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Puglia Engineering, Inc. v. BAE Systems Ship Repair, Inc.

United States District Court, N.D. California

June 16, 2017

PUGLIA ENGINEERING, INC., a corporation, Plaintiff,
v.
BAE SYSTEMS SHIP REPAIR, INC., a corporation, BAE SYSTEMS SAN FRANCISCO SHIP REPAIR, INC., a corporation, BAE SYSTEMS, INC., a corporation, CITY AND COUNTY OF SAN FRANCISCO, a municipal corporation, and DOES 1-20, Defendants.

          ORDER REMANDING CASE TO SAN FRANCISCO COUNTY SUPERIOR COURT

          WILLIAM ALSUP UNITED STATES DISTRICT JUDGE.

         INTRODUCTION

         Defendants removed this fraud action from state court on diversity jurisdiction grounds. Plaintiff now moves to remand to the Superior Court of the State of California, San Francisco County, on the basis that removal was defective. For the reasons set forth below, the motion is Granted.

         STATEMENT

         Plaintiff Puglia Engineering, Inc., a Washington ship repair company, commenced this action against BAE Systems Ship Repair, Inc. and BAE Systems, Inc. (“BAE”), BAE Systems San Francisco (“BAE-SF”), and the City and County of San Francisco operating through the San Francisco Port Commission (“the Port”) in the Superior Court of the State of California, San Francisco County. BAE is a defense contracting company incorporated in Delaware with its principal place of business in Virginia (Dkt. No. 1 at 2). BAE-SF is a California corporation with its principal place of business in California. The Port is a municipal corporation and a citizen of California.

         All of Puglia's claims arise from the following well-pled allegations that BAE and BAE-SF fraudulently induced it to acquire BAE-SF - which leases and operates a shipyard facility owned by the Port - by misrepresenting that the Port's dry docks were well maintained and that Puglia did not need to perform immediate dredging in order to generate revenue (Compl. ¶ 2).

         On December 1, 2016, Puglia entered a purchase agreement with BAE for the conditional purchase of one hundred percent BAE-SF stock (id. ¶ 27). The purchase was conditioned on, among other things, the Port's consent to assignment, which the Port, Puglia and BAE-SF executed in a document effective December 30, 2016. When Puglia took over BAE-SF in January 2017, it found the dry docks in poor condition, with costs of repair or replacement estimated to exceed $9 million and the immediate costs of dredging the site estimated to be about $12 million (id. ¶¶ 2, 32). Puglia filed a notice of imminent closure in February, claiming that it could not operate at a profit. Without releasing any legal rights against each other, Puglia and the Port entered an interim agreement to continue operation of the shipyard facility until the end of May (Dkt. No. 26 at 4). The parties did not extend this agreement and the shipyard closed while this action was pending.

         On February 15, 2017, Puglia brought claims against BAE and BAE-SF on the basis of fraud, negligent misrepresentation, state securities statutes and state fraudulent business practices statutes (Compl. ¶¶ 34-62, 70-79). Puglia seeks rescission of its purchase agreement with BAE. It also seeks rescission of the Port's consent, alleging that it was defective for several reasons, including that it failed to include all language required by the lease. Moreover, it seeks declaratory relief from all defendants and monetary damages from all except the Port.

         On March 16, 2017, BAE removed this action from the Superior Court of the State of California, San Francisco County on diversity jurisdiction grounds and brought a motion to transfer or dismiss in the alternative on the basis of a forum selection clause that designated the Southern District of New York as the proper venue for any proceeding arising from the purchase agreement (Dkt. No. 11). Puglia contends that this action must be remanded because removal was procedurally defective. With the benefit of full briefing and oral argument, this order agrees.

         ANALYSIS

         Where, as here, a defendant cites diversity jurisdiction as its sole basis for removing an action from state court, the action is not removable “if any of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.” 28 U.S.C. 1441(b)(2). Moreover, all defendants must join in removal. Hewitt v. City of Stanton, 798 F.2d 1230, 1232 (9th Cir. 1986).

         Defendant bears the burden of establishing that an action is removable, with all doubts resolved in favor of remand. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). Specifically, here, BAE must show that BAE-SF and the Port are not forum defendants and do not violate the requirement that defendants unanimously join in removal. BAE concedes that this action must be remanded if removal violates either principle.

         1. Unanimous Joinder of Defendants.

         “All defendants must join in a removal petition with the exception of nominal parties.” Hewitt, 798 F.2d at 1232. The rule of unanimity does not require each defendant to submit individual documents consenting to removal. Proctor v. Vishay Intertechnology Inc., 584 F.3d 1208, 1225 (9th Cir. 2009). Rather, “[o]ne defendant's timely removal notice containing ...


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