The opinion of the court was delivered by: Oliver W. Wanger United States District Judge
MEMORANDUM DECISION RE PLAINTIFFS' MOTION TO AMEND COMPLAINT TO JOIN DEFENDANT AND REMAND TO STATE COURT (DOC. 7.)
Before the court is Plaintiff's motion to remand for lack of subject matter jurisdiction under 28 U.S.C. § 1447(c) and to amend to join San Joaquin Valley Orthopaedics Inc. ("SJVOI") as a defendant under 28 U.S.C. § 1447(e). Plaintiffs, as citizens of California, claim the joinder of Defendant Steve Whitefield and/or the joinder by amendment of SJVOI, both California citizens, defeat complete diversity of citizenship required under 28 U.S.C. § 1332. Defendants oppose, asserting Mr. Whitefield is a "sham" defendant and there is no valid cause of action against him. Defendants also oppose amendment, arguing it is not possible to state a valid cause of action against SJVOI.
This is a California state law product liability action concerning the malfunction of an orthopaedic implant. On July 26, 2006, a prosthetic femoral rod was implanted in Plaintiff, Lynn Marie McCarty, during surgery at Saint Agnes Hospital in Fresno. (Compl. ¶ 1.) In March 2008, Plaintiff felt pain in her hip. A subsequent x-ray revealed a fracture of the femoral rod. (Id.)
On December 15, 2009, Plaintiffs filed an action in state court against Johnson & Johnson, DePuy, Inc., DePuy Orthopaedics, Inc., and Steve Whitefield. (Id.) Johnson & Johnson is alleged to be "a corporation that designs, manufactures, sells and/or distributes the Femoral Rod that was implanted in Plaintiff . . . ." (Compl. ¶ 17.) DePuy, Inc., and DePuy Orthopaedics are divisions of Johnson & Johnson engaged in the business of "licensing, designing, manufacturing, distributing and/or selling, either directly or indirectly, through third parties or related entities the Femoral Rod." (Compl. ¶¶ 18-19.) Steve Whitfield is alleged to be an individual who "regularly conducted and continues to conduct on behalf of Johnson & Johnson and/or DePuy Orthopaedics, Inc. distribution and sales of the Femoral Rod." (Compl. ¶ 20.)
The complaint alleges ten theories of damages, including forms of strict liability, negligence, breach of warranty, and loss of consortium. (Compl. ¶ 22-70.)
Plaintiffs assert strict liability, breach of implied warranty, and negligent misrepresentation against Whitefield. (Doc. 7-1.) Plaintiffs claim that Mr. Whitefield was a "chain in the link" of the product's distribution and thus should be held liable under California's "stream of commerce" strict liability doctrine. (Id.) Plaintiffs also contend that, as a sales representative, Mr. Whitefield is liable for a violation of implied warranty he made as part of the sale. (Id.) Lastly Plaintiffs assert Mr. Whitefield made negligent representations regarding the success of the prosthesis. (Id.)
On February 26, 2010, Defendants removed to the United Stated District Court, Eastern District of California. (Doc. 8-1.) Defendants maintain that there is complete diversity of citizenship because Steve Whitefield is fraudulently joined as a "sham" defendant. (Id.)
On March 26, 2010, Plaintiffs moved to remand and to amend the complaint. (Doc. 7-1.) Plaintiffs maintain Steve Whitefield was not fraudulently joined. (Id.) Plaintiff filed supporting declarations of Lynn Marie McCarty, Robert A. Abel, Jr., and Malcolm E. Gharzal, M.D. (Docs. 7-8 through 7-11.)
On May 28, 2010, Defendants opposed the motion and filed the supporting and supplemental declarations of Steve Whitefield. (Docs. 7-5 and 8-2.) Defendants acknowledge both SJVOI and Steve Whitefield are California residents.
Defendants maintain that Plaintiffs cannot state a valid cause of action against Mr. Whitefield because: (1) a sales representative cannot be held strictly liable under the stream of commerce theory (id.); (2) a claim for breach of the implied warranty cannot be maintained because there was no privity between Mr. Whitefield and Plaintiffs (id.); and (3) Mr. Whitefield did not make any representations to Mrs. McCarty and any evidence she offers of alleged misrepresentations made to others is inadmissible hearsay (id.). Defendants also argue that it would be futile to add SJVOI as a defendant because claims against SJVOI would fail for the same reasons claims against Steve Whitefield would fail. (Id.)
III. STANDARDS OF DECISION
United States Courts have jurisdiction over civil cases if the amount in controversy exceeds $75,000 and there is complete diversity of state citizenship. 28 U.S.C. § 1332. Diversity is required between all plaintiff and defendants. Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546 (2005). There is a presumption against removal jurisdiction in order to protect the jurisdiction of state courts. Harris v. Bankers Life and Gas, Co., 425 F.3d 689, 698 (9th Cir. 2005) (citing Shamrock Oil & Gas Copr v. Sheets, 313 U.S. 100, 108-09, (1941)). "Th[is] "strong presumption' against removal jurisdiction means that the defendant always has the burden of establishing that removal is proper." Gaus v. Miles, 980 F.2d 564, 566 (9th Cir. 1992).
Fraudulent joinder is an exception to the diversity requirement. A "sham" defendant or fraudulent joinder occurs "if the plaintiff fails to state a cause of action against a resident defendant, and the failure is obvious according to the settled rules of the state." Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001).
A party is fraudulently joined if, "after all the disputed questions of fact and all ambiguities in the controlling state law are resolved in the plaintiffs favor, the plaintiff could not possibly recover against the party whose joinder is questioned." Kruso v. Int'l Tel. & Tel. Corp., 872 F.2d 1416, 1426 (9th Cir. 1989).
Courts may "pierce the pleadings" in order to determine if a party is fraudulently joined. Maffei v. Allstate California Ins. Co., 412 F. Supp. 2d 1049, 1053 (E.D. Cal. 2006). "The defendant seeking removal to the federal court is entitled to present the facts showing the joinder to be fraudulent." McCabe v. General Foods Corp., 811 F.2d 1336 (9th Cir. 1987). A court may "consider summary judgment-type evidence such as affidavits and deposition testimony." Morris, 236 F.3d at 1068, (citing Cavallini v. State Farm Mutual Auto Ins. Co., 44 F.3d 256, 263 (5th Cir. 1995)). The plaintiff needs only one possibly valid claim against a non- diverse defendant in order to defeat an assertion of fraudulent joinder. Richey v. Upjohn Drug Co., 139 F.3d 1313 (9th Cir. 1998).
Plaintiffs claim they have a possibility of recovering against Mr. Whitefield under (1) strict liability, (2) implied warranty, and (3) negligent representation.
Plaintiffs claim they can recover against Mr. Whitefield under California's stream of commerce strict liability doctrine, pursuant to which strict liability applies "downward through the various links in the marketing chain from manufacturer to distributor, to retailer, and so forth." Kasel v. Remington Arms Company, Inc., 24 Cal. App. 3d 711, 724 (1972).
Strict liability developed from policy interests including enhancing product safety, maximizing protection to the injured plaintiff, and apportioning costs among the defendants. Altman v. HO Sports Co., Inc., 2009 WL 2590425, at *3 (E.D. Cal. 2009). "Where these policy justifications are not applicable, the courts have refused to hold the defendant strictly liable even if that defendant could technically be viewed as a "link in the chain' in getting the product to the consumer market." Id. (citing Arriaga v. Citi-Capital Commercial Corp., 167 Cal. App. 4th 1527, 1535 (2008)).
A distributor can be held strictly liable for products sold. Vandermark v. Ford Moter Co., 61 Cal. 2d 256, 262 (1964). In Vandermark the court held that a retailer could held liable as a distributor under stream of commerce strict liability. Id. The court reasoned that the policy concerns for manufacturers applied to retailers. Id. "The courts have since applied the doctrine to others similarly involved in the vertical distribution of consumer goods, including lessors of personal property, developers of mass-produced homes, wholesale and retail distributors, and licensors." Bay Summit Community Ass'n v. Shell Oil Co., 51 Cal. App. 4th 762, 773 (1996) (citing cases).
A sales company can be a distributor. In Hinds, the court refused to dismiss a strict liability claim against a sales company that facilitated an order between a hospital and larger corporation. Hinds v. Zimmer, Inc., 2009 WL 1517893 (E.D. Cal. June 1, 2006). The court found that the sales company was a distributor under California law and refused to recognize the sales company as a "sham defendant." Id. Although Hinds does not explicitly define who or what would qualify as a "distributor," the corporate defendant in Hinds did not hold title to the product and did not ship the products to the hospital, but did send representatives to be present during surgery. Id. Hinds held that the company placed the product into the stream of commerce and qualified as a distributor. Id.
Likewise, in Becraft v. Ethicon, 2000 WL 1721056 (N.D. Cal. Nov 2, 2000), a company that delivered contaminated sutures was a distributor and therefore not a "sham defendant." Id.
However, Altman suggests an individual salesperson working directly for a manufacturer does not qualify as a distributor for purposes of the stream of commerce doctrine. 2009 WL 2590425. The salesperson in Altman was a direct employee of a company that manufactured wakeboarding boots. Id. at *3. Altman reasoned that the policy implications for strict liability did not apply to the individual sales person. Id. ("[A]s a sales employee of the product manufacturer, the Court does not see how the policies underlying strict products liability (enhancing product safety, maximizing protection to the injured plaintiff, and apportioning costs among the defendants) would be furthered by applying the doctrine to [the salesperson]".).
Possessing legal title to the product is not an element of distribution. In Arriaga, 2008 WL 2212978, the court held that, even though it possessed legal title to the product, a financing company was "outside the direct chain of distribution," and could not possibly be held strictly liable. Furthermore in Hinds, no mention of legal title is made. Hinds, 2009 WL 1517893.
Defendants rely on Bay Summit Community Ass'n, 51 Cal. App. 4th 762, to define the limitations on strict liability. In Bay Summit, Shell Oil Company provided resin that was used to create a defective polybutylene plumbing system. Id. Shell helped market the plumbing product and played an integral role in bringing the product to the consumer market. Id. Bay Summit relied on Kasel to articulate a three part test that limits the scope of Strict Liability:
(1) [T]he defendant received a direct financial benefit from its activities and from the sale of the product;
(2) the defendant's role was integral to the business enterprise such that the defendant's conduct was a necessary factor in bringing the product to the initial consumer market; and (3) the defendant had control over, or a substantial ...