Opinion
NO. 2:09-cv-02544 FCD KJM.
December 8, 2009
MEMORANDUM AND ORDER
This matter comes before the court on plaintiff Pendola Family Trust Partnership's ("Pendola" or "plaintiff") motion for remand to state court. Defendants Pan Pacific (Pine Creek), L.P., ("Pine Creek"), PK II Holdco, LLC ("PK"), and Kimco Realty Corporation ("Kimco") (collectively, "defendants") oppose the motion. For the reasons set for below, plaintiff's motion for remand is GRANTED.
Because oral argument will not be of material assistance, the court orders this matter submitted on the briefs. E.D. Cal. Local Rule 78-230(h).
BACKGROUND
The facts are taken from the allegations in plaintiff's complaint.
Plaintiff Pendola is a General Partnership formed and operating under the laws of the State of California. (Compl., attached to Notice of Removal, filed Sept. 11, 2009, ¶ 1.) On November 17, 1999, defendant Pine Creek was formed as a limited partnership under the laws of the State of Delaware. (Id. ¶ 10.) The general partner was Western Properties Trust, a California Business Trust, and Pendola was the sole limited partner. (Id.) In 2001, Western Properties Trust merged with defendant Pan Pacific Retail Properties, Inc. ("Pan Pacific"). (Id. ¶ 11.) In 2006, KRC Acquisition, Inc., a wholly owned subsidiary of defendant Kimco, merged with defendant Pan Pacific. (Id. ¶ 12.) Pendola notified Kimco that it intended to continue as a limited partner in Pine Creek. (Id. ¶ 14.) Kimco declined, representing that it intended to refinance various properties held by Pine Creek to finance the merger. (Id.)
Subsequently, however, On December 13, 2006, Pendola and defendant Kimco entered into a Third Amended Agreement of Limited Partnership of Pine Creek. (Id. ¶ 15.) The agreement, inter alia, changed the name of the limited partnership, changed the general partner, and modified Pendola's previously held conversion rights. (Id.) The conversion right could only be exercised for the entire limited partnership interest, and the redemption price was set at $70 per unit. (Id.) Further, through the conversion right, Pendola could require Pine Creek to acquire identified property through a conversion LLC formed exclusively to acquire such property in exchange for and redemption of its limited partnership interests. (Id.) In consideration of its modified conversion rights, Pendola agreed to indemnify the limited partnership and the general partner from any liabilities, obligations, claims, damages, or other potential losses arising from the exercise of those rights. (Id.) The Third Amended Agreement also gave the limited partnership the opportunity to redeem Pendola's interest if plaintiff failed to exercise its conversion rights on or before April 30, 2007. (Id.)
In reliance on these modifications, on December 19, 2006, Pendola entered into a purchase agreement to acquire conversion property and notified defendants of the exercise of its conversion rights. (Id. ¶ 16.) On January 11, 2007, defendants disclosed to Pendola for the first time that, prior to entering into the Third Amended Agreement, they had entered into loan agreements with lenders that prevented and precluded defendants from acquiring and placing required debt on conversion property. (Id.) Plaintiff alleges this was contrary to the intent and language of the Third Amended Agreement. (Id.) As a result of these disclosures, defendants could not implement Pendola's conversion rights. (Id.)
On March 3, 2008, Pendola informed defendants that it intended to surrender its limited partnership units at the agreed upon price of $70 per unit. In May 2008, defendants notified plaintiff that it did not intend to comply with the Third Amended Agreement. (Id. ¶ 19.)
Plaintiff initially filed this action on August 3, 2009 in the Superior Court of California, County of Nevada, alleging breach of contract, fraud — intentional misrepresentation, promissory fraud — promise without intent to perform, promissory fraud — hidden intention not to comply with the implied covenant of good faith and fair dealing, and constructive fraud — breach of fiduciary duty.
STANDARD
"[A]ny civil action brought in State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court" in which the action is pending. 28 U.S.C. § 1441(a). Federal district courts "have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000" and is between citizens of different states. 28 U.S.C. § 1332(a) Furthermore, 28 U.S.C. § 1441 is construed strictly against removal jurisdiction. Fardella v. Downey Savings Loan Ass'n, No. 00-4393, 2001 WL 492442, at *1 (N.D. Cal. May 9, 2001) (citing Prize Frize, Inc. v. Matrix, Inc., 167 F.3d 1261, 1265 (9th Cir. 1999)).
"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 and the defendant's presence in the lawsuit is ignored for purposes of determining diversity." United Computer Sys., Inc. v. AT T Corp., 298 F.3d 756, 761 (9th Cir. 2002) (internal quotations and citations omitted); McCabe v. Gen. Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987). There is a general presumption against fraudulent joinder. Hamilton Materials, Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1206 (9th Cir. 2007).
The party invoking removal bears the burden of establishing federal jurisdiction. See Harris v. Provident Life and Acc. Ins. Co., 26 F.3d 930, 932 (9th Cir. 1994) (quoting Gould v. Mutual Life Ins. Co., 790 F.2d 769, 771 (9th Cir. 1986)). "Fraudulent joinder must be proven by clear and convincing evidence."Hamilton Materials, Inc., 494 F.3d at 1206.
ANALYSIS
A. Motion to Remand
Defendants removed this action to federal court on September 11, 2009, on the basis of diversity jurisdiction due to the alleged fraudulent joinder of defendant Pine Creek. The parties agree that the amount in controversy exceeds $3,800,000 and that Pendola and Pine Creek are both citizens of California. As such, the sole question is whether Pine Creek is a proper or fraudulently joined defendant. Defendants contend that Pendola seeks to enforce purely individual rights through this action, and thus, Pine Creek is not a proper defendant. Plaintiff maintains that its action is both to enforce its personal rights and a derivative claim on behalf of the partnership. Accordingly, plaintiff contends that Pine Creek is a proper defendant.
"In diversity actions, the characterization of an action as derivative or direct is a question of state law. Sax v. World Wide Press, Inc., 809 F.2d 610, 613 (9th Cir. 1987). "The purpose of a limited partner's derivative action is to enforce a claim which the limited partnership possesses against others, [including the general partners], but which the partnership refuses to enforce." Wallner v. Parry Prof'l Bldg., Ltd., 22 Cal. App. 4th 1446, 1449 (4th Dist. 1994). "[A] limited partner's derivative suit is filed in the name of a limited partner, and the partnership is named as a defendant. Although a limited partner is named as the plaintiff, it is the limited partnership which derives the benefits of the action." Id. Generally, an action enforces a partnership's right if the gravamen of the complaint is injury to the partnership. See Sax, 809 F.2d at 613.
However, where a plaintiff does not seek to recovery on behalf of the entity sued, such action is more appropriately considered an individual, non-derivative action. Jones v. H.F. Ahmanson Co., 1 Cal. 3d 93, 106-08 (1969). In Jones, a minority shareholder brought a claim for breach of fiduciary duties against the majority stockholders in a savings and loan association. The majority shareholders allegedly took advantage of a bull market by creating a holding company, transferring their block shares to the holding company, and excluding the minority shareholders from participation in the company. These actions rendered the association stock unmarketable, except to the holding company. Id. at 105. The California Supreme Court held that the claim was not a derivative action, and thus could be brought on behalf of a class of stockholders and without complying with relevant state statutes, because the diminished value of the stock reflected an injury to plaintiff, not to the company. Id.
In this case, defendants have failed to establish by clear and convincing evidence that plaintiff's complaint does not sufficiently allege a claim based upon injury both to the partnership and itself. Specifically, plaintiff alleges that defendant Pine Creek has been injured by the failure of defendants to implement the Third Amended Agreement because the limited partnership units would be paid out at only $70 per unit. Plaintiff contends that by implementing §§ 8.4 and 8.5 of the Third Amended Agreement, Pine Creek benefits by the opportunity to redeem Pendola's entire interest. Further, plaintiff alleges that it agreed to indemnify defendant Pine Creek from any liabilities, obligations, claims, damages, or other potential losses arising from the exercise of conversion rights. As such, plaintiff contends that its claims are based on the enforcement of a mutually beneficial agreement for both Pendola and Pine Creek, and that both it and the partnership was injured by the failure to implement the agreement.
Defendants have failed to present any evidence or legal argument that enforcement of the Third Amended Agreement would not benefit the partnership. Thus, they have failed to meet their burden in demonstrating that the failure to state a claim against Pine Creek is "obvious." United Computer Sys., Inc., 298 F.3d at 761. Therefore, plaintiff's motion to remand is GRANTED.
In their opposition, defendants vaguely reference that the conversion period had expired. However, they neither explain nor elaborate upon why or how such expiration affects the derivative nature of plaintiff's claims. Further, plaintiff alleges that the Third Amended Agreement provided that if it failed to exercise its conversion rights before April 30, 3007, Pine Creek had the opportunity to redeem its interest before October 31, 2007. (Compl. ¶ 15.)
B. Attorneys' Fees
Plaintiff argues that because defendant's removal was unreasonable, attorneys' fees and costs should be awarded to plaintiff. Defendant argues that it had an objectively reasonable basis for seeking removal; therefore, plaintiff should not be awarded attorneys' fees and costs.
On granting a motion for remand, the court may order the defendant to pay plaintiff "its just costs and any actual expenses, including attorneys' fees, incurred as a result of the removal." 28 U.S.C. § 1447(c); see Martin v. Franklin Capital Corp., 546 U.S. 132, 136 (2005). In deciding whether an award is just, the test is whether the removing party had an "objectively reasonable basis for removal." Martin, 546 U.S. at 136. "Absent unusual circumstances, fees should not be awarded when the removing party has an objectively reasonable basis for removal."Gardner v. UICI, 508 F.3d 559, 561 (9th Cir. 2007).
In the present case, defendants had an objectively reasonable basis for removal. Although defendants did not show plaintiff's failure to state a derivative cause of action was obvious based on the allegations in plaintiff's complaint, defendant did provide a reasonable argument for removal. Thus, plaintiff' motion for attorneys' fees is DENIED.
CONCLUSION
For the foregoing reasons, plaintiff's motion to remand this action to the Superior Court of California for the County of Nevada is GRANTED. Plaintiff's motion for an award of attorneys' fees and costs is DENIED.IT IS SO ORDERED.