In what may be an instance of first impression for the court, the Eastern District of Louisiana upheld Mouledoux, Bland, Legrand & Brackett’s removal of a civil matter from the Louisiana state court when the only non-diverse defendant’s liability was discharged in individual bankruptcy.

During the pendency of the lawsuit in Louisiana state court, a non-diverse individual defendant filed for voluntary bankruptcy pursuant to Chapter 7 of the Bankruptcy Code. A few months later, the Bankruptcy Court issued an Order of Discharge granting the individual non-diverse defendant’s discharge under 11 U.S.C. § 727. That discharge included any liability the non-diverse defendant may have had in the underlying civil matter.

MBLB’s client removed the matter to the United States District Court for the Eastern District of Louisiana arguing the non-diverse defendant’s discharge made that defendant nominal for purposes of diversity jurisdiction and his citizenship should not be considered for purposes of establishing the district court’s subject matter jurisdiction. This left only diverse defendants as viable parties to the litigation.

The plaintiff filed a Motion to Remand the matter to state court arguing the non-diverse defendant’s bankruptcy was not a voluntary act by the plaintiff, as meant by the Fifth Circuit’s ‘voluntary-involuntary rule,’ and as a result the removal was improper. The removing defendant argued in Reply that the improper joinder exception to the ‘voluntary-involuntary rule’ applied, as the plaintiff could no longer establish a cause of action against the non-diverse defendant in state court due to the bankruptcy discharge.

The district court agreed with MBLB’s argument and denied the plaintiff’s Motion to Remand. The district court found it had subject matter jurisdiction over the matter because the non-diverse defendant’s discharge rendered him a nominal party, not a real party in interest. The district court adopted the removing party’s argument, finding that at the time of removal, the non-diverse defendant was fraudulently joined because no cause of action against the non-diverse defendant could be established. This was because Louisiana’s modified direct-action statute allows a plaintiff to proceed directly against an insolvent defendant’s insurer under La. R.S. § 22:126(B)(1)(a)-(b), without the need to obtain a personal judgment against the insured first. Therefore, the insolvent insured is not a necessary party and his presence nominal. Because the remaining defendants’ citizenships were diverse from the plaintiff’s, and the amount in controversy exceeded the jurisdictional threshold, the district court found removal was proper under 28 U.S.C. § 1441.

The Trial Court’s ruling can be found at Habeney v. RPM Pizza Greater New Orleans, LLC, 2026 WL 1129555 (E.D.La. 4/27/26).