Opinion
No. C 02-3936 MJJ
October 23, 2002
ORDER GRANTING PLAINTIFF'S MOTION TO REMAND
Presently before the Court are Plaintiff's Motion to Remand, Defendant's Motion to Transfer Venue; Defendant's Motion to Realign or Disregard Insurance Company Defendants; and Plaintiffs Motion to Dismiss. For the reasons discussed below, Plaintiff's Motion to Remand is GRANTED, and the rest of the motions are thereby rendered MOOT.
FACTUAL BACKGROUND
In 1989, the Environmental Protection Agency's named Foss Maritime Company Potentially Responsible Party ("PRP") for environmental damage at the Middle Waterway Superfund site in Washington State. Prior to this event, plaintiff continental Insurance Company and the various insurance company defendants had issued insurance and supplemental insurance policies to defendant Foss Maritime. Soon after being named a PRP, Foss sued the insurance companies for coverage of its defense costs in the EPA action. The insurance companies entered into a joint defense agreement in their case against Foss, and after two years of litigation, Foss and the various companies entered into a settlement agreement. In the present case, Continental seeks a declaratory judgement that it is not liable for costs of defending Foss against the EPA. In the event that Continental is found liable for some of these costs, it seeks contribution from two of the defendants, Royal Insurance and Aetna Casualty and Surety, alleging that they failed to pay their equitable share of the defense.
The case was filed in California state court in San Francisco on July 31, 2002, and was removed to this Court on the basis of diversity on August 14, 2002. Since the case has come into federal court, defendant Foss has filed counterclaims against Continental and cross-claims against the insurance company defendants, continental has filed a motion for remand, Foss has filed a motion to transfer venue and a motion to realign or disregard the insurance company defendants, and continental has filed a motion to dismiss Foss's counterclaim. All of the above motions are presently before the Court.
LEGAL STANDARD
A suit filed in state court can be removed to federal court if the federal court would have had original subject matter jurisdiction over the suit. 28 U.S.C. § 1441(a). A motion to remand the suit to state court is the proper procedure for challenging removal, and will succeed upon a showing that the federal court lacks subject matter jurisdiction. However, the removal statute is strictly construed against removal jurisdiction. Boggs v. Lewis, 863 F.2d 662, 663 (9th Cir. 1988). For this reason, removal is rejected if there is any doubt as to the right of removal in the first instance. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). This strong presumption against removal jurisdiction means that the defendant always has the burden of establishing that removal is proper. Id.
Federal courts have subject matter jurisdiction over suits between citizens of different states where the matter in controversy exceeds the sum or value of $75,000. 28 U.S.C. § 1332(a). "Section 1332 requires complete diversity of citizenship; each of the plaintiffs must be a citizen of a different state than each of the defendants." Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001). Suits meeting this diversity requirement can therefore be removed to federal court.
28 U.S.C. § 1446(a) requires a defendant seeking removal to file a notice of removal, containing a short and plain statement of the grounds for removal, together with a copy of all process, pleadings, and orders served on the defendant. This notice must be filed within thirty (30) days of receipt of a copy of the initial pleading. 28 U.S.C. § 1446(b) Section 1446 requires that all proper defendants to the action must join in the removal or consent to it. Prize Frize, Inc. v. Matrix, Inc., 167 F.3d 1261, 1266 (9th Cir. 1999).
ANALYSIS
In its motion to remand, plaintiff contests the procedural adequacy of defendant Foss's removal. Specifically, plaintiff argues that Foss's failure to join all defendants in its Notice of Removal is a fatal defect. Continental's Motion for Remand at 2:19 (citing Prize Frize, 167 F.3d at 1266). Plaintiff cites the rule that when all proper defendants are not joined or fail to consent, the removing party has the burden to explain the absence of any co-defendants in the notice of removal. See Motion to Remand at 2:20-21 ("[A] notice of removal must affirmatively allege that a nonjoining defendant either has not been served, or that another exception applies.") (citing Prize Frize, 167 F.3d at 1266).
Defendant Foss opposes the motion to remand the case on four fronts: the non-joinder of the other defendants is explained by the fact that they were not served prior to removal; the other defendants were not joined because they are nominal defendants and should be realigned as plaintiffs; the other defendants were not joined in the removal because they have been fraudulently joined to the lawsuit; and continental has waived its right to remand by filing a motion to dismiss. Foss's Opposition to Motion to Remand ("Opp. Remand") at 2:22-28.
The relevant dates pertaining to the motion to remand are presented as follows. Plaintiff filed its Complaint for Declaratory Relief in San Francisco Superior Court on July 31, 2002. Defendant Foss filed a notice of removal on August 14, 2002, alleging diversity jurisdiction under 28 U.S.C. § 1441(b). In the August 14 notice, Foss failed to join any other defendants, explaining their absence by describing them as "nominal defendants," and arguing that they should be realigned as plaintiffs in the action. Notice of Removal of Action ("Removal Notice") at ¶¶ 10; 7. On September 11, 2002, plaintiff filed a Motion to Remand, arguing that the failure to join other defendants in the notice of removal is a fatal defect. On September 16, 2002, Foss filed an Amended Notice of Removal, stating that the other defendants had not been served with the complaint prior to the August 14, 2002 notice. Amended Notice of Removal at ¶ 4. As indicated in the Summons and Proofs of Service that plaintiffs counsel attached to a September 23, 2002 letter to the clerk of the Court service was effected upon the following defendants on the following dates: Foss Maritime Company: August 2, 2002; Aetna Casualty and Surety: August 27, 2002; Royal Insurance Company of America: August 26, 2002; Insurance Company of the State of Pennsylvania: August 26, 2002; Granite State Insurance Company: August 26, 2002; and New Hampshire Insurance Company: August 26, 2002.
1) Failure to Serve Non-Joined Defendants Prior to Removal
The date defendant filed the amended notice of remand and the dates defendants other than Foss were served are important because the amended notice provides an additional explanation for lack of joinder to the removal petition of those defendants. Since Prize Frize requires an explanation for non-joinder of all defendants, Foss seeks to augment the explanation that the other defendants are nominal, and need not be joined, with an argument that the other defendants had not been served prior to removal, and need not be joined. See Downs v. Monetary Management of California, Inc., 2000 WL 335949 *3 (N.D. Cal. 2000) ("Those named as defendants but not yet served in the state court action need not join in the notice of removal.") (citing Salveson v. Western States Bankcard Association, 731 F.2d 1423, 1429 (9th Cir. 1984)). A key issue, however, is whether the Court can even consider an untimely notice of removal.
Plaintiffs Reply in Support of Motion to Remand ("Reply") argues that the amended notice of removal was filed more than thirty (30) days after the first defendant was served, and for this reason, the Court should not consider it. See Reply at 3. The Court agrees with plaintiff that the September 16, 2002 filing was more than 30 days after defendant Foss was served (August 2, 2002), and that the weight of authority prevents allegations of new grounds for removal in such an untimely amended notice. See O'Halloran v. University of Washington, 856 F.2d 1375, 1381 (9th Cir. 1988); see also Arco Environmental Remediation, L. L. C. v. Department of Health and Environmental Quality of the State of Montana, 213 F.3d 1108, 1117 (9th Cir. 2000) (quoting 28 U.S.C. § 1653). Circumstances are limited in which a petition may be amended, even when new grounds for removal are not alleged. Amendment is permitted "to correct allegations of jurisdictional facts," or "to correct a defective allegation of jurisdiction." Arco, 213 F.3d at 1117. For example, amendment has been permitted when diversity was raised as the basis for removal, but the correct dates of residence were not alleged in the removal petition. See Kacludis v. GTE Sprint Communications Corp., 806 F. Supp. 866, 869 (N.D.Cal. 1992).
[D]efects in form of a removal petition are amendable at any time, not just within the original 30-day period for removal. This is especially true where, as here, the requisite jurisdictional allegations are not omitted entirely, but rather are merely defective in form.Id. (citing Barrow Development Co. v. Fulton Ins. Co., 418 F.2d 316, 317 (9th Cir. 1969). Permitting amendment is within the discretion of the Court, and this Court can refuse to allow such amendment, even before the thirty day window has closed. See Clifton v. Cytodyne Technologies, Inc., 2002 WL 31056634 (N.D.Cal. April 16, 2002) (case removed on April 16, 2002, order disallowing amendment of notice and remanding case entered May 15, 2002).
The exercise of discretion to permit amendment of removal notices, especially after the statutory 30-day deadline has passed, must be considered in light of the strong presumption against removal. See Gaus v. Miles, 980 F.2d at 566 (citing Boggs v. Lewis, 863 F.2d at 663). "Federal jurisdiction must be rejected if there is any as to the right of removal in the first instance." Id. (citing Libhart v. Santa Monica Dairy Co., 592 F.2d 1062, 1064 (9th Cir. 1979)). "Doubt arising from inartful, ambiguous, or technically defective pleadings should be resolved in favor of remand." Charlin v. Allstate Insurance Co., 19 F. Supp.2d 1137, 1140 (C.D. Cal. 1998) (citation omitted).
Considering the presumption against removal, the prohibition on alleging new grounds for removal in untimely removal petitions, and the narrow circumstances in which amended removal notices may be entertained, the Court declines to exercise its discretion and consider the explanation for not joining defendants contained in the amended notice of removal.
2) Non-Joined Defendants as Nominal Defendants — Need for Realignment
Defendant Foss argues that nominal defendants need not be joined to a removal petition, citing Emrich v. Touche Ross Co., 846 F.2d 1190, 1193, n. 1 ("Ordinarily, under 28 U.S.C. § 1446(a), all defendants in a state action must join in the petition for removal, except for nominal, unknown, or fraudulently joined parties."). In the notice of removal, Foss states that the Court must realign the parties in the lawsuit according to the issue of whether insurance coverage exists. Removal Notice at ¶ 7. This will result in all the defendants other than Foss becoming plaintiffs in the action. Id. For this reason, Foss labels the insurance companies as "nominal defendants only," and asserts that there is no need to obtain joinder of other defendants in this removal " Id. at ¶ 10.
The argument for realignment is contained in Foss' Motion to Realign or Disregard Insurance Company Defendants ("Motion to Realign"). Summarizing the motion to realign, Foss contends that the dispute is only between Foss and the insurance carriers over Foss's right to insurance coverage, and not a division of liability between continental and the other defendants. Motion to Realign at 9:25-28. "Both the pleadings and the practicalities of the case make it obvious that the primary dispute in this action is not one between the carriers to divide their shares of responsibility to Foss." Id. In determining the proper alignment of the parties for jurisdictional purposes, defendant Foss directs the Court to Continental Airlines, Inc. v. Goodyear Tire and Rubber Co., 819 F.2d 1519, 1523 (9th Cir. 1987). While the court in continental did indeed realign the parties, it described strict requirements not met in the present case, and the facts of continental are readily distinguishable from the facts currently before the Court. "If the interests of a party named as a defendant coincide with those of the plaintiff in relation to the purpose of the lawsuit, the named defendant must be realigned as a plaintiff for jurisdictional purposes." Id. (quoting Dolch v. United Cal. Bank, 702 F.2d 178, 181 (9th Cir. 1983) (emphasis added)). "Thus both manufacturers had an identical interest in proving the validity and scope of MDC's exculpatory clause." Id. (emphasis added). In Continental, one supposedly adverse party submitted briefs in support of the other's summary judgment motion; two parties were represented by the same counsel on appeal; and one party disclaimed further interest in the litigation. See id. at 1523-24.
There is not the same type of collusive activity that was dispositive in continental in the present case, nor is there a coincidence or identity of interest The complaint filed by plaintiff explicitly states a cause of action for equitable contribution against defendants Royal Insurance and Aetna Casualty, claiming that these companies have not paid their share of whatever payments toward Foss's defense are owed to Foss. Motion to Remand, Ex. A at ¶ 26. Since continental is demanding money from Royal and Aetna in the event continental is found liable for Foss's defense costs, it is difficult to see how Royal, Aetna, and Continental's interests "coincide," or are "identical." See continental, 819 F.2d at 1523. Royal itself denies that its interests are identical with plaintiffs. In its Opposition to Foss's Motion to Realign or Disregard Insurance Company Defendants ("Royal Opp."), Royal states the following: "Although Royal may share some common issues with continental, Royal's interests do not "coincide' with continental's interests, which is the standard in Continental Airlines, Inc. v. Goodyear Tire and Rubber." Id. at 2:1-3 (emphasis original).
The issues in this action include Royal's indemnity obligation for the cleanup of the Middle Waterway site. This issue is not identical to the indemnity issue for Continental's policies, since all of Royal's policies cover property damage occurring after the last of Continental's primary policies, and the facts relevant to indemnity coverage under Royal's policies are therefore not identical to the facts relevant to Continental's coverage.
Id. at 2:14-18 (emphasis original). Thus, the facts of the present case illustrate that there is not an identity of interest between plaintiff and defendant Royal, and this defendant, at least, should not be realigned with continental as a plaintiff. Therefore, Royal's status as a "nominal defendant" is not supported by the need to realign it, and defendant Foss's failure to join Royal in the removal action must be explained in another way.
3) Non-Joined Defendants as Nominal Defendants — Fraudulent Joinder
Foss attempts to describe the insurance company defendants as "sham" defendants that have been fraudulently joined to the lawsuit. Since fraudulently joined defendants need not be considered for the purpose of diversity, there is no obligation to join such a defendant in a removal action. United Computer Systems, Inc. v. ATT Corp., 298 F.3d 756, 762 (9th Cir. July 22, 2002). However, the standard for establishing that a defendant has been fraudulently joined is rather high. "Put another way, it must appear to a "near certainty' that joinder of [defendant] was fraudulent." Bennet v. Allstate Insurance Company, 753 F. Supp. 299, 302 (N.D. Cal. 1990) (citing Lewis v. Time, Inc., 83 F.R.D. 455, 466 (E.D. Cal. 1979)). In attempting to establish fraudulent joinder, the defendant seeking to remove a case must be given the opportunity to demonstrate that a party "joined in the action cannot be liable on any theory." Ritchey v. Upjohn Drug Company, 139 F.3d 1313, 1318 (9th. Cir. 1998). In finding a sham defendant, it should be "readily apparent" that the defendant was fraudulently joined. See United Computer v. ATT, 298 F.3d at 762. Joinder is fraudulent, and defendant's presence in the lawsuit is ignored for purposes of determining diversity; "[i]f the plaintiff fails to state a cause of action against a resident defendant, and the failure is obvious according to the settled rules of the state." McCabe v. General Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987).
The burden of persuasion placed upon those claiming that a defendant has been fraudulently joined is a heavy one. B., Inc. v. Miller Brewing Co., 663 F.2d 545, 549 (5th Cir. 1981). The court must resolve all disputed questions of fact in favor of the non-removing party. Archuleta v. American Airlines, Inc., 2000 WL 656808, *4 (C.D. Cal. 2000). While the defendant seeking removal to federal court is entitled to present the facts showing the joinder to be fraudulent, McCabe, 811 F.2d at 1139, merely showing that an action is likely to be dismissed as against the purported "sham" defendant does not demonstrate fraudulent joinder. Diaz v. Allstate Insurance Group, 185 F.R.D. 581, 586 (C.D. Cal. 1998). The standard is not whether plaintiffs will actually or even probably prevail on the merits, but whether there is any possibility that they may do so. Lieberman v. Meshkin, Mazandarani, 1996 WL 732506, *3 (N.D. Cal. 1996).
In the Motion to Realign, Foss focuses upon the fact that in plaintiff's complaint, only defendant Foss is named in the first cause of action, and only defendants Royal and Aetna are named in the second. Motion to Realign at 11. Consideration of the complaint itself reveals that plaintiff seeks a declaratory judgment that continental's policies do not provide coverage to Foss for defense of the Government Claims, and that plaintiff seeks contribution from Royal and Aetna. Motion to Remand, Ex. A at ¶¶ 24; 26. Thus, there may be some merit to Foss's assertion that there is no claim stated against the other insurance companies. However, defendant still must deal with the plaintiffs claim against Royal and Aetna.
In arguing that no claim is stated against the latter two defendants, Foss points to various "defense agreements" signed by the insurance companies involved in the present suit. Basically, Foss argues that the present suit is a breach of those agreements, and that these agreements serve as an express bar to any suits such as the present case. Motion to Realign at 11-12. This argument attacks the claim against Royal and Aetna on the merits; it does not demonstrate the type of "near certainty" that there cannot be liability on any claim; it is not "readily apparent" that Royal and Aetna have been fraudulently joined. See Bennet, 753 F. Supp. at 302; Ritchey, 139 F.3d at 1318; United Computer, 298 F.3d at 762.
It is clear from the face of the complaint, and from Defendant Royal s opposition to the motion to realign that under California law, that there is at least a colorable claim by plaintiff against Royal and Aetna. When two or more insurers provide coverage for the same risk, and for which they are both liable in the event of a loss, each can obtain equitable contribution from the other. Fireman's Fund Insurance Co. v. Maryland Casualty Co., 65 Cal.App.4th 1279, 1289 (1998). One insurer may sue co-insurers for contribution of their proportionate share of a paid claim. Gulf Insurance Co. v. TIG Insurance Co., Cal.App.4th 422, 430 (2001). Because a viable claim has been pled against Royal and Aetna, Foss cannot maintain that they have been fraudulently joined to the lawsuit.
Since it has been established that at least one of the additional defendants not joined by Foss to the removal notice is more than a "nominal" defendant, Foss's explanation for failing to join them is invalid. Thus, the failure to join all the defendants is unexplained, and the removal notice is defective.
Where fewer than all the defendants have joined in a removal action, the removing party has the burden under section 1446(a) to explain affirmatively the absence of any co-defendants in the notice for removal. *** Accordingly, because the removal notice is defective and the deficiencies uncured within the thirty-day statutory period, removal was improper.Prize Frize v. Matrix, 167 F.3d at 1266. The same result obtains here, as the removal notice is similarly defective, and removal is equally improper.
4) Waiver of Right to Seek Remand
Defendant Foss raises a final challenge to plaintiffs motion to remand, arguing that plaintiffs motion to dismiss Foss's counterclaim constitutes a request for affirmative relief from the Court and thus, a waiver of the right to seek remand. Opp. Remand at 6. The only cases cited by Foss are distinguishable from the present case. In both Riggs v. Plaid Pantries, 2001 U.S. Dist. LEXIS 14658 *5 (D.Or. 2001), andKoehnen v. Herald Fire Insurance Co., 89 F.3d 525, 528 (8th Cir. 1996), the motion for remand was filed after other requests for relief, such as motions for default judgment or to leave to file an amended complaint. In this case, however, continental filed a motion to dismiss Foss's counterclaim on September 17, 2002, six days after the motion to remand was filed. In fact, the motion to remand was the first pleading filed with this Court by plaintiff.
In addition, the cases cited by plaintiff that found waiver are definitely in the minority. Cases in this circuit have found a failure to waive the right to remand even when no motion to remand was filed. See Harper v. San Diego Transit Corp., 764 F.2d 663 (9th Cir. 1985) (stating that when plaintiff failed to file motion for remand, inclusion of a charged of improper removal in a opposition to a motion to dismiss is enough for a court to consider the issue on appeal); Jackson v. Southern California Gas Co., 881 F.2d 638 (9th Cir. 1989) (holding that failure to file motion to remand does not constitute waiver when the issue is raised in response to a motion to dismiss and in oral argument); Karambelas v. Hughes Aircraft Co., 992 F.2d 971 (9th Cir. 1993) (finding that objections to removal are properly brought up in an opposition to a motion to dismiss). Also, it is a court's duty to question subject matter jurisdiction, and it is not limited to pleadings themselves. See TPS Utilicom Services, Inc. v. ATT Corp., 2002 WL 2004979 *2, n. 2 (C.D. Cal. August 21, 2002); see also Northern Illinois Gas Co. v. Airco Industrial Gases, 676 F.2d 270 (7th Cir. 1982). Even if waiver did take place, and it did not in this case, it is within the Court's power to question the propriety of removal on its own.
Thus, filing a motion to dismiss did not waive plaintiffs right to file a motion to remand, and the motion to remand is still viable. As discussed below, the motion is not only viable, but the improper removal by defendant Foss leads the Court to GRANT the motion to remand.
CONCLUSION
Because defendant Foss's notice of removal failed to join all proper defendants, or explain why they have not been joined, the notice was inadequate, and the removal to federal court was improper. For this reason, the Motion to Remand is GRANTED, and the case is hereby remanded to state court. With this ruling, the following Motions are rendered MOOT: defendant's motion to transfer venue; defendant's motion to realign or disregard insurance company defendants; and plaintiffs motion to dismiss.