UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA
August 18, 2008
CALIFORNIA CRANE SCHOOL, INC., A CALIFORNIA CORPORATION; JOHN NYPL, AN INDIVIDUAL, PLAINTIFFS,
NATIONAL COMMISSION FOR CERTIFICATION OF CRANE OPERATORS, A NON-PROFIT CORPORATION; THE INTERNATIONAL ASSESSMENT INSTITUTE, A FLORIDA CORPORATION; GRAHAM BRENT, AN INDIVIDUAL; ANTHONY MITCHELL, AN INDIVIDUAL; ROBERT HORNAUER, AN INDIVIDUAL; DOES ONE THROUGH 100, DEFENDANTS.
The opinion of the court was delivered by: Morrison C. England, Jr. United States District Judge
MEMORANDUM AND ORDER
Through the present action, Plaintiffs California Crane School and John Nypl ("Plaintiffs") seek damages under California state law for antitrust violations, interference with prospective business, interference with contract, and unfair competition and false advertising.
Plaintiffs filed the action in Superior Court of the State of California in and for the County of Nevada. Defendants National Commission for Certification of Crane Operators ("NCCCO"), International Assessment Institute ("IAI"), and several individuals including Robert Hornauer ("Hornauer"), later removed the action to this Court. Presently before the Court is Plaintiff's Motion for Remand and Attorneys' Fees.*fn1
Plaintiff Nypl, a California resident, is the sole owner of California Crane School ("CCS"), a California corporation that provides training courses designed to assist in the certification of crane operators in California. Defendants NCCCO and IAI are incorporated, and maintain headquarters, in states other than California. Together NCCCO and IAI are responsible for developing and administering the standards and tests required for crane certification in California. In the past, CCS worked closely with NCCCO and IAI to properly certify those who take their courses.
Defendant Hornauer is a NCCCO employee and a resident of California. Plaintiffs claim that he plays an active role in the Defendants' "anti-competitive behavior and illegal activities," and name him as a defendant for all counts in the Complaint.
On the other hand, Defendants allege that he is named as a defendant for the sole purpose of destroying diversity.*fn2
Accordingly, Defendants removed the action to this Court pursuant to 28 U.S.C. §§ 1332 and 1441 on the grounds that Hornauer was fraudulently joined.
In now moving to remand, Plaintiffs argue that the Complaint as currently drafted contains claims to which Hornauer is potentially liable.
Civil actions not premised upon federal questions are removable to federal court only if there is complete diversity of citizenship between the parties. 28 U.S.C. §§ 1332(a)(1), 1441. Each of the plaintiffs' citizenship must be diverse from each of the defendants'. Caterpillar, Inc. v. Lewis, 519 U.S. 61, 68, 117 S.Ct. 467, 136 L.Ed. 2d 437 (1996). However, if the plaintiff fails to state a cause of action against a non-diverse defendant, and the failure is obvious according to settled state law, joinder of the non-diverse defendant is fraudulent and the defendant will be ignored for the purposes of determining diversity. McCabe v. General Foods, 811 F.2d 1336, 1339 (9th Cir. 1987).
A defendant is entitled to present facts that prove fraudulent joinder. Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001) (citing McCabe, 811 F.2d at 1339). The court may also consider summary judgment-type evidence, such as affidavits and deposition testimony. Id. at 1068 (quoting Cavallini v. State Farm Mutual Auto Ins. Co., 44 F.3d 256, 263 (5th Cir. 1995)).
"A 'strong presumption' exists against fraudulent joinder, and all factual disputes and ambiguities in the controlling state law must be resolved in favor of the non-moving party." Rodriguez v. Hall Ambulance, 2007 WL 470624, *6 (E.D.Cal. 2007) (citing Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992)).
If the defendant cannot prove fraudulent joinder and the federal court lacks jurisdiction, the action is remanded to state court. 28 U.S.C. § 1447(c). An order remanding a removed case to state court "may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal." Martin v. Franklin Capital Corp., 546 U.S. 132, 134, 126 S.Ct. 704, 163 L.Ed. 2d 547 (2005) (quoting 28 U.S.C. § 1447(c)). Courts may award attorney's fees only where the removing party lacks an objectively reasonable basis for seeking removal. Id.
As noted above, on a motion for remand, the alleged "sham" defendant need only be potentially liable for one of the stated causes of action. McCabe, 811 F.2d at 1339.
The burden of proof is on the defendant/removing party to show that the allegedly "sham" defendant can not be found liable under established California law. Gaus v. Miles, Inc., 980 F.2d 564, 567 (9th Cir. 1992).
Plaintiffs' Third Cause of Action alleges tortious interference with business against Defendant Hornauer. Tortious interference with business may also be referred to as intentional interference with prospective economic advantage. Fisher v. San Pedro Peninsula Hosp., 214 Cal. App. 3d 590, 618 (1989). Under California law, "The elements of intentional interference with prospective economic advantage have been stated as follows:
(1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant." Westside Center Associates v. Safeway Stores 23, Inc., 42 Cal. App. 4th 507, 521-522 (1996) (internal quotations and citations omitted).
Although mutually exclusive, the tort of intentional interference with prospective economic advantage is similar to that of interference with contract in many respects. Under California law, the difference between the two torts is found in the "independent wrongfulness requirement of the tort of interference with prospective economic advantage." Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134 (Cal. 2003).
While interference with a contract is considered wrong "in and of itself," the interference with a prospective economic advantage is not. Id. Therefore, an act must be unlawful in order to be considered wrongful under the tort of intentional interference with prospective economic advantage.
In the instant case, it is possible that a California Superior Court could find that Plaintiffs have stated a cause of action against Defendant Hornauer for tortious interference with business. The Complaint alleges the probability of future economic benefit between Plaintiffs and their current and past clients due to cyclical certification requirements. Compl. ¶ 43. It is not disputed that Defendant knew of these relationships. The Complaint also alleges several specific instances of unlawful interference which are allegedly "intended to disrupt plaintiff's relations with its customers" and "maintain an illegal monopoly." Compl. ¶¶ 44-45. Although these events are alleged generally against "defendants," Plaintiffs establish that Hornauer "fully, knowingly, and intentionally participated in the conspiratorial, tortious and illegal conduct alleged herein." Compl. ¶ 3. Additionally, Plaintiffs allege causation and damages. Compl. ¶¶ 46-48.
In considering a motion to remand for fraudulent joinder, the Court may consider evidence in addition to the Complaint. Morris, 236 F.3d at 1068. Defendants offer the Declarations of Hornauer and his supervisor in rebuttal to Plaintiffs' claims. However, the Declarations do not meet Defendants' burden in proving there is no reasonable possibility Plaintiff may have a claim against Hornauer.
Rather they seek to explain several events alleged in the Complaint, but alone are not dispositive of the lack of a valid claim against Hornauer.
Defendants argue, under TPS Utilicom Services, Inc. v. AT&T Corp., 223 F. Supp. 2d 1089 (C.D. Cal. 2002), that to withstand fraudulent joinder, a plaintiff must have alleged specific, intentional acts by the non-diverse defendant. However, in TPS Utilicom, the non-diverse defendant was deemed improper because TPS based its joinder on speculation about future conduct, and nothing in the complaint alleged any conduct on the part of the non-diverse defendants. Id. at 1103. The instant case is distinguishable in that Hornauer was named as a defendant based on actions he already allegedly completed, and not on speculation about future acts that he may carry out.
Additionally, Defendants assert that Hornauer may not be held liable for actions taken within the scope of his employment. However, California Law is clear that under an intentional tort action, all individual defendants shown to have participated are liable for damages, even though the corporation may be liable as well. Golden v. Anderson, 256 Cal. App. 2d 714 (1967); (employee held liable for intentionally interfering with a contract to which neither the employee nor the employer was a party); Frances T. v. Village Green Owners Ass'n, 42 Cal. 3d 490 (1986); Klein v. Oakland Raiders, Ltd., 211 Cal. App. 3d 67 (1989) (collecting cases). In the instant case, absent some immunity or privilege, Hornauer is not shielded from liability merely because he was acting within the scope of his employment.
Defendants also assert that Hornauer is immune from prosecution under California's Manager's Privilege. Consideration of the Manager's Privilege as a defense to a motion to remand has been questioned. See Ritchey v. Upjohn Drug Co., 139 F.3d 1313 (9th Cir. 1998) (statute of limitations is a bar to recover and therefore joinder was fraudulent, but normally courts do not consider defendant's defenses); Collins v. Liberty Life Ins. Co. of Boston, 2007 WL 1430088 (N.D. Cal. 2007) (noting that manager's privilege is not procedural bar like statute of limitations). However, this Court need not determine the applicability of the manager's privilege in a motion to remand for fraudulent joinder because Defendants fail to show that, under established California law, the privilege applies to the facts of this case.
Under California's common law, the manager's privilege protects an agent from individual liability for acts taken on behalf of his employer or principal. Huynh v. Vu, 111 Cal. App. 4th 1183, 1194 (2003). Courts have noted that the scope of the manager's privilege is neither clear nor consistent. Id. (discussing uncertainties as to whether the privilege offers absolute or qualified immunity). The privilege is designed to protect the interests between an employee and his employer by protecting otherwise tortuous activity as privileged when an employee induces interference between her employer and another employee or agent. Los Angeles Airways, Inc. v. Davis, 687 F.2d 321 (9th Cir. 1982).
The privilege is not extended to instances where the interfering employee or the employer have no rightful interest in the business relationship. See Klein, 211 Cal. App. 3d at 81.
In the case at bar, Defendants contend that the Complaint alleges, in effect, that NCCCO and/or IAI refused to permit Plaintiffs to act as agents of NCCCO or IAI. Thus the Manager's privilege applies to Hornauer and he cannot be held personally liable for wrongful discharge or interference with contractual relations so long as the discharge or contractual interference was done on behalf of the employer, and not for the employee's personal advantage. Defendants cite cases in support of their argument which pertain to a tortious interference created by a manager or agent providing information to a employer. Defs.' Mem. in Supp. of Opp'n. to Remand p. 13 (citing Halvorsen v. Aramark Unif. Services, Inc., 65 Cal. App. 4th 1383, 1393 (1998); McCabe 811 F.2d 1336; Los Angeles Airways, Inc., 687 F.2d 321; Olivet v. Frischling, 104 Cal. App. 3d 831 (1980)). However, several incidents alleged in the Complaint involve Hornauer giving advice to a third party, to which neither Hornauer nor NCCCO had a specific interest, regarding its business with Plaintiffs. This type of situation is not contemplated by the line of cases cited by Defendants and settled California law does not require this Court to find the Manager's privilege applicable in the present situation.
For the reasons stated above, it is not clear that a California Court would find that Plaintiffs failed to state a cause of action for tortious interference with business against Hornauer.
A non-diverse defendant need only be potentially liable for one of the stated causes of action. McCabe, 811 F.2d at 1339. Therefore it is unnecessary for the Court to consider the remaining causes of action against Defendant. Accordingly, Defendants have not met their burden of proof. Plaintiffs' Motion to Remand based upon a lack of diversity is GRANTED.
As noted above, the award of Attorney's fees is discretionary and should only be awarded when defendants lack an objectively reasonable basis for seeking removal. Martin, 546 U.S. at 134. In this case, the facts as pled along with the declarations create uncertainty as to the liability of Defendant Hornauer and consequently there was reasonable basis for seeking removal. Accordingly, Plaintiffs' request for attorney's fees is DENIED.
For the reasons set forth above, Plaintiffs' Motion to Remand is GRANTED, and Plaintiffs' Motion for Costs and Attorney's Fees is DENIED. The case is hereby remanded to the Superior Court of the State of California in and for the County of Nevada for all further proceedings.
IT IS SO ORDERED.