Teuma v. Marvin Lumber and Cedar Company et al

Filing 17

Order by Judge Phyllis J. Hamilton granting 13 Motion to Remand.(pjhlc1, COURT STAFF) (Filed on 1/7/2019)

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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 THERESA TEUMA, 9 10 11 Case No. 18-cv-06561-PJH Plaintiff, 8 v. ORDER REMANDING ACTION MARVIN LUMBER AND CEDAR COMPANY, et al., Re: Dkt. No. 13 United States District Court Northern District of California Defendants. 12 13 14 Plaintiff Theresa Teuma’s motion to remand came on for hearing before this court 15 on January 2, 2019. Plaintiff appeared through her counsel, Timothy McInerney. 16 Defendant Marvin Lumber and Cedar Company (“Marvin”) appeared through its counsel, 17 James Ficenec. Having read the papers filed by the parties and carefully considered 18 their arguments and the relevant legal authority, and good cause appearing, the court 19 hereby GRANTS plaintiff’s motion and REMANDS the action, for the following reasons. 20 BACKGROUND 21 Teuma is a citizen of California. Marvin is a Minnesota corporation with its 22 principal place of business in Minnesota. Defendant Building Material Distributions, Inc. 23 (“BMD”) is a California corporation with its principal place of business in Sacramento, 24 California. On May 4, 2018, Teuma filed a complaint against Marvin, BMD, and Does 1 25 through 10 in Sonoma County Superior Court. Compl., Dkt. 1, Ex. 1. The complaint 26 alleges a breach of contract cause of action based on Marvin and BMD allegedly not 27 complying with the terms of a settlement agreement that the parties had previously 28 entered into. Compl. ¶¶ 13–15. Specifically, plaintiff alleges that defendants agreed to 1 provide new windows and doors for her home construction project under the terms of a 2 settlement agreement, but they never did so. Id. ¶¶ 7–8, 13. 3 The origins of this dispute trace to an action filed in Sonoma County Superior 4 Court on June 29, 2007. Teuma filed an action against certain contractors involved in the 5 construction of her residence. Marvin and BMD were defendants in that action. Marvin 6 was the manufacturer of the windows and doors in Teuma’s home, and BMD sold and 7 supplied Marvin’s products to Teuma. In July 2012, a trial commenced against Marvin 8 and BMD, among others. 9 On July 20, 2012, during a break on the second day of trial, Teuma, her legal counsel Tim McInerney, and Marvin and BMD's legal counsel, Michael Obermueller and 11 United States District Court Northern District of California 10 James Ficenec, met in a conference room at the courthouse to settle the case. 12 Obermueller Decl., Dkt. 14-1 ¶ 5. An agreement was reached, although the parties 13 dispute the terms of the oral settlement agreement. 14 On July 23, 2012, Marvin filed a motion for determination of good faith settlement. 15 The motion was supported by a declaration from Marvin and BMD’s counsel, James 16 Ficenec (the “Ficenec Decl.”). Dkt. 1, Ex. 3. The Ficenec Declaration purports to 17 describe the terms of the settlement, although the parties dispute whether it contains all 18 material terms. The declaration provides, in relevant part: 19 20 21 22 23 7. Since the commencement of jury selection, counsel for Marvin/BMD and plaintiffs’ counsel pursued renewed settlement discussions, speaking almost daily until an agreement was reached during the morning break at trial on Friday July 20, 2012. The terms agreed to are: a. Marvin shall provide plaintiffs with new Marvin product to replace the existing Marvin product, with certain upgrades (simulated divided light bars installed within the insulated glass units and screens for the operable windows) and Marvin shall pay to plaintiffs $25,000. The retail list price of the replacement product is $243,237.00. The replacement product will come with the standard written limited warranty that is included in the retail list price of the product. b. In exchange for the consideration identified above, plaintiffs will provide a Section 1542 release of any and 24 25 26 27 28 2 all past, present and future claims (except for claim under the written limited warranty provided with the new products. [sic] 1 2 The settlement is contingent upon an order from the Court finding that the settlement to be [sic] in good faith pursuant to California Code Civ. Proc. § 877.6. Neither Marvin nor BMD are assigning any indemnity rights to plaintiffs. 3 4 5 6 Ficenec Decl. at 2–3. On July 25, 2012, the trial court entered an order determining “the settlement between plaintiffs, on the one hand, and Marvin Lumber and Cedar Company and BMD, 8 Inc., on the other” was in good faith. McInerney Decl., Dkt. 13-1 (“McInerney Decl.”), 9 Ex. 1 at 2. Afterwards, Teuma did not pursue Marvin or BMD at the trial, and the cross- 10 complaints by the remaining defendants against Marvin and BMD were dismissed. The 11 United States District Court Northern District of California 7 parties continued to discuss the terms of the settlement agreement. 12 On July 1, 2016, Teuma moved to enforce the settlement under Cal. Civ. Proc. 13 § 644.6 (which allows courts to retain jurisdiction to enforce settlement agreements) 14 based on the terms set forth in the Ficenec Declaration. Defendants argued that the 15 Ficenec Declaration did not set forth all of the terms of the settlement agreement. 16 McInerney Decl., Ex. 2 ¶¶ 3–8. They argued that the earlier declaration identified “the 17 material financial terms” but did not attempt to list every term of the parties’ oral 18 agreement. Id. ¶ 4. 19 On August 22, 2016, the court granted Teuma’s motion to enforce the settlement. 20 Second McInerney Decl., Dkt. 15-1, Ex. 7. On October 21, 2016, Teuma appealed the 21 order, arguing that the order did not reflect the settlement agreement of the parties. See 22 id., Ex. 8. Marvin and BMD appealed on November 15, 2016, arguing that the trial court 23 did not have jurisdiction to enforce the settlement agreement under Cal. Civ. Proc. Code 24 § 644.6. 25 On May 4, 2018, Teuma filed this action in Sonoma County Superior Court. 26 On May 24, 2018, the California Court of Appeal found that the trial court did not 27 have jurisdiction to enforce the settlement agreement “because none of the settling 28 parties had agreed to the settlement either orally in court or in a signed writing, as the 3 1 statute requires.” Teuma v. Marvin Lumber & Cedar Co., No. A149733, 2018 WL 2 2356286, at *1 (Cal. Ct. App. May 24, 2018). After being served with Teuma's complaint, Marvin's counsel asked Teuma's 3 4 counsel to explain Teuma’s claim against BMD. Obermueller Decl., Dkt. 14-1, Ex. C. 5 Marvin's counsel responded that his position depended upon the exact terms of the 6 settlement agreement, which were in dispute. Id. On October 26, 2018, after that conversation, Marvin filed a notice of removal, 7 8 arguing that Teuma has no possible claim against BMD and that BMD was fraudulently 9 joined for the purposes of this court’s diversity jurisdiction. Dkt. 1. On November 27, 10 2018, plaintiff filed a motion to remand. Dkt. 13. DISCUSSION United States District Court Northern District of California 11 12 A. Legal Standard 13 Removal jurisdiction is based entirely on federal statutory authority. See 28 14 U.S.C. §§ 1441–55. A defendant may remove “any civil action brought in a State court of 15 which the district courts . . . have original jurisdiction.” 28 U.S.C. § 1441(a). Under 28 16 U.S.C. § 1332(a)(1), federal courts have original jurisdiction over civil actions “where the 17 matter in controversy exceeds the sum or value of $75,000 . . . and is between . . . 18 citizens of different States.” 28 U.S.C. § 1332. “Diversity removal requires complete diversity, meaning that each plaintiff must be 19 20 of a different citizenship from each defendant.” Grancare, LLC v. Thrower by & through 21 Mills, 889 F.3d 543, 548 (9th Cir. 2018). “In determining whether there is complete 22 diversity, district courts may disregard the citizenship of a non-diverse defendant who has 23 been fraudulently joined.” Id. Such fraudulently-joined defendants who destroy diversity 24 do not defeat removal. McCabe v. Gen. Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 25 1987). 26 27 The Ninth Circuit has recently clarified the requirements for a defendant to establish fraudulent joinder: 28 4 1 2 3 4 5 6 7 8 9 10 United States District Court Northern District of California 11 12 There are two ways to establish fraudulent joinder: “(1) actual fraud in the pleading of jurisdictional facts, or (2) inability of the plaintiff to establish a cause of action against the non-diverse party in state court.” Hunter v. Philip Morris USA, 582 F.3d 1039, 1044 (9th Cir. 2009) (quoting Smallwood v. Illinois Cent. RR. Co., 385 F.3d 568, 573 (5th Cir. 2004)). Fraudulent joinder is established the second way if a defendant shows that an “individual[ ] joined in the action cannot be liable on any theory.” Ritchey v. Upjohn Drug Co., 139 F.3d 1313, 1318 (9th Cir. 1998). But “if there is a possibility that a state court would find that the complaint states a cause of action against any of the resident defendants, the federal court must find that the joinder was proper and remand the case to the state court.” Hunter, 582 F.3d at 1046 (quoting Tillman v. R.J. Reynolds Tobacco, 340 F.3d 1277, 1279 (11th Cir. 2003) (per curiam)) (emphasis added). A defendant invoking federal court diversity jurisdiction on the basis of fraudulent joinder bears a “heavy burden” since there is a “general presumption against [finding] fraudulent joinder.” Id. (citations omitted). Grancare, 889 F.3d at 548. “[A] federal court must find that a defendant was properly joined and remand the 13 case to state court if there is a ‘possibility that a state court would find that the complaint 14 states a cause of action against any of the [non-diverse] defendants.’” Id. at 549 (quoting 15 Hunter, 582 F.3d at 1046) (alteration in original). As such, “the test for fraudulent joinder 16 and for failure to state a claim under Rule 12(b)(6) are not equivalent. A claim against a 17 defendant may fail under Rule 12(b)(6), but that defendant has not necessarily been 18 fraudulently joined.” Id. (“A standard that equates fraudulent joinder with Rule 12(b)(6) 19 conflates a jurisdictional inquiry with an adjudication on the merits.”). Any “deficiencies in 20 the complaint” that “go to the sufficiency of the complaint, rather than to the possible 21 viability of the [plaintiffs’] claims”—for example that plaintiffs “did not plead their claims 22 with sufficient particularity” or “sufficiently allege” a claim—“do not establish fraudulent 23 joinder.” Id. at 551–52. 24 “The relative stringency of the [fraudulent joinder] standard accords with the 25 presumption against removal jurisdiction, under which we ‘strictly construe the removal 26 statute,’ and reject federal jurisdiction ‘if there is any doubt as to the right of removal in 27 the first instance.’” Id. at 550 (quoting Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 28 1992)); accord Moore–Thomas v. Alaska Airlines, Inc., 553 F.3d 1241, 1244 (9th Cir. 5 1 2009) (“The removal statute is strictly construed, and any doubt about the right of 2 removal requires resolution in favor of remand.”). “The presumption against removal 3 means that ‘the defendant always has the burden of establishing that removal is proper.’” 4 Moore–Thomas, 553 F.3d at 1244 (quoting Gaus, 980 F.2d at 566); see also Sanchez v. 5 Monumental Life Ins. Co., 102 F.3d 398, 403-04 (9th Cir. 1996) (strong presumption in 6 favor of remand). Reflecting the heavy burden of showing fraudulent joinder, the Ninth Circuit has 7 8 “upheld rulings of fraudulent joinder where a defendant demonstrates that a plaintiff is 9 barred by the statute of limitations from bringing claims against that defendant,” where a “defendant’s conduct was privileged under state law,” and where a “plaintiff’s claims 11 United States District Court Northern District of California 10 against [an] alleged sham defendant were all predicated on a contract to which the 12 defendant was not a party[.]” Grancare, 889 F.3d at 548. “[T]he party seeking removal is entitled to present additional facts that 13 14 demonstrate that a defendant has been fraudulently joined” outside of the complaint. Id. 15 at 549. However, “in many cases, the complaint will be the most helpful guide in 16 determining whether a defendant has been fraudulently joined.” Id. (citation omitted). If a defendant has improperly removed a case over which the federal court lacks 17 18 diversity jurisdiction, the federal court must remand the case to state court. See 28 19 U.S.C. § 1447(c). 20 B. Analysis 21 Marvin argues that the statute of limitations has run on the oral settlement 22 agreement between the parties and that plaintiff cannot state a claim under the written 23 settlement agreement against BMD because it does not contain any obligation that BMD 24 must fulfill. 25 As an initial matter, the court notes that the parties dispute whether there is an 26 enforceable oral settlement agreement or an enforceable written settlement agreement. 27 Under the fraudulent joinder analysis, this court finds that there is a possibility that a state 28 court would found that the complaint states a cause of action based on an oral settlement 6 1 agreement formed on July 20, 2012 between Teuma, Marvin, and BMD. The court need 2 not reach Marvin’s arguments about the written settlement agreement. 3 1. Whether the Statute of Limitations Has Expired 4 For a breach of contract action based on an oral contract, California Civil Procedure Code § 339 provides that a two-year statute of limitations applies. “A cause of 6 action for breach of contract accrues at the time of breach, which then starts the 7 limitations period running.” Cochran v. Cochran, 56 Cal. App. 4th 1115, 1120 (1997). 8 “Unless a contract contains an unconditional promise to perform at a fixed time, a 9 demand is usually necessary in order to give the promissor an opportunity to perform” 10 before the promisor is in breach. Drake v. Martin, 30 Cal. App. 4th 984, 998–99 (1994) 11 United States District Court Northern District of California 5 (internal quotation marks omitted). California law requires that a party should make the 12 demand within a “reasonable time,” and the statute will commence to run after that time 13 has elapsed. 3 Witkin, Cal. Proc. 5th Actions § 532 (2008). “[I]n the absence of peculiar 14 circumstances, a period equal to that of the statute of limitations is reasonable.” 3 Witkin, 15 Cal. Proc. 5th Actions § 533. So, when a contract fails to specify the time for performance of the promised act 16 17 with particularity and there is no demand for performance, the two-year statute of 18 limitations for an oral contract begins running two years after its formation. “Under this 19 theory the plaintiff has at most a double statutory period (4 plus 4 years on written 20 contracts, 2 plus 2 years on unwritten obligations).” Id. The parties reached an oral settlement agreement on July 20, 2012. Without a 21 22 demand, the cause of action would accrue (and the statute of limitations would begin 23 running) two years later, on July 20, 2014. The statute of limitations would expire two 24 years after that, on July 20, 2016—before this action was filed on May 4, 2018.1 Absent 25 tolling or estoppel, plaintiff’s action based on an oral contract would be plainly barred by 26 the statute of limitations. 27 28 1 Defendant reaches the same conclusions. See Opp., Dkt. 14 at 7–9. 7 1 But plaintiff argues that the statute of limitations has been equitably tolled. The 2 equitable tolling doctrine tolls statutes of limitations “when defendants would not be 3 prejudiced and plaintiffs, who had several legal remedies, pursued one such remedy 4 reasonably and in good faith.” Tarkington v. California Unemployment Ins. Appeals Bd., 5 172 Cal. 4th 1494, 1503 (2009). It is a judge-made doctrine which operates 6 independently of the Code of Civil Procedure “to suspend or extend a statute of 7 limitations as necessary to ensure fundamental practicality and fairness.” Id.; McDonald 8 v. Antelope Valley Comm. College Dist., 45 Cal. 4th 88, 100 (2008) (equitable tolling 9 “eases the pressure on parties concurrently to seek redress in two separate forums with the attendant danger of conflicting decisions on the same issue . . . . [Also], tolling 11 United States District Court Northern District of California 10 benefits the court system by reducing the costs associated with a duplicative filing 12 requirement, in many instances rendering later court proceedings either easier and 13 cheaper to resolve or wholly unnecessary.”) (internal quotation marks omitted). 14 Courts consider three factors in determining whether the statute of limitations is 15 equitably tolled: (1) timely notice, (2) lack of prejudice to defendant, and (3) reasonable 16 and good faith conduct on plaintiff's part. Addison v. State of Calif., 21 Cal. 3d 313, 319 17 (1978). 18 First, with respect to timely notice, the court considers whether the first claim was 19 filed within the limitations period against the same defendant who is being sued on the 20 second claim. Tarkington, 172 Cal. 4th at 1503–04. Plaintiff filed a motion in state court 21 to enforce the settlement agreement on July 1, 2016 (the first claim). McInerney Decl. 22 ¶ 7. That motion was granted on August 22, 2016. As explained above and as Marvin 23 concedes, it is possible that a state court would find that the first claim was filed before 24 the limitations period expired on July 20, 2016. 25 Second, the court considers whether defendant was prejudiced in its ability to 26 gather evidence to defend against the second claim (or, stated otherwise, whether the 27 facts of the two claims are so similar that defendant's investigation of the first claim would 28 put it in a position to fairly defend the second). Tarkington, 172 Cal. App. 4th at 1504. 8 1 Plaintiff’s allegations here are that the defendants breached the same agreement that 2 was at issue in the first claim. Given the near unity of the two claims, this factor is 3 satisfied. See id. (“So long as the two claims are based on essentially the same set of 4 facts timely investigation of the first claim should put the defendant in position to 5 appropriately defend the second.”). 6 Third, the court considers whether plaintiff acted reasonably and in good faith in filing the second claim. “The third requirement of good faith and reasonable conduct may 8 turn on whether a plaintiff delayed filing the second claim until the statute on that claim 9 had nearly run, or whether the plaintiff took affirmative action which misled the defendant 10 into believing the plaintiff was foregoing his second claim.” Id. at 1505. Plaintiff’s original 11 United States District Court Northern District of California 7 claim was decided mostly in her favor and was then appealed. Plaintiff filed this action 12 while the appeal was pending. The Court of Appeal then reversed the trial court’s ruling 13 in the first action. The timeline indicates that Teuma filed this action in good faith. 14 Under the fraudulent joinder standard this court need only determine that it is 15 possible that the state court would find the above analysis to be accurate, such that 16 plaintiff could state her breach of contract claim against BMD based on their oral contract. 17 Given the above, it is possible that a California court would find that plaintiff’s breach of 18 contract claim was equitably tolled from July 1, 2016 to May 24, 2018. Plaintiff filed her 19 complaint in this action on May 4, 2018, within the tolled statute of limitations. 20 As such, it is possible that a California court would find that plaintiff states a cause 21 of action based on Teuma’s oral settlement agreement with both Marvin and BMD that is 22 not barred by the statute of limitations. The parties dispute the terms of that oral 23 agreement. BMD is therefore not fraudulently joined. Because plaintiff and BMD are 24 both citizens of California, this court lacks diversity jurisdiction over the action. 25 2. Whether Teuma Should Be Awarded Costs and Fees 26 “An order remanding the case may require payment of just costs and any actual 27 expenses, including attorney fees, incurred as a result of the removal.” 28 U.S.C. 28 § 1447(c). “Absent unusual circumstances, courts may award attorney's fees under 9 1 § 1447(c) only where the removing party lacked an objectively reasonable basis for 2 seeking removal. Conversely, when an objectively reasonable basis exists, fees should 3 be denied.” Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005). When a court 4 exercises its discretion and awards fees, “its reasons for departing from the general rule 5 should be ‘faithful to the purposes’ of awarding fees under § 1447(c).” Id. The purposes 6 of awarding fees under § 1447(c) are “to deter removals sought for the purpose of 7 prolonging litigation and imposing costs on the opposing party[.]” Id. at 140. 8 9 Defendant’s counsel has provided a declaration to this court explaining his communications with plaintiff’s counsel during which he sought the basis of plaintiff’s claim against BMD. Although plaintiff’s counsel was under no obligation to explain his 11 United States District Court Northern District of California 10 litigation strategy, his response supports a finding that there was an objectively- 12 reasonable basis for Marvin’s fraudulent joinder motion. As such, the type of “unusual 13 circumstances” in which fees may be awarded are not present. CONCLUSION 14 15 For the foregoing reasons, the court finds that BMD was not fraudulently joined, 16 and the action therefore lacks complete diversity. Accordingly, the court GRANTS 17 plaintiff’s motion and REMANDS the action to the Sonoma County Superior Court. 18 Plaintiff’s motion for fees is DENIED. 19 20 21 22 IT IS SO ORDERED. Dated: January 7, 2019 __________________________________ PHYLLIS J. HAMILTON United States District Judge 23 24 25 26 27 28 10

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