This wrongful death case requires us to determine whether a case becomes removable from a Texas state court under our diversity jurisdiction once the plaintiffs and the nondiverse defendant negotiate a settlement. Applying Texas law, we hold that it does not become removable and that the district court should have remanded this case to state court because, although the nondiverse defendant and the plaintiffs may have negotiated an agreement to settle, the settlement had not become irrevocable under Texas law. Absent such an irrevocable settlement, the nondiverse defendant remained a party to the case. As a consequence, complete diversity of citizenship was lacking at the time of removal and the district court was without subject matter jurisdiction. Accordingly, we vacate the judgment of the district court and remand with instructions to remand this case to the state court.

* This case arises from the death of Efren Vasquez. Vasquez, a truck driver, was killed on March 26, 1986, on the premises of Alto Bonito Gravel Plant Corporation ("Alto Bonito"); he had been using their front-end loader to load his truck with gravel and sand when the loader ran over him, crushing his chest. The loader was manufactured by Caterpillar, Inc. ("Caterpillar"). Invoking Texas's wrongful death statute, Vasquez's estate, widow, adult children, minor child, and parents (collectively, the "Vasquezes") sued Alto Bonito and Caterpillar in Texas state court. By leave of court, Alto Bonito filed a third-party indemnity complaint against Caterpillar.

On April 15, 1988, exactly a year from the date the suit was filed, and ten days before trial, Caterpillar filed a notice of removal pursuant to 28 U.S.C. Sec. 1446(b). This statute permits a diverse defendant to file a notice of removal "within thirty days after receipt by the defendant ... of a copy of an amended pleading, motion, order, or other paper from which it may first be ascertained that the case is one which is or has become removable." Pointing to responses it had received twenty-five days earlier to interrogatories propounded to fellow defendant Alto Bonito, Caterpillar stated in its notice of removal that all of the Vasquezes' claims against Alto Bonito "had been settled."1 As a result of the settlement, Caterpillar asserted, it was the sole remaining defendant, and, furthermore, because it is diverse from the Vasquezes and the amount in controversy exceeds the jurisdictional threshold, it was entitled under Sec. 1446(b) to remove the case to federal court under our diversity jurisdiction.

The Vasquezes moved to remand the case to state court, asserting that the district court was without jurisdiction because both they and Alto Bonito are citizens of Texas. They stated that "there is still a bona fide dispute with" Alto Bonito "despite a partial settlement agreement between the defendants and the plaintiffs." In a supplemental motion, the Vasquezes stated that "there has been no settlement of any claims between the plaintiffs and defendant Alto Bonito."

After a hearing on the Vasquezes' motion to remand, the district court authorized thirty days of discovery to determine whether there was a settlement. Then, after discovery was complete, the court denied the motion to remand and entered an order stating that "[s]everal facts, in combination, lead the Court to believe that Plaintiffs had settled with Alto Bonito." In support of that determination, the court referred specifically to statements by Alto Bonito's counsel that he believed there was a settlement, and that he had discontinued activity in this case without objection or comment by the Vasquezes. In addition, the court referred to Alto Bonito's earlier answers to the interrogatories "stat[ing] that Plaintiffs had settled their lawsuit with Alto Bonito"; and the Vasquezes' failure to "contest or object to th[ese] answer[s] until after Caterpillar filed its petition for removal and Plaintiffs apparently realized the effect of the settlement agreement on this court's jurisdiction." (Emphasis by the district court). Finally, the court stated, "Plaintiffs have been inconsistent in first alleging there was a partial settlement and later alleging that there was no settlement," and that "[t]his inconsistency impeaches Plaintiffs' evidence and argument." As a consequence, the district court found, "Plaintiffs finally and voluntarily settled their lawsuit with Alto Bonito."

Alto Bonito later obtained stipulated dismissals from all of the Vasquezes except Vasquez's widow and minor child. The district court then granted Alto Bonito's motion that was captioned "Motion for Summary Judgment, Motion to enforce Settlement Agreement or in the Alternative, Motion for Equitable Relief" as to all the Vasquezes, including the widow and minor child. The court never ruled on Alto Bonito's cross-claim against Caterpillar, however, or formally dismissed it from the suit. The remainder of the suit was tried to a jury in August 1992, which returned a take-nothing verdict.2 This appeal followed.

The issue in this case is whether the district court erred when it ruled that this case was properly removable under diversity jurisdiction. The question is simply whether, at the time of removal, the plaintiffs effectively "ha[d] taken the resident defendant out of the case, so as to leave a controversy wholly between the plaintiff[s] and the nonresident defendant." American Car & Foundry Co. v. Kettelhake, 236 U.S. 311, 316, 35 S. Ct. 355, 356, 59 L. Ed. 594 (1915).3

* As an initial matter, Caterpillar differs with both Alto Bonito and the Vasquezes over the applicable standard of review. Caterpillar urges that, because the district court's denial of the Vasquezes' motion to remand rested upon certain findings of fact, we are bound to affirm the district court's decision absent clear error. Our cases flatly reject Caterpillar's position, however: "Because removal is an issue of statutory construction, we review a district court's determination of the propriety of removal de novo." Leffall v. Dallas Ind. Sch. Dist., 28 F.3d 521, 524 (5th Cir.1994). We impose upon the removing defendant--here, Caterpillar--the burden of establishing the existence of subject matter jurisdiction. Jernigan v. Ashland Oil Co., 989 F.2d 812, 815 (5th Cir.), cert. denied, --- U.S. ----, 114 S. Ct. 192, 126 L. Ed. 2d 150 (1993). Accordingly, unless Caterpillar can show that at the time it filed its notice of removal, Alto Bonito effectively was no longer a party to the suit and the only controversy remaining was wholly between it and the Vasquezes, we must conclude that the district court erred in denying the Vasquezes' motion to remand, and vacate its judgment.

Passing to the merits, Caterpillar concedes that, but for the settlement between Alto Bonito and the Vasquezes, this case would not be removable. Although the record is not transparently clear on this point, we will assume that the Vasquezes and Alto Bonito had negotiated some sort of settlement agreement.4

(1)

To the extent that the parties so urge, we reject the proposition that federal law determines when a state court settlement agreement is final for purposes of determining removal jurisdiction. Although the core inquiry--whether federal subject matter jurisdiction exists--is quintessentially an issue of federal law, we look to state law to determine whether the nondiverse defendant is no longer effectively a party to the case. E.g., Weems, 380 F.2d at 548 (reasoning that the dismissal via directed verdict of the nonresident defendant did not finally eliminate him from the case because the dismissal was appealable in the state courts). To the extent that Caterpillar argues that Texas law on settlements is irrelevant and a case becomes removable upon any voluntary act by the plaintiff that is evidence of an intent to abandon its lawsuit against the nondiverse defendant, we reject its position. Similarly, we reject the Vasquezes' argument that, as a matter of federal law, a formal and final dismissal under state law is required; instead, it is clear that a case may be removed based on any voluntary act of the plaintiff that effectively eliminates the nondiverse defendant from the case. Id. at 547. In this case, plainly, the question whether the settlement agreement has effectively removed Alto Bonito from the case requires us to examine the enforceability of the settlement agreement, which is governed by Texas law. Valley Ranch Dev. Co. v. F.D.I.C., 960 F.2d 550, 553 (5th Cir.1992).

(2)

For at least two independent reasons, it is very clear to us that Caterpillar has failed to demonstrate that the case was removable when it filed its notice of removal. First, the purported agreement does not comply with the minimum requirements set forth in the Texas court rule that governs the enforceability of settlement agreements. In general, Texas courts will refuse to enforce settlement agreements unless they are (1) in writing, signed, and made part of the record; or (2) made in open court and entered of record. Tex.R.Civ.P. 11; Kennedy v. Hyde, 682 S.W.2d 525, 528-29 (Tex.1984). Neither of these requirements had been satisfied at the time Caterpillar filed its notice of removal; we cannot conclude, therefore, that a Texas court would enforce the agreement and dismiss Alto Bonito as a party.

Second, it is well-settled that in Texas, a party to a settlement agreement may unilaterally revoke it until such time as the court has rendered judgment on the agreement. Quintero v. Jim Walter Homes, Inc., 654 S.W.2d 442, 444 (Tex.1983). In a decision rendered after this case was submitted, the Texas Supreme Court confirmed that this rule applies literally, holding that a party could revoke a settlement agreement even after it was approved by a Texas court because the court had not actually rendered judgment on the agreement. S & A Restaurant Corp. v. Leal, 892 S.W.2d 855, 857 (Tex.1995). A Texas state court renders judgment by officially announcing its decision in open court or filing a written order with the clerk. Id. In this case, the state court had done neither when Caterpillar filed its notice of removal.5 As a consequence, at the time of removal, either the Vasquezes or Alto Bonito could have revoked the settlement agreement and proceeded to trial. Clearly, the agreement did not effectively remove Alto Bonito from the case; consequently, diversity of citizenship was lacking at the time Caterpillar filed its notice of removal.6

Caterpillar conceded at oral argument that if either party had revoked its consent to the agreement before Caterpillar filed its notice of removal, the case would not have been removable. Caterpillar argues, however, that this case was removable because neither party in fact had revoked the agreement. We cannot accept Caterpillar's argument. Whatever agreement existed between the Vasquezes and Alto Bonito was inchoate in the sense that the agreement was not legally binding and either party could have unilaterally revoked the agreement and proceeded to litigate its respective claims. In short, there was simply no agreement between the parties and on the record that had the effect of actually removing Alto Bonito as a party from the case. The controversy thus was not "wholly between the plaintiffs and the nonresident defendant," Kettelhake, and consequently not removable.

Finally, we should note that we are unpersuaded by Caterpillar's argument that this case presents a situation in which the Vasquezes should be estopped from opposing the purported settlement. E.g., Dehnert v. Dehnert, 705 S.W.2d 849 (Tex.App.--Beaumont 1986, no writ) (holding that, although the parties did not sign the settlement agreement, as Rule 11 requires, it "certainly complie[d] with the intent and spirit of Rule 11" and, furthermore, a party who took advantage of the agreement by receiving some property under it would be estopped from denouncing it). We have previously recognized the narrowness of this equitable exception to Texas's Rule 11, Valley Ranch, 960 F.2d at 553 n. 1, and this case does not fit within that exception. Moreover, to the extent we might harbor some doubt about the equities in this case, we are required to resolve those doubts in favor of nonremoval. B., Inc. v. Miller Brewing Co., 663 F.2d 545, 548 (5th Cir.1981).

(3)

For the foregoing reasons, we find that the settlement agreement was not enforceable, and that, as a consequence, Alto Bonito remained in the suit. This case was not removable, therefore, when Caterpillar filed its notice of removal. Accordingly, the district court erred when it denied the Vasquezes' motion to remand.

We hold that a case that was not originally removable under our diversity jurisdiction because of the presence of a nondiverse defendant may be removed only after it is clear under applicable state law that the nondiverse defendant has been taken out of the case, leaving a controversy wholly between the plaintiff and the diverse defendant. In this case, because there was no irrevocable settlement agreement, Alto Bonito remained a party to this case; complete diversity was therefore lacking and the district court was without subject matter jurisdiction over this case. Accordingly, the judgment of the district court is VACATED and this case is REMANDED to the district court with instructions to remand the case to the 229th District Court of Starr County, Texas.

VACATED and REMANDED.