Pacific Hospitality Group Ventures, Inc. et al v. NewcrestImage Holdings, LLC et al

Filing 39

MINUTES (IN CHAMBERS) ORDER by Judge Josephine L. Staton (1) GRANTING PLAINTIFFS MOTION TO REMAND, (2) DENYING DEFENDANTS MOTION TO DROP, AND (3) AWARDING ATTORNEYS FEES (Docs. 22 , 23 ). In sum, the Court GRANTS Plaintiffs Motion to Remand. This case is REMANDED to Orange County Superior Court, Case No. 30-2017-00929381. Defendants are ORDERED to pay Plaintiffs $13,669.25 in attorneys fees and costs within thirty (30) days of this Order. (see document for details). MD JS-6. Case Terminated. (dro)

JS-6
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No. 8:17-cv-01353-JLS-JDE
Date: September 27, 2017
Title: Pacific Hospitality Group Ventures, Inc. et al. v. NewcrestImage Holdings, LLC et al.
Present: Honorable JOSEPHINE L. STATON, UNITED STATES DISTRICT JUDGE
Terry Guerrero
Deputy Clerk
ATTORNEYS PRESENT FOR PLAINTIFF:
Not Present

N/A
Court Reporter
ATTORNEYS PRESENT FOR DEFENDANT:
Not Present

PROCEEDINGS: (IN CHAMBERS) ORDER (1) GRANTING PLAINTIFFS’
MOTION TO REMAND, (2) DENYING DEFENDANTS’
MOTION TO DROP, AND (3) AWARDING ATTORNEYS’
FEES (Docs. 22, 23)
Before the Court are (1) Plaintiff Pacific Hospitality Group Ventures, Inc. and
Cotton Exchange Investment Properties, LLC’s Motion to Remand (Remand Mot., Doc.
22) and (2) a Motion to Drop filed by Defendant NewcrestImage Holdings, LLC;
NewcrestImage Management, LLC; NewcrestImage, LLC; Mehul Patel; and Daxesh
Patel (Drop Mot., Doc. 23). The Court finds these matters appropriate for decision
without oral argument. See Fed. R. Civ. P. 78(b); C.D. Cal. R. 7-15. Accordingly, the
hearing set for September 29, 2017, at 2:30 p.m. is VACATED. For the reasons set forth
below, the Court GRANTS Plaintiffs’ Motion for Remand and DENIES Defendants’
Motion to Drop.
I.

BACKGROUND

Plaintiffs filed this suit on July 3, 2017 in Orange County Superior Court, alleging
that Defendants made material misstatements and omissions regarding the quality of
renovations that contractors performed on the Cotton Exchange Building, a hotel located
in New Orleans, before the hotel was sold to Plaintiffs. (Compl. ¶¶ 23–28, 30–37, 41–47,
Exh. A, Doc. 1-1.) Defendants in this suit allegedly controlled Supreme Bright New
Orleans, LLC, which entered into the original Purchase and Sale Agreement with Pacific
Hospitality Group on June 2, 2015. (Id. ¶¶ 19, 38; see Purchase and Sale Agreement,
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____________________________________________________________________________
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No. 8:17-cv-01353-JLS-JDE
Date: September 27, 2017
Title: Pacific Hospitality Group Ventures, Inc. et al. v. NewcrestImage Holdings, LLC et al.

Exh. A, Doc. 25.) Before the closing date on the transaction, Pacific Hospitality Group
assigned its “right, title, and interest” in the Purchase and Sale Agreement to Cotton
Exchange with Supreme Bright New Orleans’s consent. (Compl. ¶ 39; see Assignment,
Exh. C, Doc. 25.) Cotton Exchange then entered a Second Amendment to the Purchase
and Sale Agreement with Supreme Bright New Orleans on August 18, 2015. (See
Second Amendment, Exh. D, Doc. 25.) The Complaint advances claims for: (1)
intentional misrepresentation, (2) negligent misrepresentation, (3) concealment, (4)
avoidance of an actually fraudulent transfer, and (5) avoidance of a constructively
fraudulent transfer. (Compl. ¶¶ 48–88.)
On August 8, 2017, Defendants removed this case federal court, averring, “On
information and belief, none of the members of Cotton Exchange Ventures, LLC”—
which is the sole member of Plaintiff Cotton Exchange—“is a citizen of Texas.” (Notice
of Removal at 2, Doc. 1.) Fifteen days later, Plaintiffs’ Counsel provided Defense
Counsel with evidence showing that one of Cotton Exchange Ventures’ members was, in
fact, a citizen of Texas, but Defense Counsel refused to stipulate to a remand. (Gans
Decl. ¶ 6, Doc. 22-1; Gans Email and Attachments, Exh. A, Doc. 22-1.) This timely
Motion to Remand followed. (Remand Mot.)
II.

LEGAL STANDARD

Generally, subject matter jurisdiction is based on the presence of a federal
question, see 28 U.S.C. § 1331, or complete diversity between the parties, see 28 U.S.C.
§ 1332. Thus, “[a] defendant may remove an action to federal court based on federal
question jurisdiction or diversity jurisdiction.” Hunter v. Philip Morris USA, 582 F.3d
1039, 1042 (9th Cir. 2009). “However, it is to be presumed that a cause lies outside [the]
limited jurisdiction of [the federal courts] and the burden of establishing the contrary
rests upon the party asserting jurisdiction.” Id. (quoting Abrego Abrego v. Dow Chem.
Co., 443 F.3d 676, 684 (9th Cir. 2006)). There is a “strong presumption” against removal
jurisdiction, and courts “strictly construe the removal statute against removal
jurisdiction.” Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992).
In establishing diversity jurisdiction, “one exception to the requirement for
complete diversity is where a non-diverse defendant has been fraudulently joined.”
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____________________________________________________________________________
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No. 8:17-cv-01353-JLS-JDE
Date: September 27, 2017
Title: Pacific Hospitality Group Ventures, Inc. et al. v. NewcrestImage Holdings, LLC et al.

Hunter, 582 F.3d at 1043 (citation and internal quotation marks omitted). “In such a case,
the district court may ignore the presence of that defendant for the purpose of establishing
diversity.” Id. A removing defendant bears the “heavy burden” of overcoming “both the
strong presumption against removal jurisdiction and the ‘general presumption against
fraudulent joinder.’” Hunter, 582 F.3d at 1046; Wilson-Condon v. Allstate Indem. Co.,
No. CV 11–05538 GAF (PJWx), 2011 WL 3439272, at *2 (C.D. Cal. Aug. 4, 2011).
“Fraudulent joinder must be proven by clear and convincing evidence,” Hamilton
Materials, Inc. v. Dow Chemical Corp., 494 F.3d 1203, 1206 (9th Cir. 2007), and a
reviewing court “must initially resolve all disputed questions of fact and all ambiguities
in the controlling state law in favor of the non-removing party,” Dodson v. Spiliada Mar.
Corp., 951 F.2d 40, 42 (5th Cir. 1992); Onelum v. Best Buy Stores L.P., 948 F. Supp. 2d
1048, 1052 (C.D. Cal. 2013). Only “if there is [no] possibility that a state court would
find that the complaint states a cause of action against any of the resident defendants,”
Hunter, 582 F.3d at 1046 (citation omitted) (emphasis added), and “the failure is obvious
according to the settled rules of the state,” McCabe, 811 F.2d at 1339, may a district court
retain jurisdiction. “In other words, the case must be remanded ‘unless the defendant
shows that the plaintiff would not be afforded leave to amend his complaint to cure the
purported deficiency.’” Wilson-Condon, 2011 WL 3439272, at *2 (quoting Padilla v. AT
& T Corp., 697 F. Supp. 2d 1156, 1159 (C.D. Cal. 2009)). “The defendant seeking
removal to the federal court is entitled to present the facts showing the joinder to be
fraudulent.” McCabe, 811 F.2d at 1339.
III.

DISCUSSION

A. Plaintiffs’ Motion to Remand
In this case, there is no dispute that, as a plaintiff, Cotton Exchange defeats
diversity jurisdiction with the Texan Defendants. As a limited liability corporation,
Cotton Exchange “is a citizen of every state of which its owners/members are citizens.”
Johnson v. Columbia Properties Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006); see
Americold Realty Tr. v. Conagra Foods, Inc., 136 S. Ct. 1012, 1015 (2016) (“So long as
such an entity is unincorporated, we apply our ‘oft-repeated rule’ that it possesses the
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____________________________________________________________________________
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No. 8:17-cv-01353-JLS-JDE
Date: September 27, 2017
Title: Pacific Hospitality Group Ventures, Inc. et al. v. NewcrestImage Holdings, LLC et al.

citizenship of all its members.”). The citizenship of a party is measured as of the
commencement of the action, and post-filing changes in that party’s citizenship cannot
create or destroy diversity jurisdiction. Grupo Dataflux v. Atlas Glob. Grp., L.P., 541
U.S. 567, 571, 582 (2004). At the time of filing suit, Cotton Exchange’s sole member,
Cotton Exchange Ventures, LLC, was a Texan citizen. (Zand Decl. ¶ 3, Doc. 38.) As a
result, Cotton Exchange was likewise a citizen of Texas.
Defendants’ Motion to Drop is premised on the rather fundamental misconception
that this court can, in response to a timely filed motion to remand, simply drop a party
with inconvenient citizenship under Rule 21 to rectify an improper removal. A Rule 21
motion can be used only in the rare circumstance where a district court erroneously
denies a motion to remand or overlooks a jurisdictional defect and the case proceeds,
often to a judgment, before the district court’s mistake is corrected. Grupo Dataflux, 541
U.S. at 573; Newman–Green, Inc. v. Alfonzo–Larrain, 490 U.S. 826, 832 (1989). To
prevent the district court’s error from turning into a tremendous waste of judicial and
private resources, a court may “cure a jurisdictional defect by dismissing a dispensable
nondiverse party.” Grupo Dataflux, 541 U.S. at 573. But, quite obviously, the
possibility of this jurisdictional band-aid does not give district courts license to
incorrectly decide motions to remand in the first place. As the Supreme Court observed
in Caterpillar Inc. v. Lewis when endorsing this procedure, “The well-advised defendant
. . . will foresee the likely outcome of an unwarranted removal—a swift and
nonreviewable remand order, see 28 U.S.C. §§ 1447(c), (d), attended by the displeasure
of a district court whose authority has been improperly invoked.” 519 U.S. 61, 77–78
(1996).
Because the remand motion was timely filed and this case remains in its infancy,
the only potentially applicable way this Court may ignore Cotton Exchange’s citizenship
is the fraudulent joinder doctrine. See, e.g., Lozano v. Harless, No. 1:10-CV-00194-LJOGSA, 2010 WL 1239211, at *4 (E.D. Cal. Mar. 26, 2010) (finding that a defendant was
not fraudulently joined and then denying motion to drop for lack of subject matter
jurisdiction). This very narrow rule discounts a party’s citizenship where there is no
“possibility” that it has a valid pleaded claim or could be held liable under any claim

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No. 8:17-cv-01353-JLS-JDE
Date: September 27, 2017
Title: Pacific Hospitality Group Ventures, Inc. et al. v. NewcrestImage Holdings, LLC et al.

alleged against it, after resolving all doubts about the facts and substantive law in favor of
the disputed party. See Dodson, 951 F.2d at 42; Onelum, 948 F. Supp. 2d at 1052.
Defendants never made a fraudulent joinder argument in their papers, and even if
the Court were to construe Defendants’ Motion to Drop as such, Cotton Exchange is
clearly a proper party. Under California law, “a defendant cannot escape liability if he or
she makes a representation to one person while intending or having reason to expect that
it will be repeated to and acted upon by the plaintiff (or someone in the class of persons
of which plaintiff is a member).” Shapiro v. Sutherland, 76 Cal. Rptr. 2d 101 (Cal.
1998). The purchase of the Cotton Exchange building closed after Supreme Bright New
Orleans not only consented to Cotton Exchange’s assumption of the agreement but also
entered into the Second Amendment to it with Cotton Exchange. (See Assignment, Exh.
C; Second Amendment, Exh. D.) The Complaint alleges that Defendants made both
affirmative misrepresentations and fraudulently concealed defects with the hotel. (See,
e.g., Compl. ¶¶ 27, 47 (alleging that Defendants painted over mold damage and Patel
admitted that Defendants put “lipstick on a pig”).) Thus, resolving all legal and factual
ambiguities in favor of Cotton Exchange, there is more than a “possibility” that it may
have a valid claim against Defendants. Because Cotton Exchange was properly joined,
this suit is REMANDED to Orange County Superior Court, Case No. 30-201700929381-CU-NP-CJC.
B. Plaintiffs’ Request for Attorney’s Fees
In adopting 1447(c)’s fee-shifting provision, Congress recognized that “[t]he
process of removing a case to federal court and then having it remanded back to state
court delays resolution of the case, imposes additional costs on both parties, and wastes
judicial resources.” Martin v. Franklin Capital Corp., 546 U.S. 132, 140 (2005).
Although courts generally “may award attorney’s fees under § 1447(c) only where the
removing party lacked an objectively reasonable basis for seeking removal[,]” this
standard does not require a plaintiff to show that the removal was “frivolous,
unreasonable, or without foundation.” Id. at 138, 141.
When Defendants removed this action, binding circuit authority held that a limited
liability company takes the citizenship of all its owners or members, and a recent
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____________________________________________________________________________
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No. 8:17-cv-01353-JLS-JDE
Date: September 27, 2017
Title: Pacific Hospitality Group Ventures, Inc. et al. v. NewcrestImage Holdings, LLC et al.

Supreme Court decision had essentially confirmed the approach taken by this (and every
other) circuit. Johnson, 437 F.3d at 899; see Americold Realty Tr., 136 S. Ct. at 1015.
Plaintiffs’ Complaint did not plead the citizenship of Cotton Exchange’s members or
owners, and Defendants had no information about its citizenship.1 Yet Defendants filed a
Notice of Removal, averring, “On information and belief, none of the members of Cotton
Exchange Ventures, LLC is a citizen of Texas.” (Notice of Removal at 2.) If Defendants
wished to determine whether this suit was removable, the proper course would have been
to propound interrogatories or otherwise obtain some support for this assertion before
removing. The receipt of information suggesting that the parties were completely diverse
would have triggered the thirty-day deadline to remove. See 28 U.S.C. § 1446 (“[I]f the
case stated by the initial pleading is not removable, a notice of removal may be filed
within 30 days after receipt by the defendant, through service or otherwise, of a copy of
an amended pleading, motion, order or other paper from which it may first be ascertained
that the case is one which is or has become removable” (emphasis added)); cf. Durham v.
Lockheed Martin Corp., 445 F.3d 1247, 1253–54 (9th Cir. 2006) (holding that “a federal
officer defendant’s thirty days to remove commence a case does not become removable
under the federal officer removal statute until when the plaintiff discloses sufficient facts
for federal officer removal”). Rather than conducting a reasonable pre-removal
investigation, Defendants removed this suit to determine whether it was properly
removable.
Defendants’ post-removal conduct further militates in favor of awarding attorneys’
fees. Instead of stipulating to a remand after Plaintiffs’ Counsel informed Defendants’
Counsel that Cotton Exchange had a Texan member, Defendants filed their Motion to
Drop, which—as discussed already—contravenes fundamental principles regarding
removal and remand. (Gans Decl. ¶ 6; Gans Email and Attachments, Exh. A.) Tellingly,
Defendants did not raise their Rule 21 arguments in their Notice of Removal, suggesting
that these arguments were developed after removal in a final effort to resist remand.
1

Defendants suggest that Plaintiffs somehow acted improperly by failing to plead the
citizenship of all of Cotton Exchange’s members. (Remand Opp’n at 10–11.) In filing a state
court complaint, however, Plaintiffs had no obligation to plead this information, which is
irrelevant for state law purposes and often sensitive.
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____________________________________________________________________________
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No. 8:17-cv-01353-JLS-JDE
Date: September 27, 2017
Title: Pacific Hospitality Group Ventures, Inc. et al. v. NewcrestImage Holdings, LLC et al.

Because Defendants lacked an objectively reasonable basis to remove this action
and, through their post-removal conduct, forced Plaintiffs to expend a substantial sum in
attorneys’ fees and costs, a 1447(c) award is appropriate. “Courts in the Ninth Circuit
calculate attorney’s fees using the lodestar method, whereby a court multiplies ‘the
number of hours the prevailing party reasonably expended on the litigation by a
reasonable hourly rate.’” Sepehry-Fard v. Select Portfolio Servicing, Inc., No. 14-CV05142-LHK, 2016 WL 4762273, at *2 (N.D. Cal. Sept. 13, 2016) (quoting Camacho v.
Bridgeport Fin., Inc., 523 F.3d 973, 978 (9th Cir. 2008)). The party seeking attorneys’
fees bears the initial burden of establishing their reasonableness. Carson v. Billings
Police Dep’t, 470 F.3d 889, 891 (9th Cir. 2006). A district court may also rely on its
“knowledge of customary rates and . . . experience concerning reasonable and proper
fees.” Ingram v. Oroudjian, 647 F.3d 925, 928 (9th Cir. 2011). In their declaration,
Plaintiffs affirm they have spent $975 on pro hac vice applications, $74.25 to obtain
certificates of good standing, and $12,620 in attorneys’ fees. (Gans Decl. ¶ 9.) Gans, a
partner at Pillsbury, submits a declaration breaking down by task the hours he has billed
as a result of Defendants’ improper removal. (Id. ¶ 7.) He also submits the time billed
by Nathan Spatz and Laura Freid-Studlo, although their hours are not broken down by
task. (Id. ¶¶ 11–12.) Counsel billed their time at $720, $785, and $710 respectively. (Id.
¶¶ 8, 11–12.) Typically, the Court would deduct twenty percent of Spatz and FreidStudlo’s hours due to the block-billed declaration, see, e.g., Banas v. Volcano Corp., 47
F. Supp. 3d 957, 967 n.11 (N.D. Cal. 2014), but the Court exercises its discretion not to
do so here because Plaintiffs’ declaration does not account for the additional time spent
drafting an opposition to Defendants’ Motion to Drop. The Court finds the requested
amount otherwise reasonable, and Defendants do not object to the rates or hours billed.
Thus, the Court GRANTS Plaintiffs $13,669.25 in attorneys’ fees and costs.
IV.

CONCLUSION

In sum, the Court GRANTS Plaintiffs’ Motion to Remand. This case is
REMANDED to Orange County Superior Court, Case No. 30-2017-00929381.
Defendants are ORDERED to pay Plaintiffs $13,669.25 in attorneys’ fees and costs
within thirty (30) days of this Order.
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