Opinion
No. C 04-5263 SI.
March 25, 2005
ORDER GRANTING MOTION TO REMAND AND REMANDING ACTION TO SAN FRANCISCO SUPERIOR COURT
Plaintiffs' motion to remand this action to the San Francisco Superior Court was heard on March 25, 2005. Having considered the papers and pleadings on file, and the arguments, of counsel, the Court finds that it is without subject matter jurisdiction because complete diversity is lacking. Accordingly, plaintiffs' motion to remand is GRANTED and this action is REMANDED to the San Francisco Superior Court.
BACKGROUND
Plaintiffs Western Asbestos Settlement Trust ("the Trust"), Western Mac Arthur Company, Mac Arthur Company, and Western Asbestos Company originally filed this action in SanFrancisco County Superior Court. On December 10, 2004, defendants Zurich-American Insurance Company, Zurich American Insurance Company of Illinois, and Steadfast Insurance Company (collectively "Zurich defendants") timely removed the case to this Court. Defendants claim that the Court has original jurisdiction pursuant to 28 U.S.C. § 1332 because there is complete diversity of citizenship between plaintiffs and defendants and the amount in controversy exceeds $75,000. They argue that, without the California citizenship of defendant California Insurance Guarantee Association ("CIGA"), complete diversity exists, and that CIGA is a sham defendant. Plaintiffs now seek to remand the case to the state court on grounds that removal was improper.
The Trust was established pursuant to 11 U.S.C § 524(g) by the United States Bankruptcy Court for the Northern District of California on April 16, 2004, after Mac Arthur filed for bankruptcy. The Trust is responsible for the asbestos liabilities of Mac Arthur, and must develop appropriate means to satisfy pending and future asbestos claims and distribute Mac Arthur's assets to pay claimants. The Trust is now pursuing claims against the various insurance company defendants so that injured asbestos claimants can recover insurance proceeds owed to them. Home Insurance Company ("Home") covered Mac Arthur for asbestos liabilities between 1976 to 1983, but Home is now insolvent. Therefore, plaintiffs seek declaratory relief to determine the existence and scope of CIGA's obligations to satisfy Home's liabilities.
CIGA was established by Cal. Ins. Code § 1063 and is composed of state regulated insurance companies. The purpose of CIGA is to provide protection to policyholders in the event that member insurance companies become insolvent and are unable to pay claims. Am. Re-Ins. Co. v. Ins, Comm'n of the State of Cal., 527 F. Supp. 444, 454 (C.D. Cal. 1981).
LEGAL STANDARD
Generally, a state court action is only removable to federal court if it might have been brought there originally. 28 U.S.C. § 1441(a). The federal removal statute is strictly construed, and federal courts reject jurisdiction if there is any doubt as to whether removal was proper. Duncan v. Stuetzle, 76 F.3d 1480, 1485 (9th Cir. 1996). 28 U.S.C. § 1446(b) requires that the notice of removal of a civil action must be filed within 30 days after service. The party seeking removal bears the burden ofproving its propriety. Id. Federal case law prohibits substantive amendment in a petition for removal after the thirty-day period for removal under 28 U.S.C. § 1446 has run.See, e.g., Barrow Dev. Co. v. Fulton, Ins., 418 F.2d 316, 317 (9th Cir. 1969) (notice of removal can be amended after 30 day period only where party seeks to correct defects in form but not to add allegations of substance); see also O'Halloran v. Univ. of Washington, 856 F.2d 1375, 1381 (9th Cir. 1988) (the notice cannot be amended to add a separate "basis" for removal jurisdiction after the thirty day period).
Diversity jurisdiction requires complete diversity of citizenship, with each plaintiff being a citizen of a different state from each defendant. 28 U.S.C. § 1332(a)(1); Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001). The one exception to this standard arises when a non-diverse defendant is made a party to an action as a "sham" to defeat diversity. Morris, 236 F.3d at 1067. Allegations of the presence of a sham defendant can only succeed on a showing that "there is no possibility that the plaintiff will be able to establish a cause of action" against that defendant under well-settled rules ofstate law. Good v. Prudential Ins. Co., 5 F. Supp. 2d 804, 807 (N.D. Cal. 1998).
If, at any time before final judgment, a federal court determines that it is without subject matter jurisdiction, the action must be remanded to state court. 28 U.S.C. § 1447(c). On the other hand, a plaintiff cannot avoid federal removal jurisdiction or use the concurrent jurisdiction of state courts as a shield when a case rightfully belongs in federal court.See Emrich v. Touche Ross Co., 846 F.2d 1190, 1196 (9th Cir. 1988).
DISCUSSION
Defendants contend that CIGA's joinder is fraudulent and that its citizenship should be ignored in determining whether the Court has diversity jurisdiction. Joinder is fraudulent when the plaintiff obviously fails to state a cause of action against a resident defendant. McCabe v. General Foods, Corp., 811 F.2d 1336, 1336 (9th Cir. 1987). To show that CIGA is a sham defendant, defendants must demonstrate that there is no possibility that the plaintiffs will be able to establish a cause ofaction against CIGA in state court. Good, 5 F. Supp. 2d at 807. If plaintiffs fail to state a cause of action against CIGA and the failure is "obvious under the settled rules ofthe state," the Court may disregard CIGA's citizenship. Plute v. Roadway Package Systems, Inc., 141 F. Supp. 2d 1005, 1008 (N.D. Cal. 2001), citing McCabe, 811 F.2d at 1339.
In their notice of removal, defendants present two grounds for removal. First, they contend that plaintiffs cannot assert claims against CIGA because the bankruptcy court discharged the liabilities of Mac Arthur for asbestos related claims, hence relieving both Home and CIGA of any liability. Second, defendants argue that the Trust is not an "original claimant" of the insurance policy and therefore the Trust's claim against CIGA is not a "covered claim" under Cal. Ins. Code § 1063.2(a).
1. Discharge of liabilities by bankruptcy court
The Zurich defendants argue that the bankruptcy court's discharge of all the asbestos related claims against Mac Arthur inherently leaves Home with no liabilities, and therefore any claims against CIGA are non-existent "absent unsatisfied claims against their insolvent carrier." Notice of Removal ¶ 26. The expressed intent ofthe bankruptcy court does not match this interpretation. That court clearly intended to discharge only Mac Arthur from its liabilities by stating: "[t]he transfer to, vesting in and assumption by the Trust of the Asbestos Related Claims as contemplated by the Plan, among other things, shall (a) discharge the reorganized Western Mac Arthur and Mac Arthur for and in respect of all Asbestos Related Claims." In re Western Asbestos Co., 313 B.R. 456, 462 (Bkrtcy. N.D. Cal. 2004). The court specifically indicated that any claim the debtors, Trust or any asbestos related claimants may have against any asbestos insurance company is not discharged. Id. at 563. Indeed, 11 U.S.C. § 524(a)(2), which governs the effect of debtor discharge under bankruptcy laws, only discharges the liabilities ofthe debtor and not its insurers. Thus, the Court does not find that Mac Arthur's discharge from asbestos related claims destroys this potentialcause ofaction against CIGA.
2. Original claimant requirement
The Zurich defendants also argue that the Trust is not an "original claimant" because it is not the originally named insured in the Home policy. They rely on Baxter Healthcare Crop., v. Cal. Ins. Guarantee, 85 Cal.App.4th 306, 312-13 (2000), which held claims against CIGA were barred because the policies were not in the plaintiff's name and the named insured no longer existed. However, Baxter does not involve an asbestos trust situation, and therefore it is factually distinguishable. The statute creating CIGA permits "covered claims" to be brought against CIGA by "executors, administrators, guardians orother personalrepresentatives" of the original insured — here, Mac Arthur. Cal. Ins. Code § 1063.19(c)(9). The Trust contends that it has standing as a "personal representative" of Mac Arthur for purposes of initiating, prosecuting, defending and resolving all legal proceedings in the name of Mac Arthur for all asbestos insurance actions. 11 U.S.C. § 1123(b)(3)(B); In re Western Asbestos Co., 313 B.R. at 461.
Cal. Ins. Code § 1063.19(c)(9) provides in pertinent part that "covered claims" do not include "(i) any claim to the extent it is covered by any other insurance of a class covered by this article available to the claimant or insured [and] (ii) any claim by any person other than the originalclaimant under the insurance policy in his or her own name, his or her assignee as the person entitled thereto under a premium finance agreement as defined in Section 673 and entered into prior to insolvency, his or her executor, administrator, guardian or other personalrepresentative or trustee in bankruptcy and does not include any claim asserted by an assignee or one claiming by right of subrogation, exceeds otherwise provided in this chapter."
The Zurich defendants argue that the Trust is not a "personal representative" within the meaning of Cal. Ins. Code § 1063.19(c)(9). Relying on the "familiar principle of statutory construction that words grouped in a list should be given related meaning," Schreiber v. Burlington N., Inc., 472 U.S. 1, 8 (1985), defendants argue that a "personalrepresentative" must serve "an entity lacking the legal capacity to represent itself, in the same manner as an executor, administrator or guardian." Def. Opp'n at 11. However, they cite no cases which so hold. Moreover, it is an equally well-settled principle of statutory construction that a statute should be interpreted so that every word is construed to be significant and critical words of that statute should not be construed to be meaningless. Regions Hosp. v. Shalala, 522 U.S. 448, 467-68 (1998). The California legislature's inclusion of the words "or other personal representative" created a broader category than the specific terms listed, and appears to this Court to be sufficiently broad to encompass the Trust.
Absent definitive California case law, the best that can be said for the Zurich defendants' position is that the statute, as applied to the Trust, is ambiguous. Under these circumstances, remand is required, since federal courts are directed to reject jurisdiction if there is any doubt as to whether removal was proper. Duncan v. Stuetzle, 76 F.3d at 1485. "When there are real ambiguities among the relevant state law authorities, federalcourts that are considering motions to remand should avoid purporting to decide how state courts would construe those authorities." Macey v. Allstate Property Casualty Co., 220 F. Supp. 2d 1116, 1125 (N.D. Cal. 2002). Any ambiguities in the statute must be resolved against removal, i.e., against the defendants. Plute, 141 F. Supp. 2d at 1008. Therefore, since the Trust may be a "personal representative" within the meaning of the statute, the Zurich defendants cannot show there is no possibility that plaintiffs will be able to assert a cause of action against CIGA. Good, 5 F. Supp. 2d 807.
3. New grounds for removal
In addition to the grounds for removal discussed above, the Zurich defendants and Employers Reinsurance Corporation("ERC"), another defendant, have asserted new grounds for removalin their separate opposition papers. The Zurich defendants argue (1) that the claim against CIGA is not a covered claim because other insurance is allegedly available to plaintiffs, and (2) that the claim presents a federal question because it turns on the construction of the bankruptcy code and order of the U.S. Bankruptcy Court. ERC argues that (1) removal is proper because plaintiffs do not involve ERC or any other defendants in the cause of action against CIGA, and (2) plaintiffs cannot assert a claim against CIGA when Zurich is the alleged alter ego of Home and available to satisfy the claims.
Petitions for removal may not be amended to add substantive allegations after the thirty day removal period has lapsed.Barrow Dev. Co., supra, 418 F.2d at 317. ERC joined in the petition for removal filed by the Zurich defendants within thirty days of receiving the complaint, yet they did not raise any additional grounds at that time. Both the Zurich defendants and ERC cannot allege grounds for removalwhich were not asserted in the petition for removal because the thirty day period for petitioning for removal has lapsed. O'Halloran, supra, 856 F.2d at 1381. Because the new grounds were not included in the petition for removal, the Court does not consider them.
Consequently, the Court GRANTS plaintiffs' motion to remand.
CONCLUSION
For the foregoing reasons and for good cause shown, the Court hereby GRANTS plaintiffs' motion to remand and REMANDS this action to the San Francisco Superior Court where it was filed. [Docket # 14.]