Opinion
NO. CIV. S-07-973 LKK/KJM.
August 16, 2007
ORDER
This is a negligence and products liability action arising from an injury that plaintiff suffered while using a hydraulic torque wrench. The action was originally commenced in Shasta County Superior Court and named both California and non-California defendants. Non-resident defendant Unex Corporation removed the action based on diversity jurisdiction, alleging that the California defendants were fraudulently joined and therefore should be disregarded. Pending before the court is plaintiff's motion to remand. The court resolves the motion on the papers and after oral argument. For the reasons set forth below, the court grants plaintiff's motion and remands the action to Shasta County Superior Court.
I. Background
Plaintiff Wrex Sarah, a citizen of California, alleges that he suffered injury when, in 2005, a hydraulic torque wrench malfunctioned and caused hydraulic fluid to be injected into his left hand. In his complaint, plaintiff identified the subject wrench as having the brand name "Hytorc."
Plaintiff originally filed suit in Shasta County Superior Court in 2006 seeking compensatory and punitive damages under products liability and general negligence theories. In his original suit, there were two defendants: Hytorc of California and Power-Draulics, Inc., both California corporations.
During discovery in the state court action, Mr. Sarah's employer, Roger Meyer, was deposed. Mr. Meyer testified that the subject wrench was purchased from a Hytorc representative in Michigan, not California. In response to this testimony, plaintiff sought to name additional Doe defendants, including the Michigan division of Hytorc. Plaintiff's counsel proposed a stipulation to add the necessary Doe defendants. The parties, however, were unable to reach a mutually agreeable stipulation. Because the statute of limitations on plaintiff's personal injury claims was to expire five days following the deposition, the parties stipulated to dismissal of the existing action without prejudice and the filing of a new complaint naming the additional defendants.
The original complaint was therefore dismissed without prejudice and the new complaint was filed on January 31, 2007. The newly added defendants included, among others, Unex Corporation, Hytorc Division of Unex Corporation, Michigan Industrial Equipment, and Hytorc of Michigan. The new defendants are not California citizens. After the new complaint was filed, defendant Unex removed the action to federal court pursuant to 28 U.S.C. § 1441(b), alleging that Hytorc of California and Power-Draulics (the "California defendants") were fraudulently joined. Pending before the court is plaintiff's motion to remand. Only Hytorc of California and Unex Corporation filed an opposition.
II. Standard
Civil actions not involving a federal question are removable to a federal district court 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. 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).
"'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) (quoting McCabe, 811 F.2d at 1339). 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).
III. Analysis
A. Timeliness of Plaintiff's Motion to Remand
As a preliminary matter, defendants argue that plaintiff's motion to remand is untimely, because it has not been brought within 30 days of removal as required by 28 U.S.C. § 1447(c).
Section 1447(c) provides:
A motion to remand the case on the basis of any defect other than lack of subject matter jurisdiction must be made within 30 days after the filing of the notice of removal under section 1446(a). If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.
Defendants misunderstand the nature of plaintiff's motion to remand, characterizing it as alleging a violation of the "no local defendant" rule. Defendants argue that such a motion alleges a procedural defect in the removal process, which is subject to the 30 day limitation provided by Section 1447(c), rather than a defect in subject matter jurisdiction, which is not subject to the 30 day time limit.
The "no local defendant" rule, also known as the forum defendant rule, is provided by 28 U.S.C. § 1441(b). The rule acts as a limit on federal diversity jurisdiction and provides that removal is improper where "any party in interest properly joined and served as a defendant is a citizen of the state in which the action is brought." Lincoln Prop. Co. v. Roche, 546 U.S. 81, 89-90 (2005). In other words, where there is complete diversity between the parties, but the defendant already has the "home field advantage" in state court, removal is inappropriate. In such cases, the plaintiff has 30 days to file a motion to remand. See Lively v. Wild Oats Mkts., Inc., 456 F.3d 933 (9th Cir. 2006).
28 U.S.C. § 1441(b) provides:
Any civil action of which the district courts have original jurisdiction founded on a claim or right arising under the Constitution, treaties or laws of the United States shall be removable without regard to the citizenship or residence of the parties. Any other such action shall be removable only if none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.
To take a simple example, if a citizen of New York sued a citizen of California in California state court, the California defendant could not properly remove the case to federal court. If he or she did, the New York plaintiff would have 30 days to remand the case.
In the instant case, however, plaintiff's motion does not allege violation of the forum defendant rule. Instead, plaintiff's motion alleges lack of diversity between himself and the California defendants. Challenges to a court's subject matter jurisdiction are not waivable and may be raised at any time. Fed.R.Civ.P 12(h)(3); Am. Fire Cas. Co. v. Finn, 341 U.S. 6, 17-18 (1951) (defects in subject matter jurisdiction are not waivable); Emrich v. Touche Ross Co., 846 F.2d 1190, 1194 (9th Cir. 1988) (jurisdictional challenges may be raised at any time).
B. Fraudulent Joinder
On a motion to remand, the removing defendant faces a strong presumption against removal and bears the burden of establishing that removal was proper. Sanchez v. Monumental Life Ins. Co., 102 F.3d 398, 403-04 (9th Cir. 1996). Federal jurisdiction must be 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).
In order to establish that a non-diverse defendant has been fraudulently joined, the removing party also carries the heavy burden of establishing the absence of any possibility of recovery. Ritchey, 139 F.3d at 1318. The claim of fraudulent joinder must be supported by clear and convincing evidence.Hamilton Materials Inc. v. Dow Chem. Corp., (9th Cir. 2007). 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.
The court must initially resolve all disputed questions of fact and all ambiguities in favor of the non-removing party. Macey v. Allstate Prop. Cas. Ins. Co., 220 F. Supp. 2d 1116, 1117-18 (N.D. Cal. 2002). If, after doing so, there is any possibility that the non-removing party may recover against the party whose joinder is questioned, the court must deny the motion to remand. Plute v. Roadway Package Sys., Inc., 141 F. Supp. 2d 1005, 1012 (N.D. Cal. 2001).
Here, defendants simply allege that they were not involved at all with the allegedly defective product and were therefore fraudulently joined in the current action. As explained below, however, defendants fail to support this allegation with clear and convincing evidence to establish that plaintiff has no possibility of recovery against them.
1. Power-Draulics
Plaintiffs allege that California defendants Hytorc of California and Power-Draulics, Inc. participated in the design, manufacture, distribution, and/or service of the subject wrench, and are therefore liable for products liability and negligence.
With regard to Power-Draulics, defendants have not provided any evidence showing that the company was not involved with the manufacture, distribution, or service of the product. Instead, defendants rely on the fact that Power-Draulics was voluntarily dismissed by plaintiff from the original state action to somehow show an insufficient nexus between Power-Draulics and plaintiff's injury to sustain the present action. At best, defendants raise a disputed issue of fact regarding whether Power-Draulics was involved with the manufacture, distribution, or repair of the wrench. For the purposes of fraudulent joinder analysis, however, all disputed questions of fact must be construed in favor of the non-removing party. Macey, 220 F. Supp. 2d at 1117-18. Accordingly, the court must assume that Power-Draulics was, in fact, involved.
2. Hytorc of California
Because defendants have failed to meet its burden of proving that Power-Draulics was fraudulently joined, the court need not reach the question of whether Hytorc of California was fraudulently joined. Where there is at least one non-diverse, properly joined defendant, the district court lacks subject matter jurisdiction, and must remand the action to state court.Green v. Amerada Hess Corp., 707 F.2d 201, 206 (5th Cir. 1983) ("[I]f there is even a possibility that a state court would find a cause of action stated against any one of the named in-state defendants on the facts alleged by the plaintiff, then the federal court must find that the in-state defendants have been properly joined, that there is incomplete diversity, and that the case must be remanded to the state courts").
Nevertheless, assuming, arguendo, that Power-Draulics was fraudulently joined, Hytorc of California has also failed to meet its heavy burden of proving fraudulent joinder. Hytorc of California maintains that it was not involved in placing the allegedly defective product into the stream of commerce, nor in completing repairs on the product. At oral argument, counsel for Hytorc of California and Unex noted that, in a separate motion to dismiss filed after their opposition to the motion to remand was filed, Better Bolting (allegedly erroneously sued as Hytorc of Michigan) admitted that it sold the wrench in Michigan to plaintiff's employer, Mr. Meyer. Decl. of Mike Perry ¶ 4.
This information, however, only establishes where the point of sale occurred. It, like the deposition testimony of Mr. Meyer relied upon by defendants, does not address who designed and manufactured the wrench. Plaintiff alleges that Hytorc of California may have manufactured or assembled the product, designed or manufactured component parts, labeled or removed labels from the product, or breached express and implied warranties. Mr. Meyer's testimony does not address any of these issues, and therefore does not clearly and convincingly show that there is no hope of recovery against Hytorc of California.
Likewise, the invoices tendered by defendants do not demonstrate the absence of potential liability. For example, the invoice dated July 29, 2002 shows the shipment of various Hytorc products from defendant Unex Corporation in New Jersey to defendant Michigan Industrial Equipment in Michigan, but the wrench in question is not among these products.
Finally, defendants point to the lack of evidence that Hytorc of California was in fact involved. For the purposes of fraudulent joinder, the court does not examine whether plaintiffs can prove their case, but merely whether they have stated a valid claim under state law against the resident defendants. Perez v. AT T Co., 139 F.3d 1368, 1380-1381 (11th Cir. 1998). In short, defendants have failed to show by clear and convincing evidence that Hytorc of California was not involved with the product as alleged by plaintiff.
IV. Conclusion
For the reasons set forth above, plaintiff's motion to remand is GRANTED and the action is REMANDED to Shasta County Superior Court.
IT IS SO ORDERED.