Sander L. Esserman, in His Official Capacity as Future Claims Representative v. Bestwall LLC, et al.

Under 28 U.S.C. § 1359, a federal court “shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court.” The Fourth Circuit below held that a sophisticated corporation could create federal subject-matter jurisdiction by reshuffling its organization and entering into contracts with a specially formed affiliate that then filed bankruptcy, all with the goal of obtaining a nationwide preliminary injunction to shield the company, itself a non-debtor, from litigation. The dissent would have rejected these transactions as a basis for federal jurisdiction. The Fourth Circuit further held that a debtor in bankruptcy need not make a clear showing of a likelihood of success on the merits to obtain a preliminary injunction. Instead, an injunction was appropriate if the debtor’s reorganization was a “realistic possibility.” The Bankruptcy Court itself said this was “not intended to be a particularly high standard.” This Petition thus presents two important questions: First, may a sophisticated corporate defendant use an organizational reshuffling to devise bankruptcy jurisdiction for a nationwide preliminary injunction halting litigation against it? Second, may a bankruptcy court issue that injunction without applying the standard that an Article III court would be required to apply outside of bankruptcy?