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Dennis Nasrawi, et al v. Buck Consultants

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA


March 7, 2011

DENNIS NASRAWI, ET AL,
PLAINTIFFS,
v.
BUCK CONSULTANTS, LLC, ET AL., DEFENDANTS.

The opinion of the court was delivered by: Oliver W. Wanger United States District Judge

MEMORANDUM DECISION RE:

PLAINTIFFS' RENEWED MOTION TO REMAND (Doc. 51.)

I. INTRODUCTION.

Before the court for decision is Plaintiffs' renewed motion to remand the case to the Stanislaus County Superior Court, pursuant to 28 U.S.C. § 1447(c). Plaintiffs previously moved to remand the action to state court, however, that motion was denied on grounds that Mr. Loeb was a "sham" defendant whose presence in the action did not defeat diversity jurisdiction. Plaintiffs subsequently filed a second amended complaint that includes, among other things, genuine factual content and a breach of fiduciary duty claim against Mr. Loeb. That pleading is the basis for the renewed motion.

Defendants oppose the renewed motion, arguing that Plaintiffs' amended pleading does not resolve or otherwise improve on the original complaint.

II. BACKGROUND.

The procedural and factual background in this case are summarized in the previous Memorandum Decisions, filed on May 12, 2010 and June 29, 2010, in brief:*fn1 On October 8, 2009, Plaintiffs Dennis Nasrawi, Michael O'Neal, and Rhonda Biesemeir, California residents and beneficiaries of StanCERA, filed a complaint against a provider of actuarial services, Buck Consultants, LLC, ("Buck"), and one of its employees, Harold Loeb ("Loeb").*fn2 Plaintiffs filed their complaint against Defendants Buck Consultants and Loeb in Stanislaus Superior Court.

On November 22, 2009, this case was removed on the basis of diversity jurisdiction. (Doc. 1.) The notice of removal provides that the presence of Loeb as a defendant in the action does not defeat diversity jurisdiction because he is a fraudulently joined "sham defendant." (Id.)

On December 15, 2009, Plaintiffs moved to remand this action based on their assertion of a negligence claim against a resident of California, Mr. Loeb. (Doc. 17.) The motion was granted on May 12, 2010 on the basis of Plaintiffs' conclusory pleading that Loeb was a "'sham defendant' whose presence in this action d[id] not bar removal and exists for the purposes of defeating diversity jurisdiction" and that California law barred Plaintiffs from holding Loeb individually liable for alleged negligence in performing duties in the course and scope of his employment that allegedly caused economic loss to a third party. Nasrawi v. Buck Consultants, LLC, 713 F. Supp. 2d 1080, at 4-10 (E.D. Cal. 2010). An express reservation to revisit the merits of the remand motion was made if "discovery reveals different facts." Id. at 10.

On January 19, 2010, Defendants moved to dismiss the entire complaint because Plaintiffs lack standing and Loeb cannot be sued individually.*fn3 (Doc. 19.) Plaintiffs opposed the motion to dismiss on April 26, 2010. (Doc. 26.) On June 29, 2010, the motion was granted with leave to amend. (Doc. 40.*fn4

Plaintiffs filed a first amended complaint ("FAC") against Defendants Buck and Loeb on August 2, 2010. (Doc. 41.) In addition to the original negligence-based claims, the FAC included allegations that Loeb "aided and abetted in StanCERA's breach of fiduciary duty by allowing the County to underfund the pension system [] and concealing these actuarial schemes for years." (FAC ¶ 39.) It is further alleged that Buck and Loeb "concealedStanCERA's conduct [] by singing false actuarial certification letters intended to mislead beneficiaries and the public." (FAC ¶ 38.)

On August 30, 2010, Defendants moved to dismiss each cause of action contained in the FAC. (Doc. 47.) Plaintiffs opposed the motion on September 27, 2010. (Doc. 48.) Plaintiffs' opposition also renewed their motion to remand. (Id.) An October 13, 2010, Minute Order provided: "the opposition will be treated as a renewed motion to remand" and set a briefing schedule only on the remand issue. (Doc. 50.) On October 20 and 25, 2010, the parties filed supplemental briefing, limited to the issue of remand. (Docs. 51 and 52.)

Oral argument was held on November 1, 2010. Plaintiff was directed to file a second amended complaint to "[s]tate specifically what the facts are in this case that support the fraud, the aiding and abetting and/or the conspiracy, whatever it is, to achieve the unlawful result."*fn5 An November 10, 2010 notified the parties the Court intended to treat the filing of the amended pleading as a "Renewed Motion to Remand." Plaintiff filed a second amended complaint ("SAC") on November 30, 2010, advancing claims for actuarial negligence and breach of fiduciary duty against Defendants, including Mr. Loeb. (Doc. 55.) Defendants opposed the motion on December 10, 2010. (Doc. 56.) The motion to remand is now submitted for decision.

III. LEGAL STANDARD.

Federal courts have original jurisdiction over civil actions where the amount in controversy exceeds $75,000, exclusive of interest and costs, and the case is between citizens of different states. 28 U.S.C. § 1332. Diversity jurisdiction under § 1332 requires that each plaintiff be diverse from each defendant. Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 553 (2005) (citing Owen Equipment & Erection Co. v. Kroger, 437 U.S. 365, 375, (1978)). To protect the jurisdiction of state courts, removal jurisdiction is strictly construed in favor of remand. Harris v. Bankers Life and Cas. Co., 425 F.3d 689, 698 (9th Cir. 2005) (citing Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09, (1941)). Any doubt as to the right of removal must be resolved in favor of remand. Gaus v. Miles, 980 F.2d 564, 566 (9th Cir. 1992). "Th[is] 'strong presumption' against removal jurisdiction means that the defendant always has the burden of establishing that removal is proper." Id. (internal citations omitted).

But removal is proper despite the presence of a non-diverse defendant if that defendant is a "fraudulently joined" or "sham" defendant. See Caterpillar, Inc. v. Lewis, 519 U.S. 61, 68 (1996). A defendant has been fraudulently joined if the plaintiff fails to state a claim against a resident defendant, and the failure is "obvious according to the well-settled rules of the state." United Computer Sys. v. AT & T Corp., 298 F.3d 756, 761 (9th Cir. 2002). In the Ninth Circuit, a non-diverse defendant is deemed a sham defendant 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. Kruso v. Int'l Tel. & Tel. Corp., 872 F.2d 1416, 1426 (9th Cir. 1989). A court may look beyond the pleadings to determine if a defendant is fraudulently joined, but "a plaintiff need only have one potentially valid claim against a non-diverse defendant" to survive a fraudulent joinder challenge. See Knutson v. Allis-Chalmers Corp., 358 F. Supp. 2d 983, 993-95 (D. Nev. 2005) (summarizing cases); Ritchey v. Upjohn Drug Co., 139 F.3d 1313, 1318 (9th Cir. 1998). Accordingly, a defendant seeking removal based on an alleged fraudulent joinder must do more than show that the complaint at the time of removal fails to state a claim against the non-diverse defendant. See Burris v. AT & T Wireless, Inc., 2006 WL 2038040, at 2 (N.D. Cal. 2006). Remand must be granted unless the defendant shows that the plaintiff "would not be afforded leave to amend his complaint to cure [the] purported deficiency." Id. at 2.

IV. DISCUSSION.

Incorporating language from the holdings of two Ninth Circuit cases, Moore-Thomas v. Alaska Airlines, Inc., 553 F.3d 1241 (9th Cir. 2009) and Gaus v. Miles, 980 F.2d 564, Plaintiffs argue that remand is appropriate because "the Court's previous orders demonstrate the Court's doubt regarding Loeb's liability." (Doc. 51 at 1:13)(emphasis added).*fn6 Plaintiffs' characterization of the May 12, 2010 Memorandum Decision is not accurate. There was no expression of "doubt" as that term is defined in Gaus v. Miles and Moore-Thomas v. Alaska Airlines. Rather, the Court expressly reserved the right to revisit the merits of the remand motion if "discovery reveal[ed] different facts." This reservation was based on the limited facts originally pleaded and Plaintiffs' counsel's oral request to amend.*fn7 A number of district courts in this Circuit have denied motions to remand, with leave to renew, based on the purported ability to cure a pleading deficiency via an amended complaint. See, e.g., Garner v. Pac. Nw. Nat. Lab., No. CV-09-5056-RHW, 2009 WL 2973037 (E.D. Wash. Sept. 11, 2009). The same approach was followed here.

During oral argument on June 7, 2010 the Court explained that Plaintiffs' original complaint was factually and legally deficient to support remand in this case. Plaintiffs acknowledged these deficiencies and requested leave to amend, which was granted:

Buck, active conspiring or and in effect, wrongdoing are

COURT: [W]e're where the not LLC talking and about

other. That's what aiding abetting each

[Plaintiffs' [counsel]? [...] Am

counsel]

is talking about alleging.

I right

Your Honor, you're right [...] I

P's Counsel: Yes, conjure up the facts [...]

D's Counsel: think

I do not that think there's that anything there's that any --

I Conger don't

Mr.rise has said to individual in court today liability that would Loeb. think Harold give I that it's to that has -- that whether could he even said also anything highly questionable

to what liability for Buck Consultants. possibly give basically alleging I think rise

conspiracy he's me, between of StanCERA is a

-- excuse Stanislaus the County

County and the

we neither really had nothing to something that the action. of those entities do what are parties with. And

StanCERA Board. And that is

alleging -- And he's basically to

THE COURT: alleging.

Your what client

I understand knows better. him to be

Well, here's

They

know employed how and to with to do keep it earning right. But to keep

That's going along and fees, they're

StanCERA a say.

County. claim. If he him the

That could

state what I heard

a Rule 11 that guides alleges it. He's investigation him.

got

He needs a

legal and a

investigation don't disagree towith support that. do you, factual that, So you matter of theory? as a D's Counsel: in

I --theory, well, I

I don't mean, I know think what that, he's alleging. you know,

THE COURT: Let's to have not credibility be disingenuous [...] realitybefore this Court,

If you want

acknowledge is being talk then

what and there's no stated. in Don't let's about the world just give me be liable for way a here, we could ever not true. claim it because that's reality, whether

Whether comports something it's based with factual

that's to else. legally that if

But he or employed, that your earning and alleges and went to

not,

keep fees

StanCERA client and the board along keep

undervalue to intentionally with

provide for inadequate actuarially, contribution if you will,

so could this state plan a could for not be levels claim viable, duty and/or breach of contract. breach of fiduciary that

D's Counsel: distinction

I think that that needs there's to be an made important

the conclusory between allegations.

Court In Ashcroft allegations versus and

Iqbal, factual

the

Supreme was held alleging

there some type that of just knowing violation that

Case 1:09-cv-02061-OWW-GSA Document 59 Filed 03/08/11 Page 9 of 20

was allegation still that deemed was to insufficient. be a conclusory

And

the

specific facts -- is allege he

Court would rejected

have to it. be I

able think to do that what

THE COURT: Specifically right. Dot the makeI's the allegations, that's

that's what I'm talking and cross the T's,

think that's where we are about. in this And

doesn't -- it isn't presently alleged. case. so HeI

I amend. don't see that I should deny him leave to

(Doc. 42 at 32:3-34:3, 39:10-39:22.)

Plaintiffs filed a first amended complaint on August 2, 2010, advancing two claims against Loeb, the alleged "sham" defendant:

(1) actuarial negligence; and (2) breach of fiduciary duty.*fn8 The

SAC, filed on November 30, 2010, similarly raises claims for actuarial negligence and breach of fiduciary duty against Defendants, including Mr. Loeb. The SAC alleges, among other things, that Mr. Loeb concealed StanCERA's misconduct by signing false actuarial certification letters and aiding/abetting Buck's unlawful conduct. The SAC provides, in relevant part:

4. Defendant who, based Harold on information

Loeb ("Loeb") and is an individual actuary

and was the principal actuary assigned by

belief, resides

Buck in California

actuarial services to StanCERA [...] to provide

26. plunged,

As the health

various actuarial schemes, imprudently and by dramatically the the artifice of

StanCERA of the pension trust fund

contributions fund it administers in manipulated by order to County pension employer trust

assure the competency an at of least $81.4 reduce million,

rather

than

§ 17(e) [requiring of plan. (See, Cal. to

Const., art. assets

XVI, the the

function be exercised "consistent StanCERA's actuarial fiduciary responsibilities" and "in with order

[its] exclusive competency of the assets of the public to pension assure the or all retirement

During this and contributions. These schemes included: continued to all make other their periods, full

County system"].) employees have

*million

Knowingly in employer failing contributions to collect that in County excess owed of $40

to

StanCERA Although StanCERA in order to fund its claims

the pension actuary, Consultants this was due to trust

Buck and an error fund.

"significant[ly] Loeb, in of

liabilities understat[ing] StanCERA costs,"

claims and to in almost two future since

Plan

not to have this discovered error, years

pursue acted money this a claim collect from the County it has

Buck for actuarial or

malpractice. plaintiffs Moreover, against are acting to pursue although a malpractice in this case against Buck Consultants claim the proceeds to be paid to and

Loeb for damages, with

StanCERA of all of its for actively participants beneficiaries, the benefit has and to pursue that litigation impeded and the refused plaintiffs' with them. to cooperate ability

StanCERA

*$10 million

28, 2009, StanCERA transferred trust funds to be used as the reserve pension contribution County's of

On or about from April a nonvaluation

In from 2009-2010. words, the County for fiscal employer year

the County paid other

$10 million because less of this transfer,

severely underfunded into already otherwise would have pension paid. trust fund than it otherwise would have.

StanCERA had $10 million fewer

Thus, assets as a that result, it

On or about April valuation

28, 2009, StanCERA transferred

*an additional

from a non-valuation reducing the reserves for purpose (in County's employer the of

$50 million

reserve further to

Because addition of this to transfer, that alleged paragraph contributions

less the County in will 37).

pay $50

million pension trust into already severely

underfunded

Thus, a fund it assets than it otherwise would have. result, than

as otherwise

StanCERA had millions would have of paid. fewer

pension * On or trust about fund

April was 28, underfunded

2009, even in though the

one-half excess has maintained of one billion which, a dollars, StanCERA of negative amortization adopted amortization according to StanCERA's scheme and actuary: in payment "the Government Code section

less [each] the County under

[required

31453.5] from

be that the interest in towards on the

payment unfunded amount-no year

will

action was taken 'principal'

by StanCERA

[debt] against is the made." advice

This of

its actuary. *another

transferred alleged in paragraph 37 the $10 million transfer alleged in paragraph 51) and the $50 million reserve of pension trust funds from to a non-valuation County's contribution be used fiscal employer the County as the

2010, StanCERA transfer to

On $21.4 or about million

June (in

9, addition

transfer, year 2010-2011. paid other words, from for

the In already County $21.4 million because of this

it severely would underfunded pension trust less fund into

otherwise paid. than StanCERA will soon have have $21.4 million

Thus, as result, that it otherwise would have had. fewer a assets

33. Defendants in performing actuarial services for StanCERA.

Buck and Loeb owed a duty to exercise due care

34. Buck

StanCERA's and Loeb

January breached

9, 2007 their actuarial duty of valuation care in preparing

inappropriate actuarial assumptions. by using

35. other

The defendants' beneficiaries negligence of the caused pension

StanCERA, trust plaintiffs, and

lost suffer and on

(2) of: (1) County fund to

employer

contributions, harm, consisting

(3) costs paid to lost other earnings actuarial firms those to contributions,

defendants' negligence. discover the

36. The defendants' plaintiffs negligence are informed had and

required, the effect believe of that the

County's lowering more than to

the

by $40 million. annual employer StanCERA

contribution percent plaintiffs employer are informed and

believe that 9.22 The

adopted valuationby StanCERA, the in reliance contribution rate negligently prepared by upon the actuarial insufficient to actuarially fund the Buck and Loeb, was the by StanCERA.

County. It was therefore a breach benefits of fiduciary promised duty by

37. StanCERA claim against has a

Buck fiduciary and Loeb obligation to to pursue a negligence

contributions, costs earnings on those recover contributions, lost County employer

the

defendants' paid to other actuarial and negligence. Such firms

However, a an discover the

to

trust. claim

pension StanCERA has is asset of the negligence claim in breach of its failed obligations to assert that its members, including the plaintiffs. fiduciary to

38. Buck

StanCERA and Loeb has not because brought doing and will not bring a claim

breaches of fiduciary duty so would violations expose StanCERA's against own

(b), (c), and (e) of section and of subdivisions

(a),

California

Constitution, by 17 of the article pension

XIV of the

be underfunded and actuarial permitting unsound, and would further plan to and expose the pension would lead actuarial set fund. Buck to schemes and greater

Loeb funding as forth concealed the in County paragraph of 26, the

conduct alleged paragraph have by

letters in 26 by also false

StanCERA's certification intended signing actuarial the public. Loeb personally signed to mislead beneficiaries certification letters. these false actuarial and

39. Buck and abetted in

Loeb

StanCERA's have actively breach participated of with, duty aided, and

fiduciary 26, underfund pension system by (a)

allowing alleged the County to

for paragraph these as years. Buck and

the

schemes in and

(b)

Loeb concealing actuarial

that StanCERA was breaching did fiduciary this with knowledge

permitting that involvement of [] its

and underfunding trust

by

their the pension duties

as alleged in paragraphs StanCERA's employees'

scheme. 26 with and 27 would overall further scheme that

40. Buck in StanCERA's and Loeb have breach participated of fiduciary with, duty aided, for and abetted

their

own

financial to Buck increased

StanCERA gain, specifically,

Loeb. Plaintiffs fees

paid by

these increased fees. from on

information and belief and personally profited allege

Loeb

that

(SAC, ¶¶ 4, 26, 33-40)(footnotes omitted).

The parties sharply disagree whether the second amended complaint contains sufficient factual matter to state stand-alone actuarial negligence and/or fiduciary duty-based claims against Defendant Loeb. If it does, well-established Ninth Circuit law, including Gaus v. Miles and Moore-Thomas v. Alaska Airlines, command that the case be remanded based on a lack of complete diversity. Plaintiffs argue the second amended complaint includes specific factual matter delineating Loeb's fraudulent conduct, including signing false actuarial letters and aiding and abetting a conspiracy to underfund the pension system. Plaintiffs claim that these allegations of personal and professional impropriety resolve any dispute over Loeb's liability and support remanding the matter to state court.

Defendants disagree. In their view, the second amended complaint fails to cure the original defects, i.e., does not state a claim against Defendant Loeb whatsoever. Defendants explain:*fn9

Plaintiffs they alleged argue that that their

Loeb FAC cures the defects because actuarial certification letters.

'personally' signed false

Plaintiffs considered simply

recycle rejected an argument that the already

Court

Loeb alleging a

and

within negligence re-pleads based single on cause

purportedly caused pecuniary loss [...] the course and scope his conduct of

[...] the FAC merely

action against

of employment that

and

Plaintiffs legally also meritless attempt second to bring a factually unsupported can be individually cause powers held directions.' liable as of action that Loeb

'trust advisory cannot Government by Plaintiffs with

identify of Here, a contrast,

the StanCERA trust any

Code funds that a 'power provisions private actuarial of direction regulating

employee. firm or over its

StanCERA to gives

(Doc. 52 at 4:27-5:20.)

Defendants further assert that "[t]he SAC fails to plead [] any facts that Loeb knew the certification letter was purportedly 'false,' or that Loeb had any knowledge of, participated in, or (on information and belief) 'personally profited' from any actuarial 'schemes' by StanCERA to underfund the pension system [...] [t]hese conclusory allegations are properly disregarded." (Doc. 56 at 3:26-4:2)(emphasis in original).*fn10

The SAC alleges that Loeb, individually, participated in a scheme to fraudulently underestimate and designate pension contribution levels to benefit StanCERA's breach of fiduciary duty to correctly fix annual contribution levels to relieve the county from the fiscal burden of doing so. See, e.g., Cont'l Ins. Co. v. Foss Mar. Co., No. C 02-3936 MJJ, 2002 WL 31414315, at 6 (N.D. Cal. Oct. 23, 2002)("the standard is not whether [the] plaintiffs will actually or even probably prevail on the merits, but whether there is any possibility that they may do so."); see also Pampillonia v. RJR Nabisco, Inc., 138 F.3d 459, 461 (2d Cir. 1998) ("defendant must show that there is no possibility, based on the pleadings, that [the] plaintiff can state a cause of action against the non-diverse defendant in state court."). Particularly, Plaintiffs allege that Loeb aided and abetted an ongoing conspiracy by actively and personally engaging in the breach by himself knowingly signing false audit documents with unlawful fraudulent intent; he personally misled investors by concealing the fraudulent underreporting actuarial schemes; and he was one of the main participants in the alleged conspiracy involving the pension trust, its actuary and its lead individual actuary.

Defendants' interpretation of the law would make any action grounded in breach of fiduciary duties brought against a non-diverse defendant removable to federal court.*fn11 This is not the law.*fn12 No federal claim is asserted. Plaintiffs' allegations are also sufficiently detailed to meet the heightened pleading requirements applicable to fraud-based claims, against the non-diverse defendant, even if a "claim of fraudulent joinder may be defeated even if the particularity requirements are not met."*fn13

County of Hawaii v. Univev, LLC, No. 09-00368-ACK-LEK, 2010 WL 520696, at 10 (D. Haw. Feb. 11, 2010)(citation omitted). Plaintiffs have specified the documents it alleges to be fraudulently signed; why they were falsified; who signed them; and when they were submitted to the pension trust. (SAC ¶¶ 26, 36-40.) Defendants' argument that this is really a negligence dispute and not a breach of fiduciary, fraud, or aiding and abetting case, goes to the merits of whether they are liable; but not to whether Plaintiffs have a cause of action against Loeb sufficient to defeat fraudulent joinder.*fn14 If the claim against Loeb is spurious, Defendants may reassert their diversity claim.

Accepting the allegations of the second amended complaint, Defendants cannot demonstrate, by clear and convincing evidence, that there is no possibility that Plaintiffs can state a claim against Loeb for breach of fiduciary duty or aiding/abetting a breach/fraud. See, e.g., Hamilton Materials Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1206 (9th Cir. 2007)(the removing defendant must prove by clear and convincing evidence that joinder was fraudulent); Knutson v. Allis-Chalmers Corp, 358 F. Supp. 2d at 993-95 ("A plaintiff need only have one potentially valid claim against a non-diverse defendant" to survive a fraudulent joinder challenge.); accord Altman v. HO Sports Co., Inc., No. 1:09-1000 AWI SMS, 2009 WL 2590425, at 2 (E.D. Cal. Aug. 20, 2009) ("Stated differently, if there is a non-fanciful possibility that the plaintiffs can state a claim against the non-diverse defendant, the [district] court must remand."). To the extent a relatively close question is presented, the Ninth Circuit requires "any doubts about removability [be] resolved in favor of remanding the case to state court." Barahona v. Orkin, No. 08-CV-04634-RGK-SHX, 2008 WL 4724054, at 1 (C.D. Cal. Oct. 21, 2008)(citing Shamrock Oil & Gas Corp., 980 F.2d at 566 (9th Cir. 1992); see also Gaus v. Miles, 980 F.2d at 566 ("Federal jurisdiction must be rejected if there is anydoubt as to the right of removal in the first instance.")(citing Libhart v. Santa Monica Dairy Co., 592 F.2d 1062, 1064 (9th Cir. 1979)).

The allegations must be accepted as true; individually, knowingly signing fraudulent certification letters and aiding employer misconduct with wrongful intent are not merely "corporate duties" performed in the course and scope of one's employment.*fn15

Fraudulent intent and wrongful conduct to facilitate a breach of statutory fiduciary duties are not within the course and scope of employment.*fn16 Under the SAC, Loeb is not a "sham" defendant. The motion is GRANTED.

There is an additional reason to remand this case. In this Circuit, district courts "may not make final determinations with regard to questions of state law that are not well-settled."

Knutson v. Allis-Chalmers Corp., 358 F. Supp. 2d 983, 995 (D. Nev. 2005).*fn17 The May 12, 2010 Memorandum Decision found that, based on United States Liability Ins. Co. v. Haidinger-Hayes, Inc., 1 Cal.3d 586 (1970), Loeb could not be held liable for action taken within the course and scope of his employment where those acts are alleged to have caused only economic injury. However, on August 23, 2010, District Judge Gutierrez of the Central District of California reached a different conclusion. See Bear Valley Family v. Bank Midwest, N.A., No. CV-10-905-PSG-JEM, 2010 WL 3369600 (C.D. Cal. Aug 23, 2010). Judge Guiterrez determined that recent California law demonstrated a shift away from Haidinger-Hayes and that an employee, working within the scope of their employment, could be held liable in tort for pecuniary losses. Id. at 4. This is non-binding but persuasive authority given the review and application of related Ninth Circuit and California law.

In Bear Valley, plaintiffs filed suit in California state court against a bank, the bank owner, and one of its Senior VP's, asserting a variety of tort and contract claims, including fraud and negligent misrepresentation. Defendants removed the case on the basis of diversity jurisdiction, arguing that the Senior VP's California citizenship should be disregarded because he was a "sham" defendant who was fraudulently joined in this action for the purpose of defeating diversity jurisdiction. Plaintiffs subsequently moved to remand the action to state court. Citing Haidinger-Hayes, defendants argued that the Senior VP could not be held liable because he was acting within the course and scope of his employment and plaintiffs only alleged pecuniary injury. He was therefore a "sham" defendant. Judge Gutierrez disagreed, finding that "recent statements from California courts concerning relevant tort and agency principles, including the principle that [a]n agent or employee is always liable for his own torts, whether his employer is liable or not."*fn18 Bear Valley, 2010 WL 3369600, at 4. Judge Gutierrez also noted that Haidinger-Hayes was at odds with another Central District case, Black Donuts, Inc. v. Sumitomo Corp. of Am., 2010 U.S. Dist. LEXIS 30859 (C.D. Cal. Mar. 3, 2010). For those reasons, Defendants' "sham" defendants arguments were rejected and the matter was remanded to state court.

Although Bear Valley is not factually identical to this case,*fn19

it did analyze the California law on whether an employee can be held liable for actions taken during the "course and scope" of employment, when only economic injury arises. Here there is a legitimate dispute Loeb was acting within the course and scope of his employment; an issue for the trier of fact to resolve. Bear Valley recognized the law is not settled and that remand was appropriate. Id. at 5. It highlights an ambiguity/shift in the relevant state law, not raised in any of the parties' briefing to date. However, whether the issue was formally raised by the parties is not controlling. See 28 U.S.C. § 1447(c) ("If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.").*fn20 For all the reasons discussed in Bear Valley, Loeb is not a sham defendant and the matter is remanded to state court.

V. CONCLUSION.

For all the reasons stated:

1. Plaintiffs' renewed motion to remand this case to the Stanislaus County Superior Court is GRANTED. This action is hereby REMANDED to the Superior Court of the State of California, in and for the County of Stanislaus;

2. Defendants' motion to dismiss, filed on August 30, 2010, is DENIED as moot.

IT IS SO ORDERED.


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