Larry O. Crother, Inc. v. Lexington Insurance Company
Filing
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ORDER signed by Judge Morrison C. England, Jr. on 6/6/2011. Plaintiff's 32 Motino for Leave to file First Amended Complaint is GRANTED. Plaintiff directed to file it forthwith. Because the Court determines it lacks jurisdiction, Lexington's 24 Motion to Dismiss is DENIED as MOOT. (Marciel, M)
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UNITED STATES DISTRICT COURT
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EASTERN DISTRICT OF CALIFORNIA
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LARRY O. CROTHER, INC.,
a California Company,
d.b.a. ABC INSULATION
& SUPPLY CO.,
No. 2:11-cv-00138-MCE-GGH
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Plaintiff,
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ORDER
v.
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LEXINGTON INSURANCE
COMPANY, a Delaware
corporation, and DOES
1 through 25, inclusive,
Defendants.
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----oo0oo----
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Through the present action, Plaintiff Larry O. Crother, Inc.
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d.b.a. ABC Insulation & Supply Co. (“Plaintiff”) seeks to recoup
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certain insurance premiums it paid its comprehensive general
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liability carrier, Defendant Lexington Insurance Company
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(“Lexington”).
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December 13, 2010 in the Superior Court of the State of
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California in and for the County of Sacramento.
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served with the Summons and Complaint on December 16, 2010.
Plaintiff’s initial complaint was filed on
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Lexington was
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Because Lexington was the only named Defendant, and because
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Lexington claims to be a corporation incorporated under the laws
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of the State of Delaware with a principal place of business in
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the State of Massachusetts, Lexington timely removed Plaintiff’s
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action to this Court on January 14, 2011, citing diversity of
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citizenship pursuant to 28 U.S.C. §§ 1441(a) and 1446.
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Thereafter, on January 28, 2010, Plaintiff filed a First Amended
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Complaint (“FAC”) purporting to add new, and non-diverse,
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Defendants; namely, Plaintiff’s insurance broker and agent.
That
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filing prompted Lexington’s Motion to Strike the purported FAC as
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improperly filed without the requisite leave of court.
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Plaintiff filed that amended pleading without seeking either a
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stipulation from Lexington or a court order authorizing it to do
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so.
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By Order dated March 18, 2011, that Motion was granted.
Now before the Court is Plaintiff’s Motion seeking
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authorization to refile his FAC.
That proposed pleading seeks to
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add John O. Bronson Co., Inc., an insurance broker, as a
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defendant along with Kirk Willard, an agent employed by Bronson,
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on grounds that Bronson and Willard handled Plaintiff’s general
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liability insurance between October 30, 2003 and January 15, 2008
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and negligently failed to secure issuance of a policy that
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excluded retail sales from the determination of Plaintiff’s
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premium, thereby resulting in overcharges of some $74,094.00.
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See Proposed FAC, ¶¶ 27-31.
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Plaintiff further asserts, as an additional cause of action, that
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Bronson and Willard’s failure in this regard violated the
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fiduciary duty owed to Plaintiff, both by neglecting to procure
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an exclusion and because they failed to adequately demand and/or
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pursue a refund from Lexington when the purported unearned
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premiums were discovered.
Id. at ¶¶ 32-35.
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While the FAC now proposed also reduces the amount in
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controversy from $152,934.27 to $74,094.00, and also purports to
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add an additional claim for breach of contract against Lexington,
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and to clarify certain other allegations, the inclusion of
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Bronson and Willard as additional defendants would add non-
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diverse parties to the action, since Bronson is alleged to be a
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California corporation, and Willard is identified as resident of
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Sacramento County, California.
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Id. at ¶¶ 3-4.
If the Court finds that Bronson and Willard are indeed
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proper defendants, then, diversity would be destroyed and the
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sole basis for federal jurisdiction over this matter would be
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removed.
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action back to state court where it was originally commenced.
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See Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1068 (9th
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Cir. 2001).
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Willard is dispositive in whether this matter properly remains
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here.
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irrelevant any consideration of whether the remainder of
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Plaintiff’s claimed amendments are warranted.
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That development would compel the Court to remand the
Consequently, the propriety of including Bronson and
A determination that they may properly be joined makes
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Moreover, while Defendant Lexington has also filed a Motion to
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Dismiss Plaintiff’s originally filed Complaint that is
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concurrently set for hearing with Plaintiff’s Motion for Leave to
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File its FAC, that Motion to Dismiss also becomes moot if the
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Court finds that joinder of Bronson and Willard is appropriate.
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Although Federal Rule of Civil Procedure 15(a)1 directs that
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the Court “should freely give [leave to amend] when justice so
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requires”, Rule 15(a) does not apply where, as here, Plaintiff
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seeks to amend its complaint after removal to add non-diverse
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parties whose joinder would divest the court of jurisdiction.
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apply the permissive standard of Rule 15(a) in that situation
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could “allow a plaintiff to improperly manipulate the forum of an
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action...”
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Cal. 1999).
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directly impact diversity, the provisions of 28 U.S.C. § 1447(e),
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rather than those contained in Rule 15(a), control.
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41 F. Supp. 2d at 1086-87; see also Chan v. Bucephalus
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Alternative Energy Group, LLC, 2009 WL 1108744 at * 3 (N.D. Cal.
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2009).
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To
Clinco v. Roberts, 41 F. Supp. 2d 1081, 1087 (N.D.
Consequently, where the addition of defendants would
Clinco,
Section 1447(e) provides in pertinent part that “[i]f, after
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removal the plaintiff seeks to join additional defendants whose
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joinder would destroy subject matter jurisdiction, the court may
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deny joinder, or permit joinder and remand the action to state
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court.”
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destroying diversity jurisdiction remains in the sound discretion
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of the Court.
The decision as to whether to permit an amendment
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All further references to “Rule” or “Rules” are to the
Federal Rules of Civil Procedure unless otherwise noted.
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IBC Aviation Servs., Inc v. Compania Mexicana de Aviaction, S.A.
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de C.V., 125 F. Supp. 2d 1008, 1011 (N.D. Cal. 2000), citing
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Newcombe v. Adolf Coors Co., 157 F.3d 686, 691 (9th Cir. 1998)
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In determining whether to allow joinder under Section 1447(e),
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the following five factors should be considered:
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(1) whether the party sought to be joined is needed for
just adjudication and would be joined under Federal
Rule of Civil Procedure 19(a); (2) whether the statute
of limitations would prevent the filing of a new action
against the new defendant in state court; (3) whether
there has been an unexplained delay in seeking to join
the new defendant; (4) whether plaintiff seeks to join
the new party solely to defeat federal jurisdiction;
(5) the strength of the claims against the new
defendant.
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IBC Aviation; 125 F. Supp. 2d at 1011; see also Boon v. Allstate
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Ins. Co., 229 F. Supp. 2d 1016, 1020 (C.D. Cal. 2002) (citing
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Clinco, 41 F. Supp. 2d at 1082).
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With respect to the first factor, a necessary party under
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Rule 19(a) is one “having an interest in the controversy, and who
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ought to be made a party, in order that the court may act on that
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rule which requires it to decide and finally determine the entire
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controversy, and do complete justice, by adjusting all the rights
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involved in it.”
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(citing CP Nat’l Corp. v. Bonneville Power Admin., 928 F.2d 905,
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912 (9th Cir. 1991).
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Rule 19(a) should be considered by the court in determining the
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propriety of joinder, the standard under Section 1447(e) is less
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restrictive than that applicable to Rule 19(a).
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Trotman v. United Parcel Serv., 1996 WL 428333 at *1 (N.D. Cal.
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1996).
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IBC Aviation, 125 F. Supp. 2d at 1011
Although whether a party is necessary under
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Id. (citing
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In accordance with the discretion the Court is accorded in
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allowing joinder under Section 1447(e), joinder is indicated
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“when failure to join will lead to separate and redundant
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actions”, but not when the defendants whose joinder is sought
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“are only tangentially related to the cause of action or would
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not prevent complete relief.”
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Boon, 229 F. Supp. 2d at 1022.
In IBC, the plaintiff provided cargo handling services to
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airlines, and entered into an agreement with Mexicana Airlines to
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handle its cargo at the Los Angeles International Airport.
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ultimately sued Mexicana for breach of its Cargo Handling
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Agreement, along with another company, AeroMexpress, that was
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responsible for overseeing the cargo services delivered by IBC to
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Mexicana.
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Connolly, but after removal of the action to federal court sought
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to add Connolly as a defendant on grounds that he was the
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principal person responsible for the acts underlying IBC’s claim
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against Mexicana and AeroMexpress.
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was a necessary party under a Rule 19(a) analysis, the IBC court
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answered that question in the affirmative, reasoning that
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“disallowing the amendment would hinder IBC from asserting its
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rights against an employee directly involved in the alleged
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breach of the [subject] Cargo Handling Agreement and related
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causes of action.”
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IBC
IBC did not initially sue AeroMexpress employee Steven
In analyzing whether Connolly
IBC, 125 F. Supp. 2d at 1012.
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The factual circumstances confronted by the IBC court are
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factually comparable to this case, where Plaintiff alleges that
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its insurance broker and agent, Bronson and Willard, were
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responsible for not procuring the proper scope of insurance for
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Plaintiff, and for saddling Plaintiff with unnecessary premium
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costs as a result.
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conceded the centrality of the broker/agent to Plaintiff’s
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dispute.
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dated January 16, 2009, Lexington’s own Associate General
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Counsel, Barnett Ovrut, indicated that a “specific policy
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exclusion” could have been written to exclude Plaintiff’s retail
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sales of insulation from the calculation of Plaintiff’s
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comprehensive general liability policy.
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that the broker and/or agent were responsible for failing to
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exclude “material sales from premium determination.”
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letter states:
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Significantly, even Lexington appears to have
In a letter to the California Department of Insurance
Ovrut appears to opine
As the
“Review and analysis of the Policy indicates that
premium is to be determined on the basis of ABC
Insulation’s “sales”. No distinction is made in this
respect for sales from insulation contracting and sales
of insulation materials. A specific policy exclusion
would be required for receipts from material sales to
not be included in premium determination. As ABC
Insulation was represented by an insurance broker with
respect to obtaining the insurance provided under the
policy, responsibility for excluding material sales
from premium determination had that been ABC
Insulation’s intent rested with such broker.”
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See Ovrut letter, Exhibit 2 to the Declaration of Daniel W.
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Smith, page 1, paragraph 1.
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In opposition to Plaintiff’s Motion, Lexington does not
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deny that Bronson and Willard may be necessary parties given the
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allegations levied by Plaintiff against them.
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claims that the original agent who placed the policy with
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Lexington, Glenna Androus (who also happens to be Larry Crother’s
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mother-in-law), should also have been named as a Defendant.
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Lexington’s Opp’n, 3:5-14).
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to add Androus amounts to gamesmanship on the part of Plaintiff
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that renders “fallacious” Plaintiff’s present attempt to
Instead, Lexington
(See
Lexington argues Plaintiff’s failure
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selectively add Bronson and Willard as diversity-destroying
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Defendants.
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Ms. Androus died in November of 2002, with her business being
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subsequently sold in 2003.
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Because the allegations of the proposed FAC make it clear that
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Plaintiff seeks to sue Bronson and Willard only in their capacity
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as Plaintiff’s insurance agent and broker for the period between
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October 30, 2003 and January 15, 2008 (see FAC, ¶ 27),
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Plaintiff’s failure to add the deceased Ms. Androus appears
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justifiable, and not an abject attempt to “pick and choose”
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defendants to destroy diversity that the Court should reject.
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Plaintiff points out in its reply, however, that
Decl. of Cheryl A. Crother, ¶ 2.
Bronson and Willard’s potential relationship to Plaintiff’s
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claims appears to well exceed the requisite “tangential” link.
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Indeed, as Plaintiff points out, the Ovrut letter makes it likely
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that Lexington will blame Bronson and Willard at trial, and will
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point to their empty chairs if they are not joined as defendants.
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Consequently, the Court agrees that the addition of Bronson and
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Willard is necessary, under a Rule 19(a) analysis, to adjudicate
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the entire controversy stemming from the placement of Plaintiff’s
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comprehensive general liability insurance.
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The Northern District’s decision in Chan v. Bucephalus,
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supra, is also instructive.
The Plaintiff in Chan, after
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initially suing a company that solicited investment funding,
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later sought to add the non-diverse former managing partner of
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that company, alleged that the partner actively participated in
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the investment scheme wherein she was allegedly victimized.
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Under those circumstances, which are akin to Plaintiff’s
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allegation here that Bronson and Willard were the parties
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directly responsible for negligently procuring the policies
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issued by Lexington, the Northern District found that the
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partner’s role was more than tangential and consequently
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determined that the Rule 19(a) inquiry favored allowing amendment
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under a Section 1447(e) analysis.
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This Court similarly concludes that considerations under
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Rule 19(a) weigh in Plaintiff’s favor in permitting the joinder
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of Bronson and Willard as additional parties.
Chan, 2009 WL 1108744 at * 4.
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Turning now to the second factor, whether or not the
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applicable statute of limitations would preclude Plaintiff from
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asserting his claims in a separate state court action, there is
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no evidence before the Court that Plaintiff’s potential claims
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against Bronson or Willard would be subject to the applicable
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statute of limitations bar any differently now than at the time
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this lawsuit was initially filed in December of 2010.
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Consequently, that factor does not weigh one way or the other in
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favor of permitting joinder under Section 1447(e).
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The third factor, whether the amendment was sought in a
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timely matter, does appear to favor Plaintiff.
Plaintiff’s
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initial attempt to add Bronson and Willard as defendants occurred
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on January 28, 2011, just six weeks after this matter was first
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filed in state court and only two weeks after removal, by
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Lexington, to this Court.
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District found that an amendment sought some six weeks after the
In Clinco, supra, the Northern
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filing of the original complaint was timely.
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Clinco, 41 F. Supp.
2d at 1083.
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Consideration of the final fourth and fifth factors is
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intertwined, since an assessment as to the strength of the claims
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against the proposed new defendant (fifth factor) would appear to
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bear directly on whether joinder is sought solely to defeat
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diversity and divest this Court of jurisdiction.
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Plaintiff’s previously filed Motion to Remand, submitted
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immediately following its ultimately aborted attempt to file a
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FAC without the requisite leave of court, does suggest a motive
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to destroy diversity (as does Plaintiff’s reduction of the
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jurisdictional amount in controversy to below the $75,000.00
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threshold), as discussed above it appears that even Lexington
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concedes that Plaintiff may indeed have valid claims against
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Bronson and Willard.
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Court’s view, any inference to be drawn in either favoring or
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disfavoring amendment.
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Although
That competing interplay nullifies, in the
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On balance, in assessing the factors to be considered in
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determining whether to permit amendment under Section 1447(e),
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the Court concludes that Plaintiff should be allowed to submit
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his proposed FAC despite the fact that the pleading destroys
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diversity.
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Complaint (ECF No. 32) is accordingly GRANTED.2
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directed to file its First Amended Complaint forthwith.
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that amended pleading adds defendants whose presence in this
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litigation destroys the diversity on which this Court’s
Plaintiff’s Motion for Leave to File First Amended
Plaintiff is
Because
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jurisdiction rests, this Court no longer has subject matter
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jurisdiction under 28 U.S.C. § 1332 and must remand this case to
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the originating Court, the Superior Court for the State of
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California in and for the County of Sacramento.
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accordingly unnecessary to adjudicate the propriety of the other
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changes contained within the First Amended Complaint, and the
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Court declines to do so.
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determines it lacks jurisdiction, Lexington’s Motion to Dismiss
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(ECF No. 24) is DENIED as moot.
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It is
Additionally, because the Court
IT IS SO ORDERED.
Dated: June 6, 2011
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_____________________________
MORRISON C. ENGLAND, JR.
UNITED STATES DISTRICT JUDGE
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Because oral argument was not of material assistance, the
Court ordered this matter submitted on the briefs. E.D. Cal.
Local Rule 230(g).
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