.