Khan v. SAP Labs, LLC

          ORDER DENYING PLAINTIFF'S MOTION TO REMAND; AND GRANTING DEFENDANTS' MOTION TO DISMISS FIRST AMENDED COMPLAINT, WITH LEAVE TO AMEND IN PART AND WITHOUT LEAVE TO AMEND IN PART [RE: ECF 37, 41, 44]

          BETH LABSON FREEMAN UNITED STATES DISTRICT JUDGE

         Plaintiff Muhammad Khan (“Khan”) worked for Defendant SAP Labs, LLC (“SAP”), from 2013 through December 1, 2015, when he left the company. The following month, Khan set fire to the residence of his former SAP manager, Defendant Sanjay Shirole (“Shirole”), while Shirole and his family were asleep inside. Khan was convicted of arson of an inhabited structure in September 2017, and he is serving a nine-year term of imprisonment for that crime. Khan filed this pro se employment discrimination action from prison approximately one year after his arson conviction and more than two years after separating from SAP. His original complaint, which was filed in the Santa Clara County Superior Court, alleged that while employed at SAP he was denied leave and accommodation in violation of the federal Family Medical Leave Act (“FMLA”), and was subjected to a hostile work environment, harassment, discrimination, and retaliation in violation of California's Fair Employment and Housing Act (“FEHA”) and other state laws.

         Defendants removed the action to federal district court on the basis of both federal question jurisdiction and diversity jurisdiction. Khan moves to remand the action to the state court, asserting that the operative first amended complaint (“FAC”) asserts only state law claims and that diversity jurisdiction does not lie. Defendants oppose the motion to remand and seek dismissal of the FAC for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Khan opposes the motion to dismiss. The Court has taken both motions under submission without oral argument. See Orders, ECF 40, 48.

         For the reasons discussed below, Khan's motion to remand is DENIED, and Defendants' motion to dismiss is GRANTED WITH LEAVE TO AMEND IN PART AND WITHOUT LEAVE TO AMEND IN PART.

         In reviewing the file, the Court discovered that a clerical error was made in the electronic filing of Khan's operative FAC. See FAC, ECF 41. In its order granting Khan's motion for leave to amend to file the FAC, the Court ordered that “[t]he Clerk shall file Khan's proposed pleading (ECF 36-2) as a separate docket entry titled ‘First Amended Complaint.'” Order, ECF 40. When the Clerk electronically filed the FAC, several pages of the FAC and the exhibits to the FAC were omitted. See FAC, ECF 41. The Clerk SHALL correct that clerical error by replacing the partial document currently filed as ECF 41 with the entire FAC, including exhibits, which was submitted by Khan at ECF 36-2.

         I. BACKGROUND^[1]

         Khan's Allegations

         Khan began working for SAP in 2013, first as an intern, and later as a manager. FAC ¶ 8, ECF 41. In April or May of 2014, Khan began reporting to Defendant Shirole, a high-level software executive. FAC ¶ 11. h, i. Shirole was abusive toward Khan. FAC ¶ 11.i. Shirole made comments about Khan's body, stating that Khan was overweight, and forcing Khan to race him (Shirole) up flights of stairs. FAC ¶ 11.j, k. Shirole also asked Khan about his sexuality, asked if Khan was gay, and told Khan that he should “seriously consider coming out.” FAC ¶ 11.l. Shirole told Khan about another SAP employee who had come out as gay later in life. FAC ¶ 11.o. Shirole told colleagues that Khan was gay, and stated to colleagues that he (Shirole) liked to “ride Khan like a tiger.” FAC ¶ 11.m, n, w. During the same time period, Shirole referred to Khan and some other employees by derogatory Hindi epithets meaning “fool.” FAC ¶¶ 11.p, 14. Shirole complained about other employees wearing traditional clothing to work. FAC ¶ 11.r. Khan got the impression that Shirole believed in the caste system prominent in India. FAC ¶ 15.

         Khan, a heterosexual, Pakistani, Muslim individual, felt that Shirole's conduct created a hostile work environment. FAC ¶¶ 10, 11.t. Khan interviewed for and accepted a position at another company. FAC ¶ 11.t. When Shirole found out, he became upset and told Khan that leaving SAP would not be good for Khan and would affect Khan's efforts to obtain citizenship. FAC ¶ 11.t, x. Khan became scared and did not show up for his start date at the other company. FAC ¶ 11.x. Shirole threatened retaliation if Khan reported Shirole's conduct. FAC ¶ 11.z. Khan then started looking for other positions within SAP. FAC ¶ 15. Shirole told Khan that he would not approve Khan going elsewhere in the company, and that Khan should work under Shirole or quit. FAC ¶ 16. At that time, Shirole suddenly started giving Khan poor reviews, which was a change from his prior excellent reviews. FAC ¶ 17.

         Khan complained to the company's human resources (“HR”) department from May 2015 through December 2015. FAC ¶ 19. Defendant Le was assigned to handle Khan's complaint. Id. Le put Khan on unpaid leave. Id. In November 2015, Khan learned that his position on Shirole's team had been given to a white male. FAC ¶ 20. Shirole told Khan that SAP needed a white person to be the face of the project. Id. On December 1, 2015, Khan emailed HR and stated that he felt compelled to leave his employment because of harassment and discrimination by Shirole and the company's failure to address his prior complaints. FAC ¶ 22.a. Khan could not find other employment because Shirole and SAP stated that he had been fired and said negative things about him. FAC ¶ 23.

         On January 9, 2016, someone set fire to Shirole's home while he and his family were asleep inside. See People v. Khan, No. H045524, 2019 WL 5542840, at *3 (Cal.Ct.App. Oct. 28, 2019).^[2] Khan was arrested for the arson offense. See FAC ¶ 14.a, ECF 41; Def.'s RJN Exh. A, ECF 44-1. SAP hired a law firm to help the district attorney prosecute Khan. FAC ¶ 24.b. SAP acquired Khan's private medical records and disclosed them to a “private practice Psychiatrist.” FAC ¶ 24.c, d. SAP also provided a report regarding Khan's medical records to the judge and prosecution in Khan's criminal case. FAC ¶ 24.e. Following a jury trial, Khan was convicted of arson of an inhabited structure by use of a device designed to accelerate the fire, and he currently is serving a nine-year term of imprisonment. See People v. Khan, 2019 WL 5542840, at *1.

         DFEH Complaint and Right-to-Sue Letter

         In March 2017, more than a year after his December 1, 2015 separation from SAP, Khan filed an administrative complaint with California's Department of Fair Employment and Housing (“DFEH”). See Def.'s RJN Exh. B, ECF 44-1. The DFEH Complaint named SAP as the only respondent. See Id. It alleged that Khan was “was subjected to Discrimination, Retaliation by respondent, SAP LABS LLC due to one or more Fair Employment and Housing Act protected bases: Disability [physical or mental], Family Care or Medical Leave.” Id. The DFEH Complaint also alleged that Khan was “Denied a work environment free of discrimination and/or retaliation, Terminated, ” and that “[t]he most recent harm occurred on or around December 01, 2015.” Id. Finally, the DFEH Complaint alleged, “I believe I was terminated on the basis of my disability and in retaliation for taking California Family Rights Act Leave. My beliefs are based on the following: From June 1, 2015 to December 1, 2015, my physician place me on leave due to my disability. On December 1, 2015, Jenny Lee, Human Resources told me I was being terminated due to recent events.” Id. The DFEH Complaint made no reference to sexual harassment, discrimination based on sexual orientation, racial harassment, or discrimination based on race or national origin. See Id. The DFEH Complaint did not allege misconduct on the part of Le and did not mention Shirole at all. See id.

         On July 24, 2017, the DFEH issued a right-to-sue letter, advising Khan that he had to file any civil action within one year from the date of the right-to-sue letter. See Def.'s RJN Exh. C, ECF 44-1. SAP was the only identified respondent. See id.

         Filing of Complaint in State Court and Removal to Federal District Court

         Khan filed this action in the state court on August 21, 2018, more than a year after the date of the right-to-sue letter. See Notice of Removal Exh. A, ECF 1. Defendants removed the action to federal district court and immediately filed a Rule 12(b)(6) motion to dismiss. See Notice of Removal, ECF 1; Defs.' Motion to Dismiss, ECF 7. While that motion was pending, Khan filed a motion for leave to amend and a motion to remand. See Pl.'s Motion for Leave to Amend, ECF 35; Pl.'s Motion to Remand, ECF 37. The motion for leave to amend was unopposed by Defendants. See Defs.' Statement of Non-Opposition, ECF 39. The Court granted Khan's motion for leave to amend and terminated the motion to dismiss the original complaint as moot. See Order Granting Motion for Leave to Amend, ECF 40. The Court also directed the Clerk to file Khan's proposed amended pleading as the operative FAC. See id.

         First Amended Complaint

         While the original complaint asserted both federal and state law claims, FAC asserts only state law claims against SAP and two of its employees, Shirole and Jenny Le (“Le”): (1) sexual harassment in violation of FEHA (against all Defendants); (2) discrimination on the basis of sexual orientation in violation of FEHA (against all Defendants); (3) discrimination on the basis of race or national origin in violation of FEHA (against all Defendants); (4) harassment on the basis of race or national origin in violation of FEHA (against all Defendants); (5) disability discrimination in violation of FEHA (against all Defendants); (6) failure to prevent discrimination, harassment, and retaliation in violation of FEHA (against SAP only); (7) wrongful constructive termination in violation of public policy (against SAP only); (8) violation of California Labor Code § 1102.5, et seq. (against SAP only); (9) common law invasion of privacy (against SAP only); (10) violation of the California Constitution, Article 1, § 1, Right to Privacy (against SAP only); (11) intentional infliction of emotional distress (against all Defendants); and (12) retaliation in violation of FEHA (against SAP only).

         Pending Motions

         Defendants filed both an opposition to Khan's motion to remand, and a Rule 12(b)(6) motion to dismiss the FAC. See Defs.' Opp. to Remand, ECF 43; Defs.' Motion to Dismiss, ECF 44. After several extensions of time for opposition were granted by the Court, Khan filed opposition to the motion to dismiss his FAC. See Pl.'s Opp., ECF 55. Khan did not file a reply with respect to his motion to remand. Briefing on the motions was completed when Defendants filed a reply with respect to their motion to dismiss in September 2019. See Defs.' Reply, ECF 57. The Court submitted both the motion to remand and the motion to dismiss the FAC for disposition without oral argument. See Orders, ECF 40, 48.

         The Court addresses Khan's motion to remand first, and then Defendants' motion to dismiss.

         II. MOTION TO REMAND

         A. Legal Standard

         Generally, “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). “A defendant may remove an action to federal court based on federal question jurisdiction or diversity jurisdiction.” Hunter v. Philip Morris USA, 582 F.3d 1039, 1042 (9th Cir. 2009) (citing 28 U.S.C. § 1441).

         The Ninth Circuit recognizes a “strong presumption against removal.” Hunter, 582 F.3d at 1042 (quoting Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992)). Thus, “‘the defendant always has the burden of establishing that removal is proper,' and . . . the court resolves all ambiguity in favor of remand to state court.” Id. (quoting Gaus, 980 F.2d at 566).

         B. Discussion

         This action was removed on the bases of both federal question jurisdiction and diversity jurisdiction. Khan points out that the federal FMLA claim that gave rise to federal question jurisdiction has been dismissed, and he asks the Court to decline to exercise supplemental jurisdiction over the remaining state law claims. Khan also argues that no diversity jurisdiction lies. Defendants oppose remand, arguing that diversity jurisdiction does lie and that, even absent diversity jurisdiction, the Court should exercise its discretion to retain supplemental jurisdiction over Khan's state law claims despite his dismissal of the federal FMLA claim.

         The Court concludes that Defendants have met their burden of establishing that removal is proper, because Defendants have shown that diversity jurisdiction exists and that, even absent diversity jurisdiction, exercise of supplemental jurisdiction over Khan's state law claims is appropriate in this case.

         1. Diversity Jurisdiction

         a. Legal Standard

         Federal district courts have diversity jurisdiction over civil actions between citizens of different states where the amount in controversy exceeds $75, 000, exclusive of interest and costs. 28 U.S.C. § 1332(a)(1). “Section 1332 requires complete diversity of citizenship; each of the plaintiffs must be a citizen of a different state than each of the defendants.” Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001).

         “[O]ne exception to the requirement for complete diversity is where a non-diverse defendant has been fraudulently joined.” Hunter, 582 F.3d at 1043 (internal quotation marks and citation omitted). Joinder is fraudulent “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.” Id. (internal quotation marks, citation, and alteration omitted). “In such a case, the district court may ignore the presence of that defendant for the purpose of establishing diversity.” Id. However, “the test for fraudulent joinder and for failure to state a claim under Rule 12(b)(6) are not equivalent.” Grancare, LLC v. Thrower by & through Mills, 889 F.3d 543, 549 (9th Cir. 2018). “A claim against a defendant may fail under Rule 12(b)(6), but that defendant has not necessarily been fraudulently joined.” Id.

         2. Discussion

         Defendants argue that diversity jurisdiction lies under 28 U.S.C. § 1332(a)(1) because (1) Khan is a California citizen, (2) SAP is not a California citizen and thus is diverse from Khan, (3) the California citizenship of Le and Shirole should be disregarded under the fraudulent joinder rule, and (4) the amount in controversy exceeds $75, 000.

         Taking these points in reverse order, the FAC does not specify the amount of damages sought, alleging only that “[t]he amount demanded exceeds $25, 000.” FAC, Prayer. “Where the complaint does not specify the amount of damages sought, the removing defendant must prove by a preponderance of the evidence that the amount in controversy requirement has been met.” Abrego v. The Dow Chem. Co., 443 F.3d 676, 683 (9th Cir. 2006). Defendants point out that the FAC contains numerous FEHA claims, and that in connection with each Khan claims lost earnings and benefits, among other damages. See, e.g., FAC ¶¶ 34, 41, 47, 53, 59, 67. Defendants direct the Court to evidence that Khan's base salary alone exceeds $75, 000. See FAC Exh. 4. Because Khan separated from SAP nearly four years ago in December 2015, his lost earnings to date exceed $300, 000. Khan also seeks emotional distress damages, punitive damages, and attorneys' fees. See, e.g., FAC ¶¶ 35-37, 42-44, 48-50, 54-56, 60-62, 68-70. Other courts have found the amount in controversy requirement satisfied when the plaintiff alleged multiple FEHA claims and sought similar types of damages. See, e.g., Simmons v. PCR Tech., 209 F.Supp.2d 1029, 1035 (N.D. Cal. 2002) (jurisdictional minimum “clearly satisfied” when plaintiff asserting multiple FEHA claims sought unspecified compensatory, punitive, and emotional distress damages as well as attorneys' fees). The Court concludes that Defendants have demonstrated by a preponderance of the evidence that the jurisdictional minimum is satisfied.

         The Court also finds persuasive Defendants' showing that Le and Shirole are sham defendants. As discussed below in connection with Defendants' motion to dismiss, Khan has failed to state a claim against either Le or Shirole and there is no possibility that Khan could do so even if given further leave to amend. The sham defendant rule may be applied where it is shown “that the individuals joined in the action cannot be liable on any theory, ” Ritchey v. Upjohn Drug Co., 139 F.3d 1313, 1318 (9th Cir. 1998), and that “there is no possibility that the plaintiff will be able to establish a cause of action in state court against the alleged sham defendant, ” Good v. Prudential Ins. Co. of Am., 5 F.Supp.2d 804, 807 (N.D. Cal. 1998).

         Defendants have demonstrated diversity of citizenship between Khan and SAP. As an LLC, SAP takes its citizenship from that of its owners/members. See Johnson v. Columbia Properties Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006) (“[A]n LLC is a citizen of every state of which its owners/members are citizens.”). The sole member of Defendant SAP is SAP America, Inc., which is a citizen of Delaware and Pennsylvania. Notice of Removal ¶¶ 8-9 and Heck Decl. ¶¶ 3-5, ECF 1. Accordingly, SAP is a citizen of Delaware and Pennsylvania, but not of California.

         The only real question presented by Defendants' showing is with respect to Khan's citizenship. In their notice of removal, Defendants assert that Khan is a California citizen based on records showing that Khan currently resides at the Correctional Training Facility located in Soledad, California; Khan's allegations that he resided in California while working for SAP; and records showing that Khan paid California state taxes while working at SAP. See Notice of Removal ¶ 7 and Exhibits, ECF 1. While these documents establish that Khan was and is domiciled in California, they do not establish that he is a citizen of California. “To be a citizen of a state, a natural person must first be a citizen of the United States.” Kanter v. Warner-Lambert Co., 265 F.3d 853, 857 (9th Cir. 2001). It appears from the face of the FAC and exhibits thereto that Khan was in the process of applying for United States citizenship while working at SAP. See FAC ¶ 11.x & Exh. 2. Defendants have not shown the Khan obtained United States citizenship, and thus have not shown that he is a California citizen for purposes of establishing diversity jurisdiction under 28 U.S.C. § 1332(a)(1).

         Even if Khan is a foreign national, however, federal courts' diversity jurisdiction generally extends to civil actions between “citizens of a State and citizens or subjects of a foreign state” where the amount in controversy requirement is satisfied. 28 U.S.C. § 1332(a)(2). The exception to this rule is that diversity jurisdiction does not lie with respect to an action between “citizens of a State” and foreign nationals “who are lawfully admitted for permanent residence in the United States and are domiciled in the same State.” Id. It is unclear from this record whether Khan is lawfully admitted for permanent residence in the United States. Even assuming that he is, Defendant SAP is not a citizen of California and Defendants have established that the California citizenship of Defendants Le and Shirole should be disregarded under the fraudulent joinder rule. Accordingly, whether Khan is a California citizen or a foreign national, his citizenship is diverse from that of Defendant SAP and the citizenship of Defendants Le and Shirole may be disregarded under the fraudulent joinder rule.

         Khan has not responded to any of these arguments, as he did not file a reply to Defendants' ...