DGP Associates, LP v. American Guarantee & Liability Insurance Company et al

Filing 25

ORDER by Judge Edward M. Chen Granting in Part and Denying in Part 5 Plaintiff's Motion to Remand. (emcsec, COURT STAFF) (Filed on 3/19/2013)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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DGP ASSOCIATES, LP,

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For the Northern District of California

United States District Court

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No. C-12-6348 EMC

Plaintiff,
v.
AMERICAN GUARANTEE & LIABILITY
INSURANCE COMPANY, et al.,

ORDER GRANTING IN PART AND
DENYING IN PART PLAINTIFF’S
MOTION TO REMAND
(Docket No. 5)

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Defendants.
___________________________________/

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DGP Associates, LP (“DGP”) filed suit against American Guarantee and Liability Insurance

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Company, American Zurich Insurance Company, Zurich American Insurance Company, and Zurich

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American Insurance Company of Illinois (collectively “Zurich Defendants”) over a business

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property insurance policy covering a commercial property owned by the Plaintiff. DGP also named

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in its suit James C. Jenkins Insurance Services, Inc., and Jenkins/Athens Coverco, Inc. (collectively

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“Jenkins Defendants”), the insurance brokerage firm that procured the policy. The complaint, filed

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in the Superior Court for the County of San Francisco, alleges breach of contract and bad faith

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causes of action against the Zurich Defendants, and a negligence cause of action against the Jenkins

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Defendants. See Not. of Removal (Docket No. 1), Ex. A (Complaint). The Zurich Defendants

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allege that the Jenkins Defendants are sham defendants who were sued in order to prevent a federal

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court from exercising diversity jurisdiction under 28 U.S.C. § 1332(a). The Zurich Defendants

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removed DGP’s state court action to this Court pursuant to 28 U.S.C. § 1441(b), arguing that the

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citizenship of the Jenkins Defendants should be disregarded for the purpose of determining

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jurisdiction. See Not. of Removal (Docket No. 1). Thereafter DGP filed a motion to remand this

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action back to state court, as well as a motion for fees and costs. See Docket No. 5. Having

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considered the parties’ briefs and accompanying submissions, as well as the oral argument of

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counsel, the Court hereby GRANTS IN PART and DENIES IN PART Plaintiff’s motions for the

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reasons discussed both on the record and herein.

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As stated more fully on the record, the Court finds that Defendants have not met their burden

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to show that the Jenkins Defendants were fraudulently joined to DGP’s suit. Under controlling

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Ninth Circuit precedent, “there is a strong presumption against removal jurisdiction” and the burden

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is on the removing party to demonstrate jurisdiction. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th
Cir. 1992). Where fraudulent joinder is alleged, “if there is a possibility that a state court would find

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For the Northern District of California

United States District Court

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that the complaint states a cause of action against any of the resident defendants, the federal court

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must find that the joinder was proper and remand the case to the state court.” Hunter v. Philip

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Morris USA, 582 F.3d 1039, 1046 (9th Cir. 2009) (quoting Tillman v. R.J. Reynolds Tobacco, 340

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F.3d 1277, 1279 (11th Cir. 2003) (per curiam)) (emphasis added).

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The Court finds, at a minimum, that it is possible for DGP to state a cause of action against

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the Jenkins Defendants as an intended beneficiary of an insurance policy under the negligence

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doctrine discussed in Business to Business Markets, Inc. v. Zurich Specialties, 135 Cal. App. 4th 165

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(2005). See also MV Transp., Inc. v. Omne Staff Leasing, Inc., 378 F. Supp. 2d 1200 (E.D. Cal.

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2005); Nowlon v. Koram Ins. Ctr., Inc., 1 Cal. App. 4th 1437 (1991); Cayo v. Valor Fighting &

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Mgmt. LLC, C 08-4763CW, 2008 WL 5170125 (N.D. Cal. Dec. 9, 2008); Fick v. Unum Life Ins. Co.

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of Am., 2:12-CV-01851-MCE, 2012 WL 5214346 (E.D. Cal. Oct. 22, 2012). Consequently, the

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Court holds that the Jenkins Defendants were not fraudulently joined to this action. Since both DGP

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and the Jenkins Defendants are citizens of the State of California, this Court lacks diversity

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jurisdiction under 28 U.S.C. §1332(a) over this case, and therefore the case must be remanded back

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to state court.

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The Court also holds that Plaintiff has not shown that fees and costs ought to be awarded

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pursuant to 28 U.S.C. §1447(c), which authorizes a court granting a remand motion to “require

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payment of just costs and any actual expenses, including attorney fees, incurred as a result of the

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removal.” “[A]bsent unusual circumstances, attorney’s fees should not be awarded [under §1447]

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when the removing party has an objectively reasonable basis for removal.” Martin v. Franklin

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Capital Corp., 546 U.S. 132, 136 (2005). As stated on the record, the Court finds that the Zurich

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Defendants had an objectively reasonable basis for removing this action, and there is no indication

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on the record that removal was undertaken in bad faith.

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Therefore, the Court GRANTS Plaintiff’s Motion to Remand, and DENIES Plaintiff’s

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Motion for Fees and Costs. This matter is remanded to state court. The Clerk of the Court is

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directed to close the file in this case

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This order disposes of Docket No. 5.

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For the Northern District of California

United States District Court

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IT IS SO ORDERED.

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Dated: March 19, 2013

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_________________________
EDWARD M. CHEN
United States District Judge

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