Opinion
No. CIV. S-05-2486 LKK/JFM.
February 6, 2006
ORDER
Plaintiff Mammoth Hardware Lumber (owned by Ms. Nowell) filed suit in state court against defendants Ace Hardware, Ace employee Lee Dickman and 100 Does. The complaint alleges six causes of action under California law. The first cause of action is against Dickman, Ace, and the Does for intentional interference with prospective economic advantage. The remaining causes of action (not at issue in this motion) are for breach of the implied covenants of good faith and fair dealing, tortious interference with contract, and for violation of California Business and Professions Code Sections 20020 and 20035.
Defendants removed the case to this court based on diversity jurisdiction asserting that Dickman was fraudulently joined. Plaintiff now moves to remand the case.
I. FACTS
The facts are taken from the parties' papers and the complaint, they are not to be treated as final for anything beyond this motion.
Plaintiff Mammoth Hardware Lumber, Inc. entered into a written franchise agreement with Ace Hardware, whereby plaintiff was granted the right to do business in Mammoth Lakes, California, as an "Ace Hardware Store." It sold hardware items, construction materials, tools and related items in accordance with a marketing plan prescribed in substantial part by Ace Hardware, hereafter, "the contract". Pl.'s Br. in Supp. of Mot. to Remand at 2.
Plaintiff claims that the contract required Mammoth Hardware to share privileged information with Ace Hardware, including any changes or modification in the ownership of the store, leases, proposed leases, financial statements, etc. Id. Plaintiff claims that it complied with the disclosure terms of the contract by releasing information to Ace Hardware as well as directly to defendant Lee Dickman, an employee of Ace. Id. Because of this, plaintiff asserts, the defendants were aware of plaintiff's efforts to sell their store to James and Elaine Smith. Id. Plaintiff alleges that these privileged communications were the sole basis of defendants' knowledge. Id.
Plaintiff alleges that, in insisting on attending a meeting with the proposed buyers, Dickman represented to Mammoth that his sole purpose in attending the meeting was to "evaluate" the proposed buyers, under the terms of the contract. Id. at 3. It claims that this statement was false and that Dickman instead used the meeting to interfere with the proposed sale of Mammoth Hardware by falsely advising the Smiths that it would be less expensive for them to start up a new franchise with Ace than to purchase Mammoth Hardware. Id. Plaintiff claims that it would have been more expensive to start-up a new business than to purchase an established local hardware store with substantial good will in the community, and that the purpose of the statement was to prevent the sale, and to steer the franchise toward High Country Lumber. Id.
James and Elaine Smith did not purchase Mammoth Hardware, and plaintiffs allege that the sale was thwarted by the misrepresentation and action of defendants Ace and Dickman. Eventually, a franchise was granted by Ace to High Country Lumber. Nowling Dec. at 17, ¶ 6.
Defendants claim that Dickman had no access to privileged information, and that he attended the meeting with the Smiths only because it was arranged by Ms. Nowling so that Ace could perform a due diligence check on the prospective commercial purchase. Defs.' Opp'n at 3. They claim that at the meeting Dickman actually informed the Smiths that "an existing store does have an established customer base and it is usually easier to obtain financing, whereas opening a new store is generally riskier." Dickman Dec. at ¶ 8.
II. STANDARDS
A. FRAUDULENT JOINDER STANDARD
Civil actions not involving a federal question are removable to a federal district court only if there is diversity of citizenship between the parties. 28 U.S.C. § 1332(a)(1). Section 1332 requires that there be complete diversity; that is, each plaintiff's citizenship must be diverse as to each defendant's citizenship. Id. Nonetheless, a defendant may remove a civil action that alleges claims against a non-diverse defendant when the plaintiff has no basis for suing that defendant, or in other words, when that defendant has been fraudulently joined. McCabe v. General Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987).
"[F]raudulent joinder is a term of art. If 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, the joinder of the resident defendant is fraudulent." Ritchey v. Upjohn Drug Co., 139 F.3d 1313, 1318 (9th Cir. 1998) (quotingMcCabe, 811 F.2d at 1339) (citations omitted). Where a non-diverse defendant has been "fraudulently joined" to an otherwise completely diverse case, that defendant is disregarded for diversity jurisdiction purposes. See, e.g., Calero v. Unisys Corp., 271 F.Supp.2d 1172, 1176 (N.D. Cal. 2003).
On a motion to remand, the removing defendant faces a strong presumption against removal, and bears the burden of establishing that removal was proper by a preponderance of evidence. Sanchez v. Monumental Life Ins. Co., 102 F.3d 398, 403-404 (9th Cir. 1996); Gaus v. Miles, Inc., 980 F.2d 564, 567 (9th Cir. 1992). Thus, the defendant carries a high burden of establishing that the non-diverse party was fraudulently joined. See Gaus, 980 F.2d at 564.
28 U.S.C. § 1447(c) provides that a case removed from state court should be remanded if it appears that the case was removed improvidently or without jurisdiction. Federal jurisdiction must be rejected if there is any doubt as to the right of removal.Gaus, 980 F.2d at 566.
In determining whether a non-diverse defendant has been improperly joined, courts may look beyond the pleadings and examine the factual record. McCabe, 811 F.2d at 1339.
III. ANALYSIS
As outlined above, defendants have a heavy burden to carry in demonstrating that Dickman was fraudulently joined. They attempt to meet this burden through three different arguments. First, they claim that plaintiff's complaint does not state a viable claim against Dickman in his individual capacity. Second, they claim that the complaint does not allege facts that amount to wrongful conduct. Finally, they claim that even if the court reviews the additional allegations made in plaintiffs brief that there is still not sufficient evidence to support a claim. These arguments will be addressed in turn.
In support of the first argument defendants cite McCabe v. General Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987). They assert McCabe stands for the proposition that when an agent acts, at least in part, to benefit his principal, that his conduct is privileged. The court in McCabe held that two individual defendants could not be held liable if they were "motivated in party by a desire to benefit [their] principal."Id. (quoting Los Angeles Airways, Inc. v. Davis, 687 F.2d 321, 328 (9th Cir. 1982)). It appears that the plaintiff's original complaint alleged wrongful discharge against the individual defendants as well as the company. The court found that their actions had been "in their managerial capacity" and that the complaint had stated that the actions were ratified by General Foods, but did not allege that they acted in their own initiative. Id.
Plaintiff reads the case to say that there was a wrongful discharge claim in the complaint, but as stated in the case it is not entirely clear what the exact allegations were against the individual defendants.
Mammoth seeks to distinguish the case on the grounds that there was contractual privity between the employer and the plaintiff (but not plaintiff and co-workers) and that privity is an essential element of a wrongful discharge claim. They claim that privity is not required for a tort of interference with prospective economic advantage. They further cite to California Civil Code § 2343 as setting out when an agent, such as Dickman, can be liable to third parties for their own wrongful conduct. The section, in its entirety, reads as follows:
AGENT'S RESPONSIBILITY TO THIRD PERSONS. One who assumes to act as an agent is responsible to third persons as a principal for his acts in the course of his agency, in any of the following cases, and in no others:
1. When, with his consent, credit is given to him personally in a transaction;
2. When he enters into a written contract in the name of his principal, without believing, in good faith, that he has authority to do so; or,
3. When his acts are wrongful in their nature.
Cal. Civ. Code § 2343 (emphasis added). The statute's plain words provide that if Dickman's conduct was "wrongful", he may be individually liable for his actions.
Defendants argue that "no law stands for the proposition that an agent is liable for legal conduct occurring for the sole benefit of the principal." Defs.' Br. in Opp'n to Mot. to Remand at 5. Given the statute, the court assumes defendants mean no case. While this may be true (although the fact that there is no law does not make it the case one way or the other), plaintiff has alleged, both in the complaint and in the additional information provided with their motion to remand, that Dickman's behavior did not constitute "legal conduct." Defendants do not address the above statutory section at all in their opposition brief.
The court has done a general review on the standard for agent liability to third parties for torts committed while acting as an agent to a principal. While it appears that plaintiff probably has a weak case against Dickman, the standard of review here requires that it be "obvious" that there is no possibility of liability. A number of cases directly say that the rule is not clear although most lean against imposing liability. See Aalgaard v. Merchants Nat. Bank, Inc., 224 Cal.App.3d 674, 685 (3d Dist. 1990) (finding that there is a "knot of authority" on the issue of whether the privilege is absolute, but ultimately holding that if there is no evidence that the defendant acted in self interest that the privilege is intact even if it may be qualified); Graw v. Los Angeles County Metropolitan Transp. Authority, 52 F. Supp. 2d 1152, 1155 (C.D. Cal. 1999) (finding that "there is no consensus of California decisions" on the question of privilege, but ultimately finding that the "manager's privilege applies if the manager acted at least in part to benefit the company.").
It may be that the question of agent liability depends upon the type of action being pursued. If the allegation is that the agent committed a tort then under Civil Code § 2343, liability may exist. See, e.g., California Jurisprudence 3d § 122 ("If a tortious act has been committed by an agent acting under authority of the principal, the fact that the principal is liable, including liability arising from the principal's ratification, does not exonerate the agent from liability. An agent's duty to the principal does not preclude the agent's liability to third parties foreseeably injured by his or her conduct. The agent becomes personally liable for his or her own tortious acts even when committed at the direction of the principal.").
In sum, defendants have not met their burden of showing that Dickman is "obviously" not liable. Without a clear statement of the law prohibiting application of liability to Dickman, this court cannot find that he was fraudulently joined.
The second argument presented by defendants is that the complaint does not allege facts amounting to "wrongful" conduct. To establish a claim for interference with prospective economic advantage, Mammoth must prove that Ace and/or Dickman engaged in an independently wrongful act (outside of interference). AsKorea Supply Co. v. Lockheed Martin Corp. states, to satisfy the independently wrongful prong plaintiff "must plead and prove as part of its case-in-chief that the defendant not only knowingly interfered with the Plaintiff's expectancy, but engaged in conduct that was wrongful by some legal measure other than the fact of interference itself." 29 Cal.4th 1134, 1158-59 (2003). The complaint states that the conduct of Ace and Dickman was "intentional, wrongful, and in violation of the implied covenants of good faith and fair dealing in the Agreement . . ." Compl. at ¶ 11. It further states that the wrongful act by Dickman included "discourag[ing] potential buyers of the BUSINESS from dealing with MAMMOTH by advising such buyers that it would be cheaper and to their economic advantage to start up a new operation with a new franchise issued by ACE, than to purchase the existing BUSINESS." Compl. at ¶ 10. It thus appears from the face of the complaint alone that plaintiff has alleged at least one act which it believes to be wrongful.
Plaintiff's motion to remand further clarifies and sets out three specific acts which are allegedly wrongful. First, it claims that Dickman represented to plaintiff that he only wanted to meet with the Smiths in order to "evaluate" the proposed buyers. Plaintiff claims that this representation was false and that Dickman instead used the meeting and the privileged information he had to "interfere with the proposed sale" by advising the Smiths that it would be cheaper to start up a new franchise. Plaintiff alleges that this statement was also false and that is purpose was to thwart the sale and instead steer the Smiths towards the franchise for High Country Lumber.
Defendants claim that the above statements were not wrongful, and rather were only a matter of opinion for which a person cannot incur liability, citing Morningstart Inc. v. Superior Court, 23 Cal.App.4th 676, 696 (1994). Defendants characterization of that case, however, states that "expressions of opinion or advice cannot form the basis of an interference . . . unless those expressions contain false or defamatory statements of fact." Id. It appears that this is exactly what plaintiff alleges. The same goes for their citation of Savage v. Pacific Gas Electric Co. which held that a defendant cannot incur liability for truthful information given. 21 Cal.App.4th 434, 449-50 (1993). Plaintiff alleges that Dickman gave false statements of fact to the Smiths.
Finally, defendants claim that even if the court looks beyond the pleadings that plaintiff's evidence does not support a viable claim. They ask the court to review the credibility of various sets of conflicting declarations. Plaintiff believes that Dickman intentionally misrepresented facts to the Smiths in order to derail their plan of purchasing Mammoth Hardware by disclosing privileged information and by alleging false information about the costs. Dickman's testimony states that he did not have any access to privileged information, that the meeting he attended with the Smiths was arranged by Ms. Nowling, and that he did not know the asking price of Mammoth and therefore could not represent that the purchase of a new franchise would be less expensive.
Defendants also note that plaintiff fails to present any competent evidence that Dickman's statement was false by some objective measure. The burden is on defendants, however, and plaintiff has provided general statements about why they think buying a store with "considerable goodwill" in the community would be a wiser choice. In construing this evidence against removal, it appears to be appropriate to allow the state court to determine this issue on a motion to dismiss in that court.
Accordingly, the motion to remand is GRANTED and the above-captioned case is hereby REMANDED to the Superior Court of the State of California in and for the County of Mono.
Based on the court's disposition above, the court need not reach the motion to dismiss now pending before the court.
IT IS SO ORDERED.