RCM International, LLC v. Alpental Energy Partners, LLC et al

Filing 24

ORDER by Judge Samuel Conti granting 15 Motion to Remand; terminating 23 Motion to Dismiss. (sclc2, COURT STAFF) (Filed on 12/4/2014)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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RCM INTERNATIONAL, LLC,
Plaintiff,

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For the Northern District of California

United States District Court

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v.

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ALPENTAL ENERGY PARTNERS, LLC;
BLUE MOUNTAIN BIOGAS, LLC
Defendants.

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) Case No. 14-CV-04788 SC
)
) ORDER GRANTING PLAINTIFF'S
) MOTION TO REMAND
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I.

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INTRODUCTION
Now before the Court is Plaintiff RCM International, LLC's

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("RCM") motion to remand.

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Mountain Biogas, LLC ("Blue Mountain") and Alpental Energy

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Partners, LLC ("Alpental") oppose.

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motion is full briefed, ECF No. 20 ("Reply") and suitable for

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decision without oral argument under Civil Local Rule 7-1(b).

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the reasons set forth below the motion is GRANTED.

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ECF No. 8 ("Mot.").

Defendants Blue

ECF No. 18 ("Opp'n").

The

For

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II.

BACKGROUND

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In this case, RCM, a California limited liability company,

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alleges various causes of action arising out of the breach of a

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confidentiality agreement entered into as part of RCM's business

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relationship with Alpental, a Utah limited liability company.

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RCM designs, manufactures, and sells anaerobic digesters, a

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type of technology used to convert organic wastes like manure into

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energy and fertilizer.

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whereby Alpental would finance and own anaerobic digester projects

Alpental and RCM entered into a deal

United States District Court

For the Northern District of California

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designed by RCM, with a third party providing animal waste to be

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used to produce energy.

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relationship, which would require the exchange of information RCM

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considers confidential or otherwise protectable, RCM required

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Alpental to agree to certain confidentiality protections.

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entering into such an agreement, RCM believes that Alpental

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improperly used confidential information acquired under that

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agreement to develop and build the Blue Mountain Project, an

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anaerobic digester project in Utah.

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As a condition of entering into this

After

In 2012, RCM filed this action in Alameda County Superior

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Court (the "Underlying Action").

The action was removable to

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federal court on the grounds of diversity of citizenship from the

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outset, although Alpental chose not to exercise its right to

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remove.

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Action, Alpental transferred its ownership of the Blue Mountain

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Project to its then-wholly-owned subsidiary, Blue Mountain Biogas

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LLC, a Delaware limited liability company.

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been aware of the existence of the Blue Mountain Project, discovery

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issues were significant in the Underlying Action, and at first, RCM

At some point during the pendency of the Underlying

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While RCM has always

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was unaware of the transfer of ownership or the existence of Blue

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Mountain Biogas LLC.

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RCM amended its complaint on October 7, 2014 to substitute Blue

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Mountain Biogas for one of the Doe entities named in the initial

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complaint.

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of removal on the grounds of diversity of citizenship.

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Underlying Action is currently set for trial in state court

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beginning on January 26, 2015.

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United States District Court

For the Northern District of California

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Nonetheless, after learning of the transfer,

On October 28, 2014, Blue Mountain Biogas filed notice
The

Now RCM moves for an order remanding the action to state
court.

Alpental and Blue Mountain Biogas oppose.

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III. LEGAL STANDARD

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28 U.S.C. Section 1441 provides that civil cases brought in

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state court over which "the district courts of the United States

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have original jurisdiction, may be removed by the defendant or the

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defendants, to the district court of the United States for the

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district and division embracing the place where such action is

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pending."

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Servs. LLC, 728 F.3d 975, 977 (9th Cir. 2013).

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the basis for original jurisdiction is 28 U.S.C. Section 1332,

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which provides federal courts with subject-matter jurisdiction

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where diversity of citizenship exists among the parties and the

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amount in controversy exceeds $75,000.

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28 U.S.C. § 1441(a); see also Rodriguez v. AT&T Mobility
In this instance,

28 U.S.C. § 1332(a).

Notice of removal must generally be filed by a defendant

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within thirty days of receipt "through service or otherwise, of a

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copy of the initial pleading setting forth the claim for relief

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upon which [the] action or proceeding is based . . . ."

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§ 1446(b)(1).

28 U.S.C.

The removal statute should be strictly construed

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against removal.

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See Boggs v. Lewis, 863 F.2d 662, 663 (9th Cir.

1988).

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IV.

DISCUSSION
None of the parties dispute that the Court has subject-matter

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jurisdiction over this action because diversity of citizenship

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exists between the parties and the amount in controversy is greater

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than $75,000.

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does Blue Mountain Biogas have a right to remove this action

United States District Court

For the Northern District of California

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Instead, this motion comes down to one question:

despite Alpental's earlier failure to do so?
In RCM's view the answer is no.

RCM contends that the

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relationship between Alpental and Blue Mountain Biogas is so close

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that Blue Mountain Biogas should not have an independent right of

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removal under 28 U.S.C. Section 1446(b)(2)(B) ("Section

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1446(b)(2)(B)").

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the Underlying Action, the discovery issues in state court, and

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tensions with the purposes of the removal statute.

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Furthermore, RCM points to the advanced state of

Defendants disagree, arguing that since Destfino v. Reiswig,

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630 F.3d 952 (9th Cir. 2011) and Congress's adoption of the Federal

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Courts Jurisdiction and Venue Clarification Act of 2011, Pub. L.

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No. 112-63, § 103, 125 Stat. 758, 760 (2011) (the "Jurisdiction and

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Venue Act"), federal courts nationwide have followed the "later-

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served rule" to find that defendants joined and served during the

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pendency of a state court action, as Blue Mountain Biogas is here,

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may file a notice of removal even if the first-served defendants

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did not do so.

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served rule, codified at Section 1446(b)(2)(B), admits no

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exceptions, and fully resolves the availability of removal in their

In Defendants' view, the adoption of the later-

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favor.

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the close relationship between Blue Mountain Biogas' and Alpental.

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Nonetheless, Defendants dispute RCM's allegations regarding

The Court agrees with RCM.

Because of Alpental's litigation

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conduct and Blue Mountain Biogas' close affiliation with Alpental,

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they cannot be properly considered different "defendant[s]" within

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the meaning of Section 1446(b)(2)(B).

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failure to remove within thirty days after service renders Blue

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Mountain Biogas' notice of removal untimely.

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1446(b)(1).

As a result, Alpental's

28 U.S.C. §

Nevertheless, to understand the Court's conclusion, a

United States District Court

For the Northern District of California

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review of the background of these rules and their underlying

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purposes is necessary.

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A defendant seeking to remove a case from state to federal

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court must file notice of removal within thirty days of receiving a

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copy of the initial pleading.

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Posner pointed out,

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28 U.S.C. § 1446(b)(1).

As Judge

The purpose of the 30-day limitation is
twofold: to deprive the defendant of the
undeserved tactical advantage that he would
have if he could wait and see how he was faring
in state court before deciding whether to
remove the case to another court system; and to
prevent the delay and waste of resources
involved in starting a case over in a second
court after significant proceedings, extending
over months or even years, may have taken place
in the first court.

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Wilson v. Intercollegiate (Big Ten) Conference Athletic Ass'n, 668

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F.2d 962, 965 (7th Cir. 1982).

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Prior to Destfino and the Jurisdiction and Venue Act, a split

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of authority existed between two potential approaches to

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determining whether a notice of removal met that thirty-day

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limitation.

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rule," which held that "the thirty-day removal period begins to run

The first approach was the so-called "first-served

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for all defendants on the date the first defendant receives the

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initial complaint . . . ."

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F. Supp. 2d 1223, 1226 (C.D. Cal. 2000), abrogated by Destfino, 630

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F.3d at 956; see also Brown v. Demco, Inc., 792 F.2d 478 (5th Cir.

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1986).

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first-served rule is consistent with the requirement in multiple-

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defendant cases that all defendants unanimously join a removal

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petition.

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U.S. 245, 248 (1900); Emrich v. Touche Ross & Co., 846 F.2d 1190,

McAnally Enters., Inc. v. McAnally, 107

Courts adopted this approach for two reasons.

See Chicago, Rock Island & Pac. Ry. Co. v. Martin, 178

United States District Court

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For the Northern District of California

First, the

1193 n.1 (9th Cir. 1988).

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the prompt determination of the proper forum.

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482.

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Second, the first-served rule promotes
Brown, 792 F.2d at

The other approach, the later-served rule, was endorsed by

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Destfino and Congress out of concern for "[f]airness to later-

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served defendants."

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Destfino, 630 F.3d at 955-56 (noting that courts that adopted the

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later-served defendant rule did so "for reasons grounded in

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statutory construction, equity and common sense").

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Court and Congress' concern with the first-served rule was that it

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enabled plaintiffs to pursue a strategy of not naming defendants

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they perceived as likely to remove until the initial thirty-day

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period for removal had lapsed.

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first-served approach, removal would be barred, even if the later-

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served defendant wished to remove.

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does not "go so far as to give already-served defendants a new

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thirty-day period to remove whenever a new defendant is served," it

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does hold that "each defendant is entitled to thirty days to

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exercise his removal rights after being served."

H.R. Rep. No. 112-10, at 14 (2011); see also

The Destfino

After that time ran, under the

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While the later-served rule

Destfino, 630

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F.3d at 956.

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treating all defendants equally, and ensures that plaintiffs cannot

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"engage in unfair manipulation by delaying service on defendants

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most likely to remove" until after the initial thirty-day period

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has lapsed.

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As a result, the later-served rule has the virtue of

Id. at 955-56.

After Destfino was decided, Congress passed the Jurisdiction

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and Venue Act, codifying the later-served rule in 28 U.S.C. Section

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1446(b).

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have 30 days after receipt by or service on that defendant of the

Section 1446(b) now provides that "[e]ach defendant shall

United States District Court

For the Northern District of California

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initial pleading or summons" to file notice of removal, and that if

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"defendants are served at different times, and a later-served

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defendant files a notice of removal, any earlier-served defendant

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may consent to the removal even though that earlier-served

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defendant did not previously initiate or consent to removal."

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U.S.C. § 1446(b)(2)(B)-(C).

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In Defendants' view, the adoption and codification of the

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later-served rule makes clear that Blue Mountain Biogas has a right

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of removal without exception.

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recognized, the adoption of the later-served rule and its

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formulation in the Jurisdiction and Venue Act is not so clear-cut.

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See Paul E. Lund, The Timeliness of Removal and Multiple-Defendant

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Lawsuits, 64 Baylor L. Rev. 50, 98-111 (2012).

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relevant here are two issues related to the potential for

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substantial delays in removal.

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arguments in favor of the later-served rule is that while it might

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result in delays in removal, a plaintiff can avoid any delay by

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simply serving each potential defendant at the same time.

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Destfino, 630 F.3d at 956 ("[P]laintiffs can bring about quick

Nevertheless, as others have

Particularly

First, one of the traditional

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See

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determination of the forum by serving all defendants promptly.")

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This may well be true in most cases, however it assumes that

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plaintiffs will always have the ability to serve all the defendants

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at the outset of an action.

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may be unable to serve all the defendants at the commencement of

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the action because the identity of a defendant is unknown or a

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defendant is avoiding service.1

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105-06.

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adoption of the later-served rule is compatible with a conception

United States District Court

For the Northern District of California

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In some cases even diligent plaintiffs

See Lund, Timeliness, supra, at

Second, and relatedly, it is not clear whether the

of waiver.

Id. at 108.

In this case, remand is appropriate for three reasons.

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because of Alpental's litigation behavior and its close

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relationship with Blue Mountain Biogas, construing Section

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First,

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To that end, during a hearing on the Jurisdiction and Venue Act,
Representative Adam Schiff posed the following question to Chief
Judge Janet Hall of the United States District Court for the
District of Connecticut, a member of the Judicial Conference's
Committee on Federal-State Jurisdiction:
"Under one of the sections, the proposal would
allow
the
latest-served
defendant
in
a
multiple-defendant case 30 days after service
to file a removal petition in order to be fair
to late-served defendants. How would this,
though, affect the trial date, if a defendant
were purposely evading service? And how do you
deal with those circumstances?"
Federal Courts Jurisdiction Clarification Act: Hearing before the
Subcomm. on Courts, the Internet, and Intell. Prop. of the H. Comm.
on the Judiciary, 109th Cong. (Nov. 15, 2005) at 67.
Unfortunately, Judge Hall appears to have misunderstood the
question and responded that the one-year limitation on removal for
diversity cases now codified at 28 U.S.C. Section 1446(c)(1) would
address this situation. RCM makes this point in its reply as well,
however both Judge Hall and RCM are mistaken. Reply at 11-12. The
one-year limitation for removals premised on diversity only applies
to cases which were not removable as originally filed, Ritchey v.
Upjohn Drug Co., 139 F.3d 1313, 1316 (9th Cir. 1998); see also 28
U.S.C. Section 1446(c)(1). As discussed below, Representative
Schiff's hypothetical identifies a problem similar to the one the
Court must address here.

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1446(b)(2)(B) to grant Blue Mountain Biogas an independent right of

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removal would be incompatible with any of the statute's underlying

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purposes and the Ninth Circuit's directive to construe the removal

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statutes strictly against removal.

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564, 566 (9th Cir. 1992).

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despite these connections would also undermine the purpose of

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Section 1446(b)(1), by granting "the defendant of the undeserved

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tactical advantage . . . [of] wait[ing] [to] see how he was faring

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in state court before deciding whether to remove the case to

Gaus v. Miles, Inc., 980 F.2d

Second, construing removal as timely

United States District Court

For the Northern District of California

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another court . . . ."

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remand would ignore the advanced state of the Underlying Action,

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and circumvent, if not fully undermine a pending sanctions motion

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in state court.

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Wilson, 668 F.2d at 965.

Third, denying

As mentioned before, the concern underlying the adoption of

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the later-served defendant rule is fairness to later-served

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defendants.

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to join the later-served defendant sooner was the result of a

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later-served defendant's obfuscation or avoiding service.

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all, there is no "manifest unfairness [in] depriving later-served

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defendants of a federal forum" where the later-served defendant is

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aware of the case and nonetheless seeks to avoid being joined.

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Destfino, 630 F.3d at 956.

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problem, noting that "[t]he rationale for preserving the later-

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served defendant's removal right [does] not apply . . . in

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instances when defendants are actually part of the same operating

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entity rather than separate and distinct entities."

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F.R.D. at 318 n.15; see also Pocono Springs Civic Ass'n Inc. v.

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Rich One, Inc., No. 00-CV-2034, 2001 WL 114390, at *1 (M.D. Pa.

However that rationale does not apply when the failure

After

Other courts have recognized this

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Eltman, 151

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Jan. 29, 2001); Higgins v. Ky. Fried Chicken, 953 F. Supp. 266, 270

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(W.D. Wis. 1997).
Here, RCM's failure to serve Blue Mountain Biogas sooner was

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not an attempt to avoid the possibility of removal; instead it was

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the result of Alpental's obfuscatory discovery behavior.

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points to several instances during discovery where Alpental should

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have revealed the existence of Blue Mountain Biogas, but

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nonetheless failed to do so.

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information about, among other things, limited liability companies

RCM

For example, RCM requested

United States District Court

For the Northern District of California

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with which Alpental's Managing Partner, Paul Stephan, was

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affiliated.

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Interrogs.") at ¶ 19.

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Stephan is an executive director of Geopower Energy, but is

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affiliated with no other entity . . ." that met the definition set

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forth by RCM.

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business records, one of the three registered principals of Blue

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Mountain Biogas, LLC is Paul Stephan.

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Ex. I.

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Anaerobic Digester Technology that Alpental provided to or shared

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with any entity" other than those of which RCM was aware.

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Duda Decl. Ex. N No. 25.

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"Alpental provided no correspondence, contract, or proposals with,

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from, or to Blue Mountain Biogas, LLC."

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it does appear that two2 documents were produced that referred to

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"Blue Mountain Biogas, LLC."

See ECF No. 21 ("Supp. Duda Decl.") Ex. O ("Special
In response, Alpental claimed that "Paul

Id. at Ex. P at 4.

Yet, according to the Utah

ECF No. 10 ("Duda Decl.")

Similarly, RCM requested all documents "relating to

Supp.

Yet, in response to that request,

Id. at ¶ 8.

To be sure,

See ECF No. 18-1 ("Dunkelberger

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A third document states that "[o]ur facility name is Blue
Mountain Biogas," however this is not particularly significant
given that it is undisputed that the parties and others generally
refer to the project as the "Blue Mountain Project."

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Decl.") at ¶¶ 4(a)-(b).

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Court's conclusion.

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sent by Alpental, and, illustrating the close relationship between

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the entities, all correspondence involved only individuals

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purporting to represent Alpental and state regulators.

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Furthermore, falling back on the production of two emails

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containing passing references to Blue Mountain Biogas is misleading

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at best when Alpental should have furnished more directly

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responsive answers in discovery.

United States District Court

For the Northern District of California

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Nonetheless, this does not alter the

To the contrary, only one of the emails was

While Defendants suggest, pointing to cases recognizing the

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applicability of the corporate veil to limited liability companies,

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that the Court should not impute Alpental's actions to Blue

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Mountain Biogas, there is good reason to do so here.

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12 (citing d'Elia v. Rice Dev. Inc., 147 P.3d 515, 521 (Utah Ct.

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App. 2006) and Feeley v. NHAOCG, LLC, 62 A.3d 649, 667 (Del. Ch.

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2012) for the proposition that the corporate veil applies to

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limited liability companies).

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Mountain Biogas' registered agent with the Utah Secretary of State.

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Duda Decl. Ex. I.

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president are Blue Mountain Biogas' only principals.

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share the same physical address, id., and the same counsel in this

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matter.

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largely on the current ownership structure of Blue Mountain Biogas,

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although they do not deny that at relevant times during this

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litigation Blue Mountain Biogas was a wholly-owned subsidiary of

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Alpental.

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do they deny any of the other facts regarding Alpental's

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relationship with Blue Mountain Biogas.

See Opp'n at

For example, Alpental is Blue

Alpental, its managing partner, and its vice

Notice of Removal at 1.

Id.

They

Defendants stake their argument

Duda Decl. Ex. D ("Manure Supply Agreement") at 1.

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Nor

Instead, focusing on the

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Manure Supply Agreement (and ignoring all the other indicia of a

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close relationship between Alpental and Blue Mountain Biogas), they

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argue that RCM's reliance on the Manure Supply Agreement represents

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"an egregious omission" in light of Blue Mountain Biogas' current

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ownership structure.

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argument is that the relationship between Alpental and Blue

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Mountain Biogas is so close that Alpental's decision not to remove

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the case to federal court when first filed should be treated as a

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decision by both Alpental and Blue Mountain Biogas.

Opp'n at 13.

This is bluster.

RCM's

In assessing

United States District Court

For the Northern District of California

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that argument, the ownership structure as it existed at the time

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Alpental declined to remove the case is highly relevant, as it

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shows it would not be unfair to deny Blue Mountain Biogas the

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opportunity to remove now.

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period was when Blue Mountain Biogas removed the action, the

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ownership structure of Blue Mountain Biogas does not alter the

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other undisputed facts demonstrating Alpental's and Blue Mountain

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Biogas' close relationship and identity of interests.

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Furthermore, even if the relevant time

Accordingly, the Court is convinced that Alpental and Blue

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Mountain Biogas can properly be considered "part of the same

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operating entity rather than separate and distinct entities."

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Eltman, 151 F.R.D. at 318 n.15.

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that Blue Mountain Biogas lacks an independent right of removal

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under Section 1446(b)(2)(B).

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As a result, the Court concludes

Amplifying this conclusion are two other pragmatic

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considerations.

First, permitting removal here would unjustifiably

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permit forum shopping by allowing first-served defendants to

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litigate in state court for extended periods of time while hiding

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subsidiaries or closely affiliated entities, only to reveal them on

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the eve of trial and start the litigation anew in a different

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forum.

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than two years.

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substantial delays and expense in resolving this case under these

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circumstances is enormous.

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1446(b)(2)(B) to grant Blue Mountain Biogas an independent right of

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removal would undermine the twin purposes of the thirty day

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limitation in Section 1446(b)(1).

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Second, a motion for sanctions is pending in the Underlying Action

Here, Alpental has been litigating in state court for more
The waste of judicial resources, and potential for

As a result, interpreting Section

See Wilson, 668 F.2d at 965.

United States District Court

For the Northern District of California

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related to the discovery abuses cited above.

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information, the Court cannot be certain of the merits of that

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motion, but given that the Court likely "lack[s] authority to

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impose sanctions for pleadings filed in state court prior to

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removal," this only amplifies the Court's concerns about removal.

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See Pollard v. City & Cnty. of San Francisco, 261 F. App'x 16, 17

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(9th Cir. 2007) (citing Buster v. Greisen, 104 F.3d 1186, 1190 n.4

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(9th Cir. 1997)).

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motion for sanctions for state court misconduct should be able to

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remove the case, thus divesting the state court of an opportunity

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to impose sanctions, while simultaneously removing to a court

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without jurisdiction to impose sanctions for the underlying

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misconduct.

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Without more

It is almost inconceivable that a party facing a

Defendants view these considerations as improper.

In their

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view, the adoption of the later-served Defendant rule overruled the

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line of cases applying equitable principles in determining whether

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removal is timely or appropriate.

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Gasper, 994 F. Supp. 344, 348 (W.D. Pa. 1998); Samura v. Kaiser,

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715 F. Supp. 970, 971 (N.D. Cal. 1989); Transp. Indem. Co. v. Fin.

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See, e.g., Yellow Cab Co. v.

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Tr. Co., 339 F. Supp. 405, 409 (C.D. Cal. 1972).

The Court

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disagrees.

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point, and determined remand was appropriate without reference to

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either the first-served or later-served defendant approaches.

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Instead, in Yellow Cab Company of Pittsburgh v. Gasper, the court

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remanded a case in which "all of the entities joined as defendants

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in this case . . . are closely held corporations owned and

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controlled by one man," all the entities involved were represented

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by the same counsel, substantial proceedings had already taken

In fact, one of these cases is almost directly on

United States District Court

For the Northern District of California

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place in state court, permitting removal would allow for the

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relitigation of several issues, and a motion to hold defendants in

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contempt was pending in state court.

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Defendants point to a subsequent case criticizing consideration of

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"equities, discretionary reasons and/or policy considerations" in

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determining whether to remand a case, Safway Steel Scaffolds Co. v.

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Safway Steel Prods., 2:06-cv-312, 2006 U.S. Dist. LEXIS 28373, at

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*3 (W.D. Pa. May 11, 2006), the Court believes the best approach

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would allow for the consideration of these weighty practical

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consequences in determining whether remand is appropriate.

994 F. Supp. at 349.

While

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V.

CONCLUSION
Because the Court concludes Blue Mountain Biogas lacks an

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independent right of removal under Section 1446(b)(2)(B), the

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notice of removal was untimely.

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Accordingly, remand is appropriate and the motion is GRANTED.

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28 U.S.C. § 1447(c).

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certified copy of this order to the clerk of the Alameda County

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Superior Court, terminate the motion to dismiss, ECF No. 23, and

28 U.S.C. § 1446(b)(1).
See

The Clerk is hereby directed to mail a

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close the case.

See id.

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IT IS SO ORDERED.

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Dated: December 4, 2014
UNITED STATES DISTRICT JUDGE

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United States District Court

For the Northern District of California

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16
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18
19
20
21
22
23
24
25
26
27
28

15