Dismissal Not Appealable Final Judgment When Stayed Litigation Still Pending Against Bankrupt Codefendant

22 July 2011 Second City Bench Memo Publication

A plaintiff seeking to appeal the dismissal of personal injury claims against a company was turned away by the Seventh Circuit on jurisdictional grounds where the plaintiff’s claims against an individual codefendant were still pending before the district court, though stayed by the automatic stay of section 362 of the Bankruptcy Code.

In short: The Seventh Circuit’s decision in Kimbrell v. Brown, ___ F.3d ___ (7th Cir. July 11, 2011) holds that a district court’s dismissal with prejudice of claims against one defendant does not constitute an appealable final judgment under 28 U.S.C. § 1291 where claims in the same matter remain pending against another defendant, even when such surviving claims are stayed by the automatic stay.

Lesson: Where one codefendant in a litigation is a debtor in a bankruptcy case and is protected by the automatic stay, a plaintiff will be unable to appeal a ruling in favor of the nondebtor defendant unless such ruling is certified as a final judgment under Federal Rule of Civil Procedure 54(b) by the district court.

Melvin Kimbrell was injured when the car in which he was riding was struck by a tractor-trailer driven by Kary Brown for Brown’s employer, Koetter Woodworking. Kimbrell brought personal injury claims against Brown and Koetter in Illinois state court, but did not serve process on the defendants until eight months after filing the case. The defendants removed the case to the United States District Court for the Southern District of Illinois based upon diversity jurisdiction. Brown informed the district court that he had filed for chapter 13 bankruptcy several months before Kimbrell filed his personal injury case. Due to Brown’s bankruptcy, the personal injury claims against him were stayed by the automatic stay of 11 U.S.C. § 362.

Koetter obtained a dismissal with prejudice of the claims against it based on the plaintiff’s lack of diligence in serving process under Illinois Supreme Court Rule 103(b). Kimbrell appealed this dismissal to the Seventh Circuit. Writing for a unanimous panel, Judge Sykes held that the district court’s dismissal of claims against one defendant did not constitute an appealable final judgment when in the same case the plaintiff’s claims against another defendant were automatically stayed under the Bankruptcy Code.

The court noted that the plaintiff could have, but failed to, request entry of a final judgment against Koetter under Federal Rule of Civil Procedure 54(b), which permits a district court to enter a final judgment on fewer than all of the pending claims in a case where there is no just reason for delay. The court also noted that the plaintiff could have voluntarily dismissed its claims against the bankrupt codefendant with prejudice, but was unwilling to do so. Here, however, the case against the bankrupt codefendant remained open, unfinished, and inconclusive in the district court, and there was no final judgment over which the Seventh Circuit could exercise jurisdiction.

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