Puglia Engineering, Inc. v. BAE Systems, Inc. et al

Filing 59

ORDER REMANDING CASE TO SAN FRANCISCO COUNTY SUPERIOR COURT by Judge William Alsup [granting 14 Motion to Remand]. (whasec, COURT STAFF) (Filed on 6/16/2017)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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PUGLIA ENGINEERING, INC., a corporation,

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For the Northern District of California

United States District Court

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Plaintiff,
v.
BAE SYSTEMS SHIP REPAIR, INC., a
corporation, BAE SYSTEMS SAN
FRANCISCO SHIP REPAIR, INC., a
corporation, BAE SYSTEMS, INC., a
corporation, CITY AND COUNTY OF SAN
FRANCISCO, a municipal corporation, and
DOES 1–20,

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ORDER REMANDING CASE
TO SAN FRANCISCO
COUNTY SUPERIOR COURT

Defendants.
/

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No. C 17-01444 WHA

INTRODUCTION
Defendants removed this fraud action from state court on diversity jurisdiction grounds.

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Plaintiff now moves to remand to the Superior Court of the State of California, San Francisco

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County, on the basis that removal was defective. For the reasons set forth below, the motion is

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GRANTED.

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STATEMENT

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Plaintiff Puglia Engineering, Inc., a Washington ship repair company, commenced this

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action against BAE Systems Ship Repair, Inc. and BAE Systems, Inc. (“BAE”), BAE Systems

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San Francisco (“BAE-SF”), and the City and County of San Francisco operating through the

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San Francisco Port Commission (“the Port”) in the Superior Court of the State of California,

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San Francisco County. BAE is a defense contracting company incorporated in Delaware with

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its principal place of business in Virginia (Dkt. No. 1 at 2). BAE-SF is a California corporation

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with its principal place of business in California. The Port is a municipal corporation and a

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citizen of California.

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All of Puglia’s claims arise from the following well-pled allegations that BAE and

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BAE-SF fraudulently induced it to acquire BAE-SF — which leases and operates a shipyard

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facility owned by the Port — by misrepresenting that the Port’s dry docks were well maintained

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and that Puglia did not need to perform immediate dredging in order to generate revenue

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(Compl. ¶ 2).

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On December 1, 2016, Puglia entered a purchase agreement with BAE for the conditional
purchase of one hundred percent BAE-SF stock (id. ¶ 27). The purchase was conditioned on,

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For the Northern District of California

United States District Court

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among other things, the Port’s consent to assignment, which the Port, Puglia and BAE-SF

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executed in a document effective December 30, 2016. When Puglia took over BAE-SF in

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January 2017, it found the dry docks in poor condition, with costs of repair or replacement

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estimated to exceed $9 million and the immediate costs of dredging the site estimated to be about

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$12 million (id. ¶¶ 2, 32). Puglia filed a notice of imminent closure in February, claiming that it

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could not operate at a profit. Without releasing any legal rights against each other, Puglia and

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the Port entered an interim agreement to continue operation of the shipyard facility until the end

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of May (Dkt. No. 26 at 4). The parties did not extend this agreement and the shipyard closed

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while this action was pending.

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On February 15, 2017, Puglia brought claims against BAE and BAE-SF on the basis of

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fraud, negligent misrepresentation, state securities statutes and state fraudulent business practices

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statutes (Compl. ¶¶ 34–62, 70–79). Puglia seeks rescission of its purchase agreement with BAE.

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It also seeks rescission of the Port’s consent, alleging that it was defective for several reasons,

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including that it failed to include all language required by the lease. Moreover, it seeks

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declaratory relief from all defendants and monetary damages from all except the Port.

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On March 16, 2017, BAE removed this action from the Superior Court of the State of

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California, San Francisco County on diversity jurisdiction grounds and brought a motion to

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transfer or dismiss in the alternative on the basis of a forum selection clause that designated the
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Southern District of New York as the proper venue for any proceeding arising from the purchase

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agreement (Dkt. No. 11). Puglia contends that this action must be remanded because removal

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was procedurally defective. With the benefit of full briefing and oral argument, this order

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agrees.

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ANALYSIS
Where, as here, a defendant cites diversity jurisdiction as its sole basis for removing

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an action from state court, the action is not removable “if any of the parties in interest properly

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joined and served as defendants is a citizen of the State in which such action is brought.”

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28 U.S.C. 1441(b)(2). Moreover, all defendants must join in removal. Hewitt v. City of Stanton,

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For the Northern District of California

United States District Court

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798 F.2d 1230, 1232 (9th Cir. 1986).
Defendant bears the burden of establishing that an action is removable, with all doubts

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resolved in favor of remand. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992).

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Specifically, here, BAE must show that BAE-SF and the Port are not forum defendants and do

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not violate the requirement that defendants unanimously join in removal. BAE concedes that

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this action must be remanded if removal violates either principle.

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1.

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“All defendants must join in a removal petition with the exception of nominal parties.”

UNANIMOUS JOINDER OF DEFENDANTS.

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Hewitt, 798 F.2d at 1232. The rule of unanimity does not require each defendant to submit

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individual documents consenting to removal. Proctor v. Vishay Intertechnology Inc., 584 F.3d

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1208, 1225 (9th Cir. 2009). Rather, “[o]ne defendant’s timely removal notice containing an

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averment of the other defendants’ consent and signed by an attorney of record is sufficient.”

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BAE’s notice of removal contains no such averment of consent from the Port or BAE-SF.

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Moreover, the Port does not consent to removal and argues that BAE has failed to meet its

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burden of demonstrating that removal jurisdiction exists (Dkt. No. 26). BAE contends that the

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action was removable despite the Port’s objections and BAE-SF’s non-joinder because (1) the

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Port is a nominal defendant and (2) BAE-SF must be realigned as plaintiff in this action (Dkt.

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No. 1 at 5).

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A.

The Port.

Nominal defendants “have no interest in the action and are merely joined to perform the

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ministerial act of conveying the title.” Prudential Real Estate Affiliates, Inc. v. PPR Realty, Inc.,

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204 F.3d 867, 873 (9th Cir. 2000). That is not the case with the Port, which owns the shipyard

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and has significant interest in its continued maintenance, operation and repair (Dkt. No. 26 at 9).

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Moreover, the Port admitted the existence of an actual controversy in its answer to Puglia’s

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complaint, opposed Puglia’s rescission claims, and appeared at oral argument on this motion.

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These are not the acts of an uninterested party.

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Two days prior to oral argument, BAE filed an ex parte application to submit
supplemental material in support of its opposition to remand (Dkt. No. 54). Specifically, BAE

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For the Northern District of California

United States District Court

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submitted that Puglia has closed the shipyard, thus extinguishing the Port’s interest in ensuring

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continued employment and operations at the facility. At oral argument, the undersigned judge

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asked counsel for the Port whether it maintains an interest in these proceedings despite the

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closure. Counsel for the Port asserted that the Port seeks to enforce rent payments and other

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obligations under the lease against BAE-SF’s owner. The Port has a significant interest that

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could be impaired if BAE-SF’s ownership is decided in its absence.

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BAE also contends that since BAE-SF will continue to hold the lease regardless of who

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owns it, the Port’s interests remain unaffected by these proceedings (Dkt. No. 28 at 11). Not so.

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While BAE-SF is the nominal leaseholder, its parent company — as decided by this

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action — bears responsibility for the shipyard. If Puglia prevails in its claims, it will no longer

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have any obligations pursuant to the lease and the Port will be unable to bring claims against it

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for outstanding defaults (Dkt. No. 26 at 5–7).

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Finally, BAE argues that the Port is a nominal defendant because Puglia fails to assert

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substantive claims for relief against it. But this is not our circuit’s test for determining nominal

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defendants. Even if it were, BAE has not met its burden of proving this proposition. First, BAE

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offers no support for its assertion that Puglia’s rescission of the Port’s consent — which Puglia

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contends will void the purchase agreement — “will be of no significance” (Dkt. No. 28 at 11).

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Second, BAE claims that “declaratory relief is merely a procedural device” rather than a
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substantive claim. W. Title Guar. Co., Sacramento Cty. Div. v. Sacramento & San Joaquin

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Drainage Dist., 235 Cal. App. 2d 815, 823 (Ct. App. 1965). But Puglia’s claim for declaratory

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relief rests on its well-pled allegations of an “actual controversy relating to the legal rights and

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duties of the respective parties” under the lease and BAE cannot merely intuit Puglia will not

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obtain meaningful relief based on a declaration of these rights. See Cal. Civ. Proc. Code § 1060.

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BAE has thus failed to meet its burden of establishing that the Port is a nominal defendant.

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This action must be remanded.

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B.

Realignment of BAE-SF.

BAE argues, without providing any supporting authority from our circuit, for an
additional exception to the requirement that defendants unanimously join in removal, contending

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For the Northern District of California

United States District Court

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that BAE-SF need not join because it is owned by Puglia and should, therefore, be realigned as

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plaintiff (Dkt. No. 1 at 5). Since the Port’s existence as a non-consenting defendant bars

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removal, this order need not and does not reach the realignment issue.

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2.

FORUM DEFENDANT.

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BAE further contends that the Port and BAE-SF are not forum defendants and, thus, do

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not bar removal pursuant to Section 1441(b)(2) because (1) the Port is a nominal defendant and

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(2) BAE-SF should be realigned as plaintiff for jurisdictional purposes because it is owned by

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Puglia (Dkt. No. 28 at 8). As already discussed, the Port is not a nominal defendant and this

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order need not reach the issue of whether realignment analysis provides a basis to circumvent the

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existence of a forum defendant.

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CONCLUSION
For the foregoing reasons, plaintiff’s motion to remand is GRANTED. The Clerk shall

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remand this action to the Superior Court of the State of California, San Francisco County.

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The question of venue is reserved for the state court.

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IT IS SO ORDERED.
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WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

Dated: June 16, 2017.

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