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Haseko Homes, Inc. v. Underwriters Insurance Co.

January 22, 2010

HASEKO HOMES, INC. ET AL., PLAINTIFFS,
v.
UNDERWRITERS INSURANCE COMPANY, ET AL., DEFENDANTS.



The opinion of the court was delivered by: M. James Lorenz United States District Court Judge

ORDER DENYING PLAINTIFFS' MOTION TO REMAND; DISMISSING ACTION WITHOUT PREJUDICE; AND DENYING DEFENDANT'S MOTION FOR CHANGE OF VENUE AS MOOT

In this insurance coverage declaratory relief action Plaintiffs filed a motion to remand and a motion for voluntary dismissal. For the reasons which follow, Plaintiffs' motion to remand is DENIED and their motion for voluntary dismissal is GRANTED. The court declines to exercise jurisdiction over the declaratory relief counterclaim, the only proceeding remaining in this case after the complaint is dismissed. Accordingly, this action is DISMISSED WITHOUT PREJUDICE. The pending motion for change of venue is DENIED as moot.

On June 26, 2009 a construction defect class action was filed in the Hawaii state court (the "Kai Action") against Haseko Homes, Inc. and Haseko Construction, Plaintiffs in this case. On July 1, 2009 Plaintiffs filed the instant action in California state court against their insurers, seeking a declaration of the insurers' duty to defend and indemnify. On July 24, 2009 North American Specialty Company ("NAS"), as successor in interest for Defendant Underwriters Insurance Company, removed the action to this court. On August 21, 2009 Plaintiffs filed a motion to remand.

On August 26, 2009 Plaintiffs filed another insurance declaratory relief action in California state court. (See Haseko Homes, Inc. et al. v. N. Am. Specialty Ins. Co. et al., 09cv1924-L (AJB) ("Haseko II").) Plaintiffs named essentially the same Defendants,*fn1 but based the action on additional construction defect claims and class actions filed in Hawaii state court. Again, NAS removed the action to this court. Because this removal was improper, Haseko II was remanded to State court.

On September 23, 2009 the Kai Action in Hawaii was dismissed. On September 25, 2009 Plaintiffs' counsel contacted counsel for NAS to stipulate to the dismissal of the instant action. (Decl. of Celia Jackson, dated Oct. 22, 2009, Ex. C.)*fn2 NAS declined to stipulate to the dismissal. Ex. D) and subsequently filed a motion for change of venue, requesting to transfer this action to the District of Hawaii.

Although a number of motions are pending in this case, the court addresses the issue of subject matter jurisdiction first. "The requirement that jurisdiction be established as a threshold matter 'spring[s] from the nature and limits of the judicial power of the United States' and is 'inflexible and without exception.'" Steel Co. v. Citizens for Better Env't, 523 U.S. 83, 94-95 (1998) quoting Mansfield, C. & L.M. Ry. Co. v. Swan, 111 U.S. 379, 382 (1884).

Federal courts are courts of limited jurisdiction. They possess only that power authorized by Constitution or a statute, which is not to be expanded by judicial decree. It is to be presumed that a cause lies outside this limited jurisdiction and the burden of establishing the contrary rests upon the party asserting jurisdiction.

Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994); see also Abrego Abrego v. The Dow Chem. Co., 443 F.3d 676, 684 (9th Cir. 2006).

Except as otherwise expressly provided by Act of Congress, any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.

28 U.S.C. §1441(a). Consistent with the limited jurisdiction of federal courts, the removal statute is strictly construed against removal jurisdiction. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992); see also Sygenta Crop Prot. v. Henson, 537 U.S. 28, 32 (2002); O'Halloran v. University of Wash., 856 F.2d 1375, 1380 (9th Cir. 1988). Original jurisdiction exists in cases of diversity of citizenship. 28 U.S.C. §1332.

NAS removed this action based on diversity jurisdiction pursuant to 28 U.S.C. §§ 1332 and 1441. Plaintiffs argue that the removal was improper under the forum defendant rule, set forth in 28 U.S.C. § 1441(b). Section 1441(b) imposes a limitation on actions removed pursuant to diversity jurisdiction: "such action[s] shall be removable only if none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought." Spencer v. U.S. Dist. Ct. N.D. Cal. (Altec Indus., Inc.), 393 F.3d 867, 870 (9th Cir. 2004) quoting 28 U.S.C. § 1441(b). "[T]he presence of a local defendant at the time removal is sought bars removal." Id. This "confines removal on the basis of diversity jurisdiction to instances where no defendant is a citizen of the forum state." Lively v. Wild Oats Markets, Inc., 456 F.3d 933, 939 (9th Cir. 2006).

Plaintiffs maintain that Defendant TIG Insurance Company ("TIG") is a California citizen, and therefore a forum defendant. (Mot. to Remand at 1; see also Notice of Removal at 3 (TIG "is a corporation incorporated under the laws of the State of California").) However, because TIG was not served at the time of removal, the removal was proper. 28 U.S.C § 1441(b) (referring to "properly joined and served" defendants); see also Spencer, 393 F.3d at 867 (post-removal joinder of a forum defendant does not necessitate remand); William W. Schwarzer et, Federal Civil Procedure Before Trial ¶¶ 2:626, 2:627 (2009).

In the alternative, Plaintiffs seize on the "properly joined and served" language of the forum defendant rule to argue that removal was improper because NAS, which is not a California citizen, removed the action before it was served with process. Plaintiffs cite no binding authority in support of the argument that actions cannot be properly removed before service of process, and the court is aware of none. Accordingly, Plaintiffs' motion to remand is DENIED.

Plaintiffs also filed a motion to voluntarily dismiss this action pursuant to Federal Rule of Civil Procedure 41(a)(2), which TIG and NAS oppose. Rule 41(a)(2) provides in pertinent part an action may be dismissed at the plaintiff's request only by court order, on terms that the court considers proper. If a defendant has pleaded a counterclaim before being served with the plaintiff's motion to dismiss, the action may be dismissed over the defendant's objection only if the counterclaim can remain ...


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