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Dennis Nasrawi, et al v. Buck Consultants

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

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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.

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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

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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

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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. ...


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