Comfort Residential Partners, LLC v. Nova Casualty Company et al

Filing 25

ORDERED that Comfort's Motion to Remand (# 13 ) is GRANTED. Signed by Chief Judge Robert C. Jones on 8/10/2011.( Certified copies of Order and PACER docket sheet mailed to 2nd Judicial Court Clerk on 8/11/2011 ) (Copies have been distributed pursuant to the NEF - DRM)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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COMFORT RESIDENTIAL PARTNERS,
LLC,

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Plaintiff,
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v.
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NOVA CASUALTY COMPANY and A.I.M.,
INC.,
Defendants.

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3:10-cv-806-RCJ-RAM
ORDER

___________________________________

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Currently before the Court is Plaintiff Comfort Residential Partners LLC’s (“Comfort”)
Motion to Remand (#13). The Court heard oral argument on July 28, 2011.
BACKGROUND

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Plaintiff Comfort Residential (“Comfort”) contracted Sun Rockeries to build rock

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retaining walls on land it was developing known as “Bella Rio” in Reno, NV. Through broker

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Defendant A.I.M., Inc. (“AIM”), Sun Rockeries took out a general liability insurance policy in

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August 2003 from Defendant Nova Casualty Company (“Nova”) against claims made by third

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parties for property damage caused by Sun Rockeries. Motion to Remand (#13) at 2. Comfort

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sued Sun Rockeries over damage done, and in 2009 obtained a default judgment against the

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now defunct Sun Rockeries for $6,780,004 plus fees. Id. at 3-4. Nova refused to defend Sun

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Rockeries. Id. at 3.

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In 2010, Comfort filed a complaint in the Oregon Circuit Court seeking garnishment

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against Nova, and alleging that Nova had breached its contract with Sun Rockeries by failing

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to defend it in the previous suit. Notice of Removal (#1) at 2. In August 2010, Comfort obtained
an assignment of rights from Sun Rockeries against Nova. Id. at 3. After an unfavorable ruling

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in Oregon Circuit Court, which resulted in claims related to a duty to defend being stricken,

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Comfort voluntarily dismissed the suit without prejudice. Id.

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On November 29, 2010, Comfort filed a complaint in the Second Judicial District Court

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for the State of Nevada. Complaint (#1-10) at 2. The complaint alleges a breach of contract

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for failure to defend, breach of fiduciary duty, and violation of Nevada’s Unfair Claims

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Practices Act against Defendant Nova. Id. at 6-8. The complaint also alleges negligence

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against broker AIM, a Nevada corporation, for “fail[ure] to assist, explain or ensure

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completeness” of Sun Rockeries’ insurance application. Id. at 9.

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Defendants filed a petition for removal to this Court based on diversity of citizenship

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grounds, alleging the fraudulent joinder of AIM. Notice of Removal at 5–6. The motion to

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remand now follows.

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LEGAL STANDARD

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An action may be removed to federal court only if it could have been brought there

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originally. 28 U.S.C. § 1441(a). Removal statutes should be construed narrowly in favor of

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remand to protect the jurisdiction of the state court because federal courts are courts of limited

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jurisdiction. Harris v. Bankers Life & Gas Co, 425 F.3d 689, 698 (9th Cir. 2005). As a result,

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the general presumption is that a cause of action lies outside of federal jurisdiction. Kokkonen

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v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). This presumption places the

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burden of proving that removal is proper with the removing party, and federal jurisdiction must

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be rejected and the case remanded if there is any doubt as to the right of removal in the first

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instance. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992).

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Generally, federal jurisdiction based on diversity of citizenship requires that the claim

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satisfy the jurisdictional amount, $75,000, and that there be complete diversity among the

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parties, i.e. no defendants share citizenship with any plaintiff, and no defendant is a citizen of

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the state in which the suit was filed. 28 U.S.C. § 1332. However, when suit is brought against

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a fraudulent or “sham” defendant for the purposes of defeating diversity jurisdiction, the

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citizenship of that defendant may be disregarded for purposes of establishing jurisdiction.

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Ritchey v. Upjohn Drug Co., 139 F.3d 1313, 1318 (9th Cir. 1998) (“It is a commonplace that

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fraudulently joined defendants will not defeat removal on diversity grounds.”).

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A defendant is fraudulently joined if the plaintiff fails to state a claim against him and

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that failure is “obvious according to the settled rules of the state.” McCabe v. General Foods

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Corp., 811 F.2d 1336, 1339 (9th Cir. 1987). The removing party bears the burden of proving

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fraudulent joinder by clear and convincing evidence. Hamilton Materials, Inc. v. Dow Chem.

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Corp., 494 F.3d 1203, 1206 (9th Cir. 2007).

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The issue of whether removal was proper is generally determined on the pleadings as

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they existed at the time of removal. Eagle v. American Tel. & Tel. Co., 769 F.2d 541, 545 (9th

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Cir. 1985) (citing Pullman Co. v. Jenkins, 305 U.S. 534, 537 (1939)). In cases where there is

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a question of whether the non-diverse defendant was fraudulently joined, the district court is

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allowed to “pierce the pleadings” and consider additional evidence of a summary judgment

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nature. See Ritchey, 139 F.3d at 1318 (stating that “a defendant must have the opportunity

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to show that the individuals joined in the action cannot be liable on any theory”). Nevertheless,

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consideration of the legitimacy of removal should be limited to evidence available at the time

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of removal and “not on possible future evidence that may be obtained through further

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discovery.” Kite v. Zimmer, 2006 WL 3386765, *1 (D. Nev. 2006) (J. Jones). Examining this

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evidence, the court must resolve “all disputed questions of fact and all ambiguities in the

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controlling state law in favor of the non-removing party.” Plute v. Roadway Package Sys., Inc.,

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141 F.Supp.2d 1005, 1008 (N.D. Cal. 2001) (internal citations omitted).

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The removing party has the burden of proof to prove that (1) plaintiff has not stated a

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claim against the non-diverse party, and (2) plaintiff cannot state a claim against the non-

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diverse party. See Greene v. Wyeth, 344 F.Supp.2d 674, 682 (D. Nev. 2004) (“Where there

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is a ‘non-fanciful possibility’ that the Plaintiffs can state a claim against the non-diverse

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Defendants, the Court must remand.”). Although no Nevada court has required a removing

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party to demonstrate that the state court would not grant a plaintiff leave to amend to fix any

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pleading deficiencies, other district courts have. See Padilla v. AT&T Corp., 697 F.Supp.2d

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1156, 1159 (C.D. Cal. 2009) (remanding upon failure of defendant to show that the plaintiff
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could not amend and possibly recover); Burris v. AT&T Wireless, Inc., 2006 WL 2038040, *2

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(N.D. Cal 2006) (remanding despite clear failure of plaintiff to plead necessary element of

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cause of action because plaintiff may have been given leave to amend).
DISCUSSION

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Defendants removed on the grounds that AIM was a fraudulently joined defendant

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because Comfort had not obtained an assignment of rights from Sun Rockeries with regards

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to AIM, only to Nova, and thus lacked standing to sue AIM. Notice of Removal (#1) at 5–6.

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Comfort, in its motion to remand, implicitly admitted that, at the time of removal, its assignment

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was insufficient with regards to Defendant AIM. Motion to Remand (#13) at 5. Comfort

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subsequently acquired the assignment and argues that this acquisition destroys this Court’s

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jurisdiction by mooting Defendants’ contention of fraudulent joinder. Id. at 6-8. Comfort also

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asserts that it will seek to amend in state court upon remand. Id. at 5.

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In response, Defendants argue that Comfort cannot unilaterally divest this Court of

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jurisdiction if jurisdiction existed at the time of removal. Defendants’ Opposition to Motion to

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Remand (#16) at 6. Defendants also allege a second basis for showing the fraudulent joinder

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of AIM—that the claim stated against AIM rests on “hypothetical facts” so as to make the claim

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merely “speculative.” Id. at 6–7.

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In reply, Comfort asserts that the complaint, when read liberally, gives fair notice to the

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parties thus conforming to pleading requirements. Reply to Opposition (#17) at 5. In addition,

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Comfort points this Court to the discretionary authority given to it by 28 U.S.C. § 1447(e) to join

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a non-diverse party and remand. Id. at 2-3. Comfort contends that the acquisition of rights

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against AIM serves to effectively join AIM which divests this Court of jurisdiction. Id. Comfort

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does not seek this Court’s permission to join AIM at this time. See id.

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As an initial matter, the parties do not dispute that the jurisdictional amount is

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satisfied—Comfort alleges damages in excess of $7 million. In addition, the citizenship of the

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parties is undisputed—Nova is a citizen of Connecticut and New York, and Comfort, Sun

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Rockeries, and AIM are citizens of Nevada. Notice of Removal (#1) at 4. The only issue of

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note is whether Defendant AIM was fraudulently joined. To determine this, the Court looks at
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whether, at the time of removal, Comfort could possibly state a claim upon which it could

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prevail over AIM.

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Defendants allege that the complaint contains two pleading deficiencies: (1) the

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complaint’s stated cause of action against AIM is not sufficiently certain and based only on

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“hypothetical facts,” and (2) Comfort’s assignment of rights at the time of removal was solely

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for claims against Nova and is not sufficient to provide standing for suit against AIM. While

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Defendants have alleged a failure to state a claim, they must also demonstrate Comfort’s

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inability to state a claim against AIM, particularly that Comfort would not be given leave to

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amend in state court. Here, Defendants have not alleged an inability to amend. In examining

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the two alleged deficiencies, the Court finds that Plaintiff would be given leave to amend in

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state court in order to cure its deficiencies.

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Similar to the Federal Rules, the Nevada Rules of Civil Procedure permit a party to

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amend “once as a matter of course at any time before a responsive pleading is served.” Nev.

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R. Civ. P. 15(a). In all other cases, “a party may amend the party’s pleading only by leave of

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court or by written consent of the adverse party.” Id. However, “leave shall be freely given

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when justice so requires.” Id. In this case, Defendants have filed responsive pleadings, so

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Comfort would only be able to amend by leave of the court.

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Under Nevada law, a pleading is sufficient if it gives “fair notice of the nature and basis

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of a legally sufficient claim and the relief requested.” Vacation Village, Inc. v. Hitachi Am., Ltd.,

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874 P.2d 744, 746 (Nev. 1994). Nevada has imposed an ordinary standard of care on

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insurance brokers to procure the agreed-upon insurance policy. See Havas v. Carter, 515 P.2d

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397, 399 (Nev. 1973) (stating that “an insurance agent or broker who undertakes to procure

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insurance for another owes an obligation to his client to use reasonable diligence in attempting

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to place the insurance and to seasonably notify the client if he, the agent or broker, is unable

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to obtain the insurance”).

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Here, Defendants contend that Plaintiff has failed to state a claim and alleges only

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“hypothetical facts” that demonstrate that the claim is merely “speculative.” However, a liberal

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reading of the original claim reveals that Comfort has alleged that AIM had a duty to use
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reasonable care as a broker in preparing Sun Rockeries’ insurance application and that if the

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insurance application was deficient, AIM breached its duty.

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Additionally, as a result of that breach, Comfort seeks damages in excess of $10,000. Id.

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Thus, Plaintiff sufficiently pleads a claim against AIM. However, even if the claim was

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insufficiently pled, a state court would grant Comfort leave to amend under Nevada law.

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Accordingly, Defendants have not demonstrated that Plaintiff cannot state a claim against AIM.

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With respect to Defendants’ claim that Comfort lacked standing to bring suit against

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Defendant AIM because the prior assignment of rights from Sun Rockeries did not apply to

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claims against AIM, it is clear that, indeed at the time of removal, the assignment of rights did

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not apply to AIM. It is also clear that Comfort’s subsequent acquisition of the assignment of

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rights is sufficient under Nevada law to make Comfort the real party in interest against AIM.

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See Easton Bus. Opp. v. Town Exec. Suites, 230 P.3d 827, 831 (Nev. 2010) (holding that

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assignee of commission rights was real party in interest for suit regarding the commission).

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However, it is not clear from the case law whether the removing party has the burden

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of proof to demonstrate that there is no possibility of amendment to reflect post-removal

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occurrences such as the acquisition of rights in this case. While in cases of fraudulent joinder

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the burden of proof includes showing an inability to amend to correct deficiencies, the propriety

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of removal is determined based on evidence available at the time of removal. Thus, there is

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ambiguity whether Defendants must show an inability to amend to reflect facts that may

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change after the time of removal. The Court finds that Defendants’ burden in this case does

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include showing an inability of Comfort to amend its complaint to show that it is a real party in

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interest with regards to AIM. First, in this case, it is not overly burdensome to require this

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showing of proof on Defendants because the acquisition of rights was foreseeable at the time

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of removal—Comfort already possessed a similar assignment of rights with regard to Nova.

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Second, the post-removal acquisition of the assignment of rights does not change the factual

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allegations of the conduct of Defendant AIM. Finally, in addition to the generally liberal rules

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regarding pleading and amendment, the Nevada Rules of Civil Procedure provide that in cases

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where it is uncertain if the plaintiff is a party of interest, the court is required to give a
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Complaint (#1-10) at 9.

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reasonable amount of time after objection to cure the deficiency. See Nev. R. Civ. P. 17

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(providing that “no action shall be dismissed on the ground that it is not prosecuted in the

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name of the real party in interest until a reasonable time has been allowed after objection for

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ratification of commencement of the action by, or joinder or substitution of, the real party in

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interest. . . ”). Based on the expanded time for curing these types of deficiencies and the

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general burdens of proof for motions to remand, Defendants should have the burden of

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showing that Comfort would not be afforded a reasonable time period after an objection to

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cure its deficient status as a party in interest.

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Thus, Defendants have not met, and cannot meet their burden of proving that Comfort

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would not be given leave to amend to fix the lack of standing with the assignment of rights. As

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such, Defendants have not shown with clear and convincing evidence that the joinder of

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Defendant AIM was fraudulent. Therefore, the Court grants the motion to remand (#13).

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However, if the state court grants a motion to dismiss AIM from the lawsuit, this Court invites

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the parties to remove the case again to this Court. Upon removal, this Court will not consider

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time limits if the parties have complied with all other procedural rules.
CONCLUSION

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For the foregoing reasons, IT IS ORDERED that Comfort’s Motion to Remand (#13) is
GRANTED.

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DATED: This 10th day of August, 2011.

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_________________________________
ROBERT C.JONES
United States District Chief Judge

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