Commercial Litigation and Arbitration

Third-Party Defendants and Removal — Realignment of Parties — Right of Third-Party Defendant to Remove

In Huntsman Corp. v. Int’l Risk Ins. Co., 2008 U.S. Dist. LEXIS 74397 (S.D. Tex. Sept. 26, 2008), Plaintiff Huntsman sued Defendant IRI for insurance coverage in state court. IRI in turn sued its reinsurers in a third-party complaint. The reinsurers/third-party defendants removed the case to federal court. Judge Lee H. Rosenthal’s analysis:

[Generally, No Removal by Third-Party Defendant.] Huntsman is correct that in general, "[a] third party defendant cannot remove a case to federal court on the basis of diversity jurisdiction."

[May Third-Party Defendant Ask Court to Realign Parties to Make It a Defendant (Who Can Then Remove)?] Courts have expressed doubt as to whether realignment may be used to allow a third-party defendant to remove. ***After reviewing the cited authorities and conducting an independent search for relevant case law, this court concludes that while there is authority supporting both the proposition that realignment may be used to satisfy diversity jurisdiction in removed actions and the proposition that realignment is not appropriate when diversity was not present when the action was removed, the trend in this circuit disapproves of using realignment after removal to cure a defect in removal jurisdiction. *** In addition, the cases disapprove of using realignment to allow a third-party defendant to remove on diversity grounds. *** The Reinsurers in this case could not remove based on diversity jurisdiction because they are third-party defendants. The Reinsurers could become "defendants" able to remove under section 1441(a) and diversity jurisdiction could be created only if this court realigned IRIC as a plaintiff and the Reinsurers as defendants. Using realignment both to avoid the statutory limit on the parties able to remove and the jurisdictional limit on removal is a far cry from resolving all doubts against removal. *** The recent case law disapproving of realigning parties to supply removal jurisdiction and to enable third-party defendants to remove is persuasive and weighs against extending such uses of realignment to this case, in which third-party defendants seek realignment to bring themselves within the scope of section 1441(a) and to create diversity jurisdiction.

[Removal under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (9 U.S.C. § 201 et seq.) v. Removal under 28 U.S.C. § 1441(c).] Huntsman asserts that removal under the Convention is limited to defendants. ***The Reinsurers did not remove under the Convention's removal procedure. Rather, they removed under section 1441(c) on the basis that the third-party petition contains separate and independent claims that are within federal-question jurisdiction under the Convention. *** Because IRIC's claims against the Reinsurers are separate and independent from Huntsman's claims, the entire action is removable under section 1441(c) if IRIC's claims against the Reinsurers are within federal-question jurisdiction. See 28 U.S.C. § 1441(c). The asserted basis for the federal-question jurisdiction is the Convention. The Reinsurers contend that the relevant portions of the Convention are contained in 9 U.S.C. §§ 203 and 205. [The Court agreed.]

[Waiver of Right to Remove via Follow-Form Reinsurance Policies.] Huntsman also argues that the Reinsurers waived their right to remove by agreeing to follow the terms of the Huntsman-IRIC Policy, which Huntsman alleges gives Huntsman the right to litigate claims against IRIC in a court of Huntsman's choosing. ***The Reinsurers did not waive their right to removal by executing the Reinsurance Certificates. The Reinsurers are not parties to the Huntsman-IRIC Policy. Although the Reinsurers agreed through the Reinsurance Certificates to follow the terms of the Huntsman-IRIC Policy, the Huntsman-IRIC Policy specifies only that in disputes under that Policy, at the request of Huntsman, IRIC will submit to the jurisdiction of any court of competent jurisdiction within the United States and will not transfer, change venue, or remove, or seek to transfer, change venue, or remove any lawsuit filed by Huntsman. *** Although the Reinsurers agreed to follow the terms of the Huntsman-IRIC Policy, removal by the Reinsurers of third-party claims made by IRIC against the Reinsurers is not inconsistent with the requirement in the Huntsman-IRIC Policy that IRIC will submit to the jurisdiction of Huntsman's choosing and that IRIC will not remove a case filed by Huntsman. ***IRIC may have agreed to waive its right to remove by the language in the Huntsman-IRIC Policy, but the Reinsurers did not expressly waive the right to remove. The fact that the Reinsurers agreed to be bound by the terms and conditions of the Huntsman-IRIC Policy did not expressly waive their right to remove because the Huntsman-IRIC Policy only specified that IRIC would not remove a lawsuit filed by Huntsman.

Motion to remand denied.

Share this article:


Recent Posts