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United States District Court, Northern District of California

January 13, 2003


The opinion of the court was delivered by: Charles R. Breyer, United States District Judge.


Now before the Court is plaintiff's motion to remand this case to California Superior Court Defendants oppose remand on the rounds that the only two nondiverse defendants in the case-Dennis Jaffe and Jaffe-Schlossberg, Inc. — are "sham" defendants whose citizenship should not be considered for purposes of diversity jurisdiction under 28 U.S.C. § 1332. Having considered the parties' pleadings and oral arguments, and for the reasons set forth herein, the Court grants plaintiff's motion to remand.

The removal statute, 28 U.S.C. § 1447, must be strictly construed, and all doubts should be resolved in favor of remand. See Libhart v. Santa Monica Dairy Co., 592 F.2d 1062, 1064 (9th Cir. 1979). While diversity jurisdiction under 28 U.S.C. § 1332 ordinarily requires complete diversity of the parties, see Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 (1996), removal is proper despite the presence of a nondiverse defendant when that defendant was fraudulently joined — that is, when the defendant is merely a "sham" In the Ninth Circuit, a nondiverse defendant is deemed a sham and will not defeat jurisdiction if "after all disputed questions of fact and all ambiguities in the controlling state law are resolved in the plaintiff's favor, the plaintiff could not possibly recover against the party whose joinder is questioned." Kalawe v. KFC Mgmt. Co., 1991 WL 338566, at *2 (D. Haw. 1991) (citing Kruso v. Int'l Telephone & Telegraph Corp., 872 F.2d 1416, 1426 (9th Cir. 1989)). The failure to state a claim against the nondiverse defendant must be "obvious according to the well-settled rules of the state." United Computer Sys., Inc. v. AT&T Corp., 298 F.3d 756, 761 (9th Cir. 2002).

The party asserting fraudulent joinder bears the burden of proof. See B., Inc. v. Miller Brewing Co., 663 F.2d 545, 549 (5th Cir. 1981). Accordingly, plaintiff's motion for remand must be granted unless defendants can show that there is no possibility that plaintiff could prevail on any cause of action he has brought against either defendant Jaffe or defendant Jaffe-Schlossberg. See Levine v. Allmerica Fin. Life Ins. & Annuity Co., 41 F. Supp.2d 1077, 1078 (C.D. Cal. 1999).

Defendants have not shown that under well-settled California law plaintiff could not possibly recover from Jaffe or Jaffe-Schlossberg for negligent or intentional misrepresentation. Though as a general rule an insurance agent is not liable for acts done within the scope of his agency when he has fully disclosed the identity of his principal, see Lippert v. Bailey, 241 Cal.App.2d 376, 382 (1966), the Lippert rule does not preclude suit against an insurance agent who misrepresents the nature or scope of coverage or holds himself out as having special expertise in the type of insurance sought by the insured. See Macey v. Allstate Prop. & Cas. Ins. Co., 220 F. Supp.2d 1116, 1125-26 (N.D. Cal. 1999) (citing Fitzpatrick v. Hayes, 57 Cal.App.4th 916, 927 (1997)); Sun v. Equitable Life Assurance Soc'y, 2001 WL 764486, at *3 (N.D. Cal. 2001); Smith v. New England Mut Life Ins. Co., 1998 WL 775124, at * 1 (N.D. Cal. 1998). Here, the complaint is replete with allegations that Jaffe and/or Jaffe-Schlossberg misrepresented the nature or scope of the coverage provided by the insurance policy that plaintiff purchased. See, e.g., Compl. ¶¶ 63-69. The Complaint further alleges that Jaffe presented himself as an expert in the field of disability insurance. Id. ¶ 63. Construing all disputed facts in favor of the nonremoving party, see Levine 41 F. Supp.2d at 1078, the Court cannot conclude that the Lippert rule precludes recovery against Jaffe and/or Jaffe-Schlossberg. Accordingly, the Court cannot enter a finding of fraudulent joinder on this basis. See Macey, 220 F. Supp.2d at 1128 (joinder is fraudulent only when "it is clear that California courts would refuse to recognize such a cause of action").

The Court has considered defendants' other arguments in opposition to remand and finds that none of them establish that Jaffe and Jaffe-Schlossberg are "sham" defendants. As such, the citizenship of Jaffe and Jaffe-Schlossberg must be considered for purposes of diversity jurisdiction. Since, like plaintiff, both defendants are citizens of California, the requirements of diversity jurisdiction are not met The Court therefore REMANDS the case to state court pursuant to 28 U.S.C. § 1447 (c).



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