Norman S. Wright Mechanical Equipment Corporation v. Genesis Air, Inc.

Filing 22

ORDER GRANTING LEAVE TO AMEND COMPLAINT AND REMANDING CASE. Signed by Judge Richard Seeborg on 7/30/13. (cl, COURT STAFF) (Filed on 7/30/2013)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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SAN FRANCISCO DIVISION

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For the Northern District of California

United States District Court

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NORMAN S. WRIGHT MECHANICAL
EQUIPMENT CORP., a California
Corporation
Plaintiff,

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No. C 13-02185 RS
ORDER GRANTING LEAVE TO
AMEND COMPLAINT AND
REMANDING CASE

v.
GENESIS AIR, INC., a Texas Corporation

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Defendants.
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I.

INTRODUCTION

Plaintiff Norman Wright Mechanical Equipment Corp. (“Norman Wright”) filed a

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complaint asserting state contract claims against defendant Genesis Air, Inc. (“Genesis”) in the

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Superior Court of California, County of San Mateo. Genesis removed the action pursuant to 28

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U.S.C. § 1332(a)(1) for diversity jurisdiction. Plaintiff then filed an amended complaint,

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advancing claims against Specialty A/C Products, Inc. (“Specialty A/C”), a California

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corporation. Plaintiff now seeks permission to file a first amended complaint and, if granted, to

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remand the matter to state court, as complete diversity would no longer exist. Genesis opposes

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any such amendment, arguing it is exclusively for the purpose of destroying diversity. This

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NO. C 13-02185 RS
ORDER GRANTING MOTION TO REMAND

matter is suitable for decision without oral argument and has been taken under submission

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pursuant to Civil Local Rule 7-1(b). For the following reasons, plaintiff may proceed on the

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amended complaint and, as a result, this matter must be remanded.

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II.

BACKGROUND

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Plaintiff Norman Wright is a manufacturer’s representative for heating, ventilation and

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air conditioning (“HVAC”) equipment, representing different manufacturers in the sale of such

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equipment. Defendant Genesis is a manufacturer of HVAC equipment known as indoor air

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containment reductions systems. In its original complaint, filed in the Superior Court of

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California, County of San Mateo on April 30, 2013, plaintiff alleges the two parties agreed that

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Norman Wright would represent Genesis in Northern California and Nevada. Based on this

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understanding, Norman Wright asserts it obtained orders for certain construction projects.

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Thereafter, however, Genesis allegedly refused to sell any equipment to plaintiff which, in turn,

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brought claims for breach of contract, promissory estoppel, intentional interference with

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contractual relations, and unfair business practices under California Business and Professions

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Code § 17200.

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Defendant Genesis properly removed the action on May 13, 2013, and answered on May

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17, 2013. Norman Wright then filed an amended complaint on June 5, 2013, joining Specialty

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A/C, a California corporation who serves as Genesis’s representative in the Bay Area, as a

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defendant. Plaintiff alleges that Specialty A/C entered into an agreement with Genesis whereby

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Genesis was not to sell to plaintiff in exchange for payment or a promise of payment. Against

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Specialty A/C, Norman Wright brings claims of interference with prospective economic

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advantage, inducing breach of three separate contracts, and unfair business practices under

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California Business and Professions Code § 17200. Genesis objected to such amendment, and

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the parties agreed that Norman Wright must seek permission to proceed on the amended

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complaint.

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Norman Wright asserts Specialty A/C is properly joined in this action because the claims
against it are closely related to the claims against Genesis. Specifically, the two are alleged to

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NO. C 13-02185 RS
ORDER GRANTING MOTION TO REMAND

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have conspired to interfere with plaintiff’s contractual and economic relations. Genesis argues

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plaintiff filed the amended complaint with the sole purpose of destroying diversity jurisdiction as

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plaintiff knew of Specialty A/C’s existence at the time the initial complaint was filed and that

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plaintiff has failed to allege any actionable wrongdoing against Specialty A/C, or to the extent

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such a claim is asserted, it is unrelated to the claims brought against Genesis.

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III.

LEGAL STANDARD

“If after removal the plaintiff seeks to join additional defendants whose joinder would

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destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the

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action to the State court.” 28 U.S.C. § 1447(e). Whether to permit joinder of a party that will

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destroy diversity jurisdiction falls within the discretion of the court. See Newcombe v. Adolf

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For the Northern District of California

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Coors Co., 157 F.3d 686, 691 (9th Cir. 1998).

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Courts generally consider six factors when deciding whether to permit amendment to add

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non-diverse parties: (1) whether the party sought to be joined is needed for just adjudication and

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would be joined under Federal Rule of Civil Procedure 19(a); (2) whether the statute of

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limitations would preclude an original action against the new defendants in state court; (3)

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whether there has been unexplained delay in requesting joinder; (4) whether joinder is intended

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solely to defeat federal jurisdiction; (5) whether the claims against the new defendant appear

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valid; and (6) whether denial of joinder will prejudice the plaintiff. See IBC Aviation Services,

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Inc. v. Compania Mexicanade Aviacion, SA, 125 F.Supp.2d 1008, 1011 (N.D. Cal. 2000);

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Palestini v. General Dynamics Corp., 193 F.R.D. 654, 658 (C.D. Cal. 2000); Boon v. Allstate

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Ins. Co., 229 F.Supp.2d 1016, 1019-20 (C.D. Cal. 2002).

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IV.

DISCUSSION

First, Rule 19 of the Federal Rules of Civil Procedure requires joinder of persons whose

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presence is necessary to grant complete relief, or whose absence would impede their ability to

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protect their interests or subject the parties to inconsistent obligations. Fed. R. Civ. Pro. 19(a).

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This standard is met when failure to join will lead to repetitive and wasteful actions. See CP

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Nat’l. Corp. v. Bonneville Power Admin., 928 F.2d 905, 912 (9th Cir. 1991); IBC Aviation, 125

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F.Supp.2d at 1012. In approving discretionary joinder, a high degree of involvement by the

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proposed defendant in the occurrences giving rise to the plaintiff’s claim is generally required.

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See Boon, 229 F.Supp.2d at 1022. Here, the claims asserted against Specialty A/C are

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intertwined with those asserted against Genesis. Indeed, Norman Wright alleges that Specialty

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A/C improperly induced Genesis to breach its contract with plaintiff, thereby interfering with

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contracts between plaintiff and its customers. Without joinder, Specialty A/C would be

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precluded from defending itself from these allegations. Moreover, Norman Wright may be

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unable to obtain complete relief if successful in its claims, as the claims now asserted against

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Specialty A/C are closely intertwined with those asserted against Genesis. Accordingly, the

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considerations under Rule 19 favor joinder.
Norman Wright concedes that the statute of limitations has not run, and that therefore

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claims against Specialty A/C in a separate state court action could be initiated. Plaintiff

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contends, however, that such action would be duplicative and a waste of judicial resources, as the

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claims against Specialty A/C are closely related to those against Genesis. As the facts giving rise

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to plaintiff’s claims against both Specialty A/C and Genesis pertain to the same set of contractual

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agreements, requiring plaintiff to litigate the claims in separate actions would result in

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duplicative proceedings. Thus, the interests of judicial economy, contemplated under the second

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factor, favor resolving these claims in a single action.

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With respect to the third factor, Norman Wright disputes that it delayed seeking to name

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Specialty A/C as a defendant. Rather, it argues that amendment is timely as a matter of law

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under Rule 15 of the Federal Rules of Civil Procedure. While Genesis notes that plaintiff was

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aware of Specialty A/C’s identity at the time it filed the initial complaint, plaintiff insists further

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discovery was necessary to learn of Specialty A/C’s role in the alleged wrongdoing in order to

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assert proper claims against the non-diverse defendant. Regardless of whether, prior to such

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discovery, plaintiff could have named Specialty A/C in its pleadings, plaintiff is within its rights

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instead to seek leave to amend at this juncture. In Boon, a court in the Central District of

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California found that an amended complaint filed less than three months after the initial

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complaint, and one month after the notice of removal, did not support a finding of unreasonable

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delay. 229 F.Supp.2d at 1323 citing Lopez v. General Motors Corp., 697 F.2d 1328, 1332 (9th

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Cir. 1993) (holding a delay of six months after removal was “too late” for plaintiff to amend

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complaint to add new parties); see also IBC Aviation, 125 F.Supp.2d at 1012 (finding

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amendment less than two months after filing of complaint and one month after removal did not

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amount to unreasonable delay). Here, plaintiff’s amended complaint was filed less than two

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months following the initial complaint, and less than 21 days after Genesis filed its answer, as

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contemplated by Federal Rule of Civil Procedure 15(a). As such, there was no undue delay in

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the amendment, and the timing of such addition was appropriate under the third factor.

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The fourth factor, motive, is of particular importance in removal jurisdiction cases where

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joinder may defeat jurisdiction. See Desert Empire Bank v. Ins. Co. of N. America, 623 F.2d

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1371, 1083 (9th Cir. 1980). In assessing motive, “the court may consider statements of counsel

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at pretrial conferences, and plaintiff’s subsequent attempt to amend her complaint as relating to

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plaintiff’s true intent at the time the action was removed.” Goodman v. Travelers Ins. Co., 561

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F.Supp. 1111, 1113-14 (N.D. Cal. 1983) (citations omitted). Genesis contends that, (1) given

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plaintiff’s knowledge of Specialty A/C at the time of the original filing, (2) comments made by

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plaintiff’s counsel that she would add Specialty A/C and seek remand immediately after removal,

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and (3) the absence of new information in the amended complaint, the attempted amendment is

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for the sole purpose of destroying diversity. As stated previously, however, plaintiff maintains it

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had intended to assert claims against Specialty A/C all along, but wanted to engage in further

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discovery before so doing. Moreover, taking the facts as pleaded to be true, it appears Specialty

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A/C is a necessary party to the action. Thus sufficient evidence exists to decline to impute an

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improper motive for joinder to Norman Wright. See IBC Aviation, 125 F.Supp.2d at 1012.

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Genesis further contends plaintiff has failed to state any valid claim against Specialty

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A/C, in violation of the fifth factor. It insists plaintiff has not alleged any independently

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wrongful conduct necessary to support the tort of interference with prospective economic

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advantage. The amended complaint, however, avers that Genesis and Specialty A/C formed an

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ORDER GRANTING MOTION TO REMAND

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anti-competitive agreement intended to disrupt the alleged agreement between Genesis and

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plaintiff. This alleged side agreement is independent of the alleged contract between plaintiff

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and Genesis and asserts the mens rea required to support a tort claim. Thus plaintiff has asserted

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a viable claim of interference with prospective economic relations.

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Genesis additionally argues that Specialty A/C and Genesis are not “strangers” to the

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contract and Specialty A/C thus had a contractual right to interfere. This theory seems premised

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upon the preexisting agreements between Genesis and Specialty A/C, rather than on the contract

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at issue here – that between Genesis and Norman Wright. Taking the pleadings of the amended

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complaint to be true, there is no evidence Norman Wright ever entered into any agreement with

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Specialty A/C. Thus Specialty A/C was a “stranger” to the contract at issue and had no

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preexisting contractual right to interfere with the relationship between Genesis and plaintiff. It

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follows that plaintiff has asserted potentially valid claims for inducing breach of contract.

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Similarly, taking the allegations to be true, plaintiff has asserted a viable claim under California

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Business and Professions Code § 17200, as inducing one to discontinue business with another

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through payment or a promise of payment, amounting to an unlawful or unfair business practice.

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Where defendants fail to show “there is no possibility that [plaintiff] could state a claim in

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California state court” against a proposed defendant, the defendant is properly joined. California

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Dump Truck Owner’s Ass’n v. Cummins Engine Co., Inc., 24 Fed. App’x. 727, 729 (9th Cir.

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2001). Given California’s liberal rules on amendment of pleadings, see California Code of Civil

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Procedure § 473, to the extent there are deficiencies in the pleadings, it is possible the California

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court would permit amendment. See California Dump Truck, 24 Fed. App’x at 729. Thus,

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Norman Wright has sufficiently alleged viable claims for relief against Specialty A/C.

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Finally, denial of joinder would force Norman Wright to choose between foregoing its

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potential claims against Specialty A/C and litigating similar actions in two different courts. This

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would prejudice plaintiff, and weighs in favor of permitting joinder under the sixth factor.

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On balance, consideration of the applicable six factors favors permitting joinder of

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Specialty A/C as a defendant. Plaintiff’s motion for leave to amend is granted. As both Norman

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Wright and Specialty A/C are California corporations, complete diversity is destroyed, and as all

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of plaintiff’s claims arise exclusively under California state law, no other basis for federal

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subject matter jurisdiction arises. Accordingly, this Court lacks jurisdiction to hear this case and

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the matter must be remanded to state court.
V.

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CONCLUSION

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For the foregoing reasons, Norman Wright’s motion to amend its complaint is granted.

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The matter shall be remanded to the Superior Court of California, County of San Mateo. The

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hearing scheduled for August 8, 2013 is vacated.

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IT IS SO ORDERED.

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Dated: 7/30/13
RICHARD SEEBORG
UNITED STATES DISTRICT JUDGE

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