Interworld Network International Inc v. VWR International Inc et al

Filing 26

ORDER GRANTING PLAINTIFFS 15 MOTION TO REMAND AND DENYING DEFENDANTS 12 MOTION TO DISMISS. Signed by Judge Claudia Wilken on 1/10/2012. (ndr, COURT STAFF) (Filed on 1/10/2012)

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1 IN THE UNITED STATES DISTRICT COURT 2 FOR THE NORTHERN DISTRICT OF CALIFORNIA 3 4 5 INTERWORLD NETWORK INTERNATIONAL, INC., a California Corporation, 8 9 United States District Court For the Northern District of California 10 11 ORDER GRANTING PLAINTIFF’S MOTION TO REMAND AND DENYING DEFENDANTS’ MOTION TO DISMISS (Docket Nos. 12 and 15) Plaintiff, 6 7 No. C 11-4843 CW v. VWR INTERNATIONAL, INC., a Delaware corporation; M.K. SATHYA, an individual; and DOES 1 through 10, inclusive, Defendants. ________________________________/ 12 13 Plaintiff Interworld Network International, Inc. moves to 14 remand this case to state court. 15 motion, and move to dismiss all claims against them. 16 opposes Defendants’ motion to dismiss. 17 parties’ motions under submission on the papers. 18 Defendants oppose Plaintiff’s Plaintiff The Court took the For the reasons set forth below, the Court GRANTS Plaintiff’s motion to remand and 19 DENIES Defendants’ motion to dismiss. 20 BACKGROUND 21 22 The facts set forth below are taken from Plaintiff’s 23 Complaint, which is attached to Defendants’ Notice of Removal, 24 unless otherwise noted. 25 Plaintiff is a California corporation that imports and 26 exports certain products, many of which are manufactured in Asia. 27 Compl. ¶¶ 1, 7. 28 Plaintiff has many business contacts with 1 manufacturers in Asia. 2 located in Fremont, California. 3 Id. at ¶ 7. Plaintiff’s warehouse is Id. VWR is a Delaware corporation with its primary offices in 4 Pennsylvania. 5 and was the agent and representative of VWR during the relevant 6 times. Id. at ¶ 2. M.K. Sathya is a California resident Id. at ¶ 3. 7 In 2005, VWR and Sathya approached Plaintiff with a proposal 8 9 that Plaintiff introduce VWR to Asian manufacturers, so that VWR United States District Court For the Northern District of California 10 could purchase products directly from these companies. 11 2, 9. 12 warehouse, and distribute these products. 13 14 Id. at ¶¶ Under the proposal, VWR would then pay Plaintiff to import, Id. at ¶ 9. To induce Plaintiff to accept the proposal, VWR and Sathya represented to Plaintiff that the volume of business that would be 15 channeled through Plaintiff “would be very large, somewhere in the 16 range of $50 million per year.” Id. at ¶¶ 10, 25, 32. Defendants 17 18 also represented that Plaintiff “would need to expand its 19 warehouse and logistic facilities to accommodate this increased 20 volume of business.” 21 reality, these representations were false and that either 22 Defendants knew that they were false at the they made them or 23 Id. at ¶¶ 25, 32. Plaintiff alleges that, in Defendants made them without having any reasonable ground for 24 believing them to be true. Id. at ¶¶ 26, 32. Plaintiff alleges 25 26 that Defendants made these representations with the express intent 27 to defraud Plaintiff and co-opt its business contacts. 28 ¶ 30. 2 Id. at 1 In June 2005, based on Defendants’ representations, Plaintiff 2 entered into an agreement with VWR regarding the subject matter of 3 the proposal. 4 representations to increase its warehouse space and introduce VWR 5 to its suppliers. 6 Id. at ¶ 11. Plaintiff also relied on these Id. at ¶¶ 28, 35. Plaintiff alleges that it would not have taken any of these actions if not for Defendants’ 7 representations and that it suffered harm as a result. Id. at ¶¶ 8 9 United States District Court For the Northern District of California 10 28-29, 35-36. The contract signed by Plaintiff and VWR states, among other 11 things, “This Agreement are [sic] the complete Agreement between 12 the parties regarding [Plaintiff’s] provision of Services and 13 Deliverables to VWR and shall supersede and replace all prior 14 communications, Agreements and understandings, oral or written, 15 between the parties regarding the subject matter hereof and 16 thereof.” Compl. ¶ 11, Ex. A at 8. The Agreement provided a 17 18 graduated pricing structure for Plaintiff’s services to VWR as 19 follows: 20 (1) Annual [Purchase Order (PO)] volumes of 0-50 MM$ 4% of PO value 21 22 23 24 (2) Annual Cumulative PO volumes of 50-100MM$ - 3.5% of PO value over 50MM $ (3) Annual Cumulative PO volumes of 100+MM$ - 3% of PO value over 100M$ 25 Id. at 2. 26 representative. 27 of law provision, which states, “The Agreement will be governed by The Agreement designated Sathya as VWR’s contract Id. at 8. The Agreement also contained a choice 28 3 1 and construed in accordance with the laws of the State of 2 Pennsylvania without giving effect to the principles of conflict 3 of law.” 4 5 6 Id. The Agreement was amended on October 3, 2006. Compl. ¶ 11. Among other things, the addendum provided that VWR would pay Plaintiff four percent of PO value per shipment for services 7 provided. Compl. ¶ 11, Ex. A at 15. 8 9 The level of business volume did not reach the level that had United States District Court For the Northern District of California 10 been represented. 11 Plaintiff that it was terminating the agreement. 12 Plaintiff alleges that VWR breached the contract in various ways 13 before and after that date. 14 Compl. ¶ 15. On March 20, 2009, VWR informed Id. at ¶ 16. Id. at ¶¶ 15-18, 22. On July 21, 2011, Plaintiff filed a complaint in the Alameda 15 County Superior Court, alleging breach of contract and unfair 16 business practices under California’s Unfair Competition Law, Cal. 17 18 Bus. & Prof. Code § 17200, et seq., against VWR and fraud and 19 negligent misrepresentation against both Defendants. 20 On September 30, 2011, Defendants removed the action to 21 federal court based on diversity jurisdiction. 22 Removal, Defendants alleged that Sathya was a sham defendant and 23 In their Notice of that his citizenship should be disregarded for diversity purposes. 24 On October 7, 2011, Defendants filed a motion to dismiss all 25 26 27 28 counts in the complaint. On October 20, 2011, Plaintiff filed a motion to remand the action to state court. 4 LEGAL STANDARD 1 A defendant may remove a civil action filed in state court to 2 3 federal district court so long as the district court could have 4 exercised original jurisdiction over the matter. 5 § 1441(a). 6 28 U.S.C. Title 28 U.S.C. § 1447(c) provides that if, at any time before judgment, it appears that the district court lacks 7 subject matter jurisdiction over a case previously removed from 8 9 state court, the case must be remanded. On a motion to remand, United States District Court For the Northern District of California 10 the scope of the removal statute must be strictly construed. Gaus 11 v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). 12 presumption’ against removal jurisdiction means that the defendant 13 always has the burden of establishing that removal is proper.” 14 Id. “The ‘strong Courts should resolve doubts as to removability in favor of 15 remanding the case to state court. Id. 16 DISCUSSION 17 18 Plaintiff argues that, because it and Sathya are citizens of 19 California, the Court lacks diversity jurisdiction over its 20 action. 21 citizen and thus non-diverse to Plaintiff. 22 that Sathya was fraudulently joined to this action. 23 Defendants do not dispute that Sathya is a California Instead, they argue To make a showing of fraudulent joinder, Defendants “must 24 demonstrate that there is no possibility” that Plaintiff will be 25 26 able to establish a cause of action in state court against Sathya. 27 Lantz v. DaimlerChrysler Corp., 2005 WL 1629937, at *1 (N.D. 28 Cal.). There is a general presumption against finding fraudulent 5 1 joinder, and Defendants carry “a heavy burden of persuasion.” 2 Plute v. Roadway Package Sys., Inc., 1141 F. Supp. 2d 1005, 1008 3 (N.D. Cal. 2001). 4 A. Choice of Law 5 The parties dispute whether California or Pennsylvania 6 applies to the claims against Sathya. Because the Court grants 7 Plaintiff’s motion to remand under either California or 8 9 Pennsylvania, the Court does not resolve whether or not the United States District Court For the Northern District of California 10 choice-of-law clause in the contract applies to the claims against 11 Sathya. 12 B. Parol Evidence 13 Defendants argue that Plaintiff’s claims against Sathya are 14 barred by parol evidence under either California or Pennsylvania 15 law. Defendants’ argument are unavailing in either state. 16 Under California law, parol evidence is admissible to 17 18 demonstrate alleged fraudulent inducement. 19 Town Center, 135 Cal. App. 4th 289, 301 (2005). 20 inducement renders the entire contract voidable, including any 21 provision in the contract providing the written contract is, for 22 example, the sole agreement of the parties, that it contains their 23 Hensley v. Oakshade “Fraud in the entire agreement and that there are no oral representations 24 (integration/ no oral representations clause).” Id. 25 26 Defendants argues that this rule does not bar “a promise 27 directly at variance with the promise in the writing.” 28 n.5 (internal citations and quotations omitted). 6 Reply at 9 However, the 1 alleged promise regarding volume of sales does not contradict a 2 promise made in the contract itself. 3 Agreement expressly contemplates that VWR may have an order volume 4 as low as $0,” Reply at 10, and cite to the payment clause quoted 5 above. 6 Defendants state that “the That clause does not imply that there could be a volume of zero; instead, it establishes a graduated payment scheme, in which 7 Defendants would pay a higher percentage for order volume up to a 8 9 United States District Court For the Northern District of California 10 11 certain amount and a lower percentage for the portion of the order volume that exceeds that amount. Pennsylvania law precludes the use of parol evidence in 12 fraudulent inducement claims involving a fully integrated 13 contract. 14 2005 U.S. Dist. LEXIS 37980, at *43-55 (E.D. Pa.) (discussing, See Interwave Tech. Inc. v. Rockwell Automation, Inc., 15 inter alia, Dayhoff Inc. v. H.J. Heinz Co., 86 F.3d 1287 (3d Cir. 16 1996); 1726 Cherry St. Partnership v. Bell Atlantic Properties., 17 18 439 Pa. Super. 141 (1995); HCB Contractors v. Liberty Place Hotel 19 Assocs., 539 Pa. 395 (1995)). 20 Sathya is not a party to the Agreement and the integration clause 21 therefore does not bar fraud in the inducement claims against him. 22 See Interwave, 2005 U.S. Dist. LEXIS 37980, at *55; (holding that 23 However, under Pennsylvania law, the integration clause barred the plaintiff’s fraud in the 24 inducement claims against the defendant who was the party to the 25 26 contract, but not those against the defendant who was not a party 27 to the contract); Sunquest Info. Sys. v. Dean Witter Reynolds, 28 Inc., 40 F. Supp. 2d 644, 656 n.7 (W.D. Pa. 1999) (similar). 7 In 1 both Interwave and Sunquest, the courts distinguished cases 2 applying the protection of the integration clause to agents of the 3 party to the contract, because in those cases, “the integration 4 clauses, unlike here, specifically referred to the representations 5 of the agents as barred.” 6 at *55-56; Interwave, 2005 U.S. Dist. LEXIS 37980, Sunquest, 40 F. Supp. 2d at 656 n.7 (citing Bowman v. 7 Meadow Ridge, Inc., 419 Pa. Super. 511 (1992) and Iwashyna v. 8 9 Department of Housing & Urban Dev., 1993 U.S. Dist. LEXIS 11369, As in Interwave and Sunquest, the integration United States District Court For the Northern District of California 10 at *14 (E.D. Pa.). 11 clause here does not specifically refer to the representations of 12 VWR’s agents, including Sathya, and thus it does not necessarily 13 prevent the fraudulent inducement claim against him. 14 Accordingly, Defendants have not shown that there is no 15 possibility that Plaintiff will be able to establish in state 16 court that the parol evidence rule does not bar Plaintiff’s claims 17 18 against Sathya in either California or Pennsylvania. 19 C. The Gist of the Action Rule 20 Defendants also argue that Plaintiff’s claims against Sathya 21 22 23 are barred by Pennsylvania’s gist of the action rule. “Pennsylvania’s gist of the action doctrine ‘bars claims for allegedly tortious conduct where the gist of the alleged conduct 24 sounds in contract rather than tort.’” Farmaceutisk Laboratorium 25 26 Ferring v. Shire U.S., Inc., 2009 U.S. Dist. LEXIS 30209, at *23 27 (E.D. Pa.) (quoting Hospicomm, Inc. v. Fleet Bank, N.A., 338 F. 28 Supp. 2d 578, 582 (E.D. Pa. 2004). 8 The purpose of the doctrine is 1 to “preclude[] plaintiffs from re-casting ordinary breach of 2 contract claims into tort claims.” 3 Elias/Savion Adver., Inc., 811 A.2d 10, 14 (Pa. Super. Ct. 2002)). 4 “Although a breach of contract can give rise to an actionable 5 tort, ‘to be construed as in tort . . . the wrong ascribed to 6 Id. (quoting eToll v. defendant must be the gist of the action, the contract being 7 collateral.’” Id. (quoting Bash v. Bell Tel. Co., 411 Pa. Super. 8 9 347, 355-56 (1992)). “In other words, a claim should be limited United States District Court For the Northern District of California 10 to a contract claim when the parties’ obligations are defined by 11 the terms of the contracts, and not by the larger social policies 12 embodied by the law of torts.” 13 Uddeholm Am., Inc. v. Ellwood Group, Inc., 247 F.3d 79, 104 (3d 14 Cir. 2001)) (internal quotation marks omitted). Id. at *23-24 (quoting Bohler- 15 “Fraud in the inducement claims are not barred by the gist of 16 the action doctrine where the fraud involves representations of 17 18 fact independent of promises of performance made in the contract.” 19 Id. at *24 (citing eToll, 811 A.2d at 17; TruePosition, Inc. v. 20 Sunon, Inc., 2006 U.S. Dist. LEXIS 32918, at *3 (E.D. Pa.); Air 21 Prods. & Chems., Inc. v. Eaton Metal Prods. Co., 256 F. Supp. 2d 22 329, 341 (E.D. Pa. 2003)). 23 “Fraud to induce a person to enter into a contract is generally collateral to (i.e., not interwoven 24 with) the terms of the contract itself.” Id. (quoting Air Prods., 25 26 256 F. Supp. 2d at 341) (internal quotation marks and formatting 27 omitted). However, “promises made to induce a party to enter into 28 a contract that eventually become part of the contract itself 9 1 cannot be the basis for a fraud-in-the-inducement claim under the 2 gist of the action doctrine.” 3 v. Lansdale Warehouse Co., 2007 U.S. Dist. LEXIS 57116, at *6 4 (E.D. Pa.)). 5 6 Id. (quoting Freedom Props., L.P. The cases cited by Defendants are distinguishable in that each involved complaints that directly asserted both tort and 7 contract claims against the defendants that overlapped heavily 8 with one another. Here, the only claims asserted against Sathya 10 are tort claims. Further, the claims against him are related to 11 the inducement into the contract, rather than promises regarding 12 performance made in the contract. United States District Court For the Northern District of California 9 13 14 15 Accordingly, Defendants do not establish that Plaintiff’s claims against Sathya are a sham based on the gist of the action doctrine.1 16 17 18 19 20 D. The Economic Loss Rule Defendants argue that Plaintiff’s claims against Sathya are barred by Pennsylvania’s economic loss rule. “The economic loss doctrine precludes recovery in tort for 21 economic losses arising from breach of contract.” 22 Convention & Visitors Bureau v. Visitor's Servs., Inc., 28 F. Valley Forge 23 24 25 26 27 28 1 In a footnote, Defendants also assert that “California courts, too, are reluctant to permit tort recovery in breach of contract situations.” Opp. at 11 n.6. However, Plaintiff is suing Sathya for fraudulent inducement, which is distinct from tortious breach of contract, the subject of the only case that Defendants cite. See Freeman & Mills, Inc. v. Belcher Oil Co., 11 Cal. 4th 85 (1995). 10 1 Supp. 2d 947, 951 (E.D. Pa. 1998) (citing Duquesne Light Co. v. 2 Westinghouse Elec. Corp., 66 F.3d 604, 618 (3d Cir. 1995); General 3 Public Utilities v. Glass Kitchens of Lancaster, Inc., 374 Pa. 4 Super. 203, 208-10 (1988)). 5 6 For their argument, Defendants rely solely on the Third Circuit’s decision in Werwinski v. Ford Motor Co., 286 F.3d 661 7 (3d Cir. 2002), in which the court predicted that Pennsylvania’s 8 9 Supreme Court would apply the doctrine to intentional fraud in The plaintiffs in Werwinski brought United States District Court For the Northern District of California 10 products liability cases. 11 claims for breach of express warranty, breach of implied warranty, 12 fraudulent concealment, and violations of Pennsylvania's Unfair 13 Trade Practices and Consumer Protection Law (UTPCPL) based on 14 defects in vehicles manufactured by the defendants. Because the 15 only damage suffered was to the products themselves, the Third 16 Circuit court reasoned that the plaintiffs’ fraud claims were 17 18 barred by the economic loss doctrine. 19 other courts have excepted “fraud in the inducement” claims from 20 the economic loss doctrine. 21 noted that this only occurred when the fraud was not intertwined 22 with the contract claims. 23 The court acknowledged that Id. at 677-78. However, the court The court found that the fraud in that case was intertwined with the contract claims, because it were 24 “undergirded by factual allegations identical to those supporting 25 26 27 their breach of contract counts” and it “did not cause harm to the plaintiffs distinct from those caused by the breach of contract,” 28 11 1 so that the plaintiffs would be made whole under contract law. 2 Id. at 678-80 (citations omitted). 3 Here, unlike in Werniski, Plaintiff has alleged no breach of 4 contract claims against Sathya, who was not a party to the 5 contract, and thus, Plaintiff cannot be made whole, vis-à-vis any 6 claims against him, through contract law. Defendants have 7 provided no authority that would support that the economic loss 8 9 rule should apply in such a situation. Accordingly, Defendants do United States District Court For the Northern District of California 10 not show that the economic loss rule renders the claims against 11 Sathya a sham. 12 Defendants’ attempt in a footnote to assert the economic loss 13 rule under California law likewise fails. 14 prevents the law of contract and the law of tort from dissolving “The economic loss rule 15 one into the other.” Multifamily Captive Group, LLC v. Assur. 16 Risk Managers, Inc., 629 F. Supp. 2d 1135, 1145 (E.D. Cal. 2009) 17 18 (quoting Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal. 4th 19 979, 988 (2004)) (internal formatting and quotations omitted). 20 “It precludes recovery for purely economic loss due to 21 disappointed expectations, unless the plaintiff can demonstrate 22 harm above and beyond a broken contractual promise.” 23 (internal formatting and quotations omitted). Id. Here, Defendants 24 point to no alleged broken contractual promise between Sathya and 25 26 Plaintiff that would preclude a tort claim and thus do not show 27 that there is no possibility that Plaintiff will be able to 28 establish a cause of action in state court against Sathya. 12 1 E. Managerial Privilege 2 Defendants argue that, because Plaintiff alleged that all 3 actions taken by Sathya were taken in his capacity as an agent of 4 VRW, Plaintiff’s claims against Sathya are barred by the 5 managerial privilege under California law. 6 The general rule in California is that agents may be held 7 liable for their own wrongful acts even if done on behalf of a 8 9 principal. See, e.g., Cal. Civ. Code § 2343 (“One who assumes to United States District Court For the Northern District of California 10 act as an agent is responsible to third persons as a principal for 11 his acts in the course of his agency . . . when his acts are 12 wrongful in their nature.”); see also 3 Witkin, Sum. Cal. Law 13 Agency § 199 (“An agent or employee is always liable for his or 14 her own torts, whether the principal is liable or not, and in 15 spite of the fact that the agent acts in accordance with the 16 principal's directions.”); Restatement 3d of Agency § 7.01 (“An 17 18 agent is subject to liability to a third party harmed by the 19 agent's tortious conduct. 20 otherwise, an actor remains subject to liability although the 21 actor acts as an agent or an employee, with actual or apparent 22 authority, or within the scope of employment.”). 23 Unless an applicable statute provides According to the California Supreme Court, “the agent is liable for his own acts, 24 regardless of whether the principal is liable or amenable to 25 26 27 judicial action.” Frances T. v. Village Green Owners Ass’n, 42 Cal. 3d 490, 505 (1986). 28 13 1 “The general rule applies with equal force in the context of 2 fraud and misrepresentation.” 3 Corp. of Am., 2010 U.S. Dist. LEXIS 30859, at *21-22 (C.D. Cal.). 4 “An agent who fraudulently makes representations, uses duress, or 5 knowingly assists in the commission of tortious fraud or duress by 6 Black Donuts, Inc. v. Sumitomo his principal or by others is subject to liability in tort to the 7 injured person although the fraud or duress occurs in a 8 9 transaction on behalf of the principal.” Id. at *22 (quoting See also 3 Witkin, Sum. Cal. Law United States District Court For the Northern District of California 10 Restatement 2d of Agency § 348). 11 Agency § 199(1) (“an agent who commits an independent tort, such 12 as fraud, remains liable despite the fact that the principal, by 13 ratification, also becomes liable”); Shafer v. Berger, Kahn, 14 Shafton, Moss, Figler, Simon & Gladstone, 107 Cal. App. 4th 54, 68 15 (2003) (“An agent or employee is always liable for his own torts, 16 whether his employer is liable or not. In other words, when the 17 18 agent commits a tort, such as fraud, then the agent is subject to 19 liability in a civil suit for such wrongful conduct.”) (internal 20 formatting and quotations omitted). 21 Defendants argue that this general rule does not apply, 22 because of the so-called “manager’s privilege,” which protects an 23 agent from individual liability for certain acts taken on behalf 24 of his employer or principal, unless the agent or employee acts as 25 26 a dual agent or acts for his own personal advantage. Graw v. Los 27 Angeles County Metro. Transp. Auth., 52 F. Supp. 2d 1152, 1154- 28 1155 (C.D. Cal. 1999). Contrary to Defendants’ position, however, 14 1 it is a doctrine of limited applicability: “the manager's 2 privilege rule applies only in the context of tortious 3 interference with contract.” 4 30859, at *26 (C.D. Cal.). 5 (“[T]he manager's privilege is merely an application of the 6 Black Donuts, 2010 U.S. Dist. LEXIS See also Graw, 52 F. Supp. 2d at 1154 general rule that the tort of intentional interference with 7 economic relations applies only to disinterested parties. As an 8 9 interested party, a manager's actions are privileged.”). Thus, United States District Court For the Northern District of California 10 the privilege serves to protect a business advisor who “counsel[s] 11 his principal to breach a contract that he reasonably believes to 12 be harmful to his principal’s best interests.” 13 Airways, Inc. v. Davis, 687 F.2d 321, 326 (9th Cir. 1982). 14 Los Angeles In the case at hand, Plaintiff does not allege that Sathya 15 counseled VWR to breach the contract or that Sathya interfered 16 with the carrying out of the contract in any way. Instead, 17 18 Plaintiff alleges that Sathya made intentional or negligent 19 misrepresentations to induce Plaintiff to enter into the contract 20 in the first place. 21 the manager’s privilege renders Plaintiff’s claims against Sathya 22 a sham. Thus, Defendants have not demonstrated that 23 CONCLUSION 24 For the foregoing reasons, Plaintiff’s motion to remand is 25 26 GRANTED (Docket No. 15). Because the case will be remanded, 27 Defendants’ motion to dismiss is DENIED as moot without prejudice 28 to renewal by way of demurrer on remand (Docket No. 12). 15 1 2 3 The Clerk shall remand this action to Alameda County Superior Court and close the file. IT IS SO ORDERED. 4 5 6 Dated: 1/10/2012 CLAUDIA WILKEN United States District Judge 7 8 9 United States District Court For the Northern District of California 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 16

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