Lozano et al v. Jake Harless Insurance Brokerage et al, No. 1:2010cv00194 - Document 25 (E.D. Cal. 2010)
Court Description: FINDINGS and RECOMMENDATIONS recommending Regarding Defendants' 11 Motion to Drop or Sever The Claims Against Jake Harless Insurance Brokerage and Plaintiff's 12 Motion to Remand Action to State Court signed by Magistrate Judge Gary S. Austin on 3/26/2010. Matter referred to Judge Lawrence J. O'Neill; Objections to F&R due within 15 days of service. (Esteves, C)
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Lozano et al v. Jake Harless Insurance Brokerage et al Doc. 25 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 12 13 14 15 16 17 18 DONALD LOZANO and ESTHER LOZANO, ) ) ) Plaintiffs, ) ) v. ) ) JAKE HARLESS aka JACOB HARLESS, ) individually and doing business as JAKE ) HARLESS STATE FARM INSURANCE, ) STATE FARM MUTUAL AUTOMOBILE ) INSURANCE COMPANY and DOES 1 to ) 100, inclusive, ) ) Defendants. ) ) _____________________________________ ) 1:10-cv-00194 LJO GSA FINDINGS AND RECOMMENDATIONS REGARDING DEFENDANTS’ MOTION TO DROP OR SEVER THE CLAIMS AGAINST JAKE HARLESS INSURANCE BROKERAGE AND PLAINTIFFS’ MOTION TO REMAND ACTION TO STATE COURT (Documents 11 & 12) 19 20 21 I. 22 FACTUAL AND PROCEDURAL BACKGROUND 23 For several years prior to December 2008, Plaintiffs Donald and Esther Lozano 24 (“Plaintiffs” or “the Lozanos”) consulted with Jake Harless of Jake Harless Insurance Brokerage 25 (“Harless” or “JHIB”) regarding insurance coverage for their motor vehicles through State Farm 26 Mutual Automobile Insurance Company (“State Farm”) (collectively “Defendants”). Plaintiffs 27 28 1 Dockets.Justia.com 1 contend they were advised and ensured that their uninsured/underinsured (“UM/UIM”) coverage 2 limits were $250,000/$500,000. (Doc. 11 at 2; Doc. 19 at 2.) 3 On or about December 7, 2008, Plaintiffs were involved in a motor vehicle accident with 4 an uninsured driver. Thereafter, Plaintiffs learned their UM/UIM policy limits were in fact only 5 $30,000/$60,000. (Doc. 11 at 2; Doc. 19 at 2.) 6 On December 7, 2009, Plaintiffs originally filed suit against Defendants in Stanislaus 7 County Superior Court asserting claims for intentional or negligent misrepresentation, breach of 8 fiduciary duty and general negligence. (Doc. 1, Ex. A.) On February 5, 2010, Defendants 9 removed the action to this Court. (Doc. 1.) In the notice of removal, Defendants asserted that 10 Defendant Harless’s citizenship should be disregarded because he had been fraudulently joined 11 and there was no legal basis to find him independently liable. (Doc. 1 at 2-3.) 12 On February 12, 2010,1 Defendants filed a motion to drop or sever the claims against 13 Harless and JHIB. (Doc. 11.) On February 24, 2010, Plaintiffs filed a motion to remand this 14 action to state court. (Docs. 12-14.) That same date, Plaintiffs filed an opposition to Defendants’ 15 motion to drop or sever the claims. (Doc. 19.) On March 12, 2010, Defendants filed an 16 opposition to Plaintiffs’ motion to remand. (Doc. 21.) Finally, on March 19, 2010, Defendants 17 filed a reply to Plaintiffs’ opposition to the motion to drop or sever claims. (Doc. 23.) 18 19 20 21 22 23 1 27 On this same date, Defendants also filed a Motion to Strike Portions of the Complaint and a Motion to Dismiss. (Docs. 9 & 10.) On February 24, 2010, District Court Judge Lawrence J. O’Neill issued a minute order vacating the hearing date of March 26, 2010, and striking the motions from the docket. Defendants were ordered to re-file and re-notice the motions no later than five days following disposition of the motions that are the subject of these findings. (See Doc. 20.) 28 2 24 25 26 1 On March 24, 2010, this Court determined these matters were suitable for decision 2 without oral argument pursuant to Local Rule 230(g).2 The hearing scheduled for March 26, 3 2010, was vacated and the matters were deemed submitted for written findings. (Doc. 24.) 4 5 Because resolution of one motion resolves the other, the Court will address both matters in the instant findings. 6 II. 7 LEGAL STANDARD 8 Rule 21 of the Federal Rules of Civil Procedure provides, in pertinent part, that “[o]n 9 motion or on its own, the court may at any time, on just terms, add or drop a party. The court 10 11 may also sever any claim against a party.” Title 28 of the United States Code section 1441(a) provides that a defendant may remove 12 “any civil action brought in a State court of which the district courts . . . have original jurisdiction 13 . . ..” Removal is proper when a case originally filed in state court presents a federal question or 14 where there is diversity of citizenship among the parties and the amount in controversy exceeds 15 $75,000. See 28 U.S.C. §§ 1331, 1332(a). 16 Section 1447(c) provides that “[i]f at any time before final judgment it appears that the 17 district court lacks subject matter jurisdiction, the case shall be remanded.” “The removal statute 18 is strictly construed against removal jurisdiction [and] [t]he defendant bears the burden of 19 establishing that removal is proper.” Provincial Gov’t of Marinduque v. Placer Dome, Inc., 582 20 F.3d 1083 (9th Cir. 2009). The Ninth Circuit has held that “[w]here doubt regarding the right to 21 removal exists, a case should be remanded to state court.” Matheson v. Progressive Specialty 22 Ins. Co., 319 F.3d 1089, 1090 (9th Cir. 2003). 23 24 A defendant seeking to avoid remand must prove fraudulent joinder. In other words, defendant must prove that plaintiff has named a defendant against whom no cause of action lies 25 2 27 The Court carefully reviewed and considered all of the pleadings, including arguments, points and authorities, declarations, and exhibits. Any omission of a reference to an argument or pleading is not to be construed that this Court did not consider the argument or pleading. 28 3 26 1 and that defendant’s joinder defeats diversity jurisdiction. McCabe v. General Foods Corp., 811 2 F.2d 1336, 1339 (9th Cir. 1987). A defendant is fraudulently joined when there is no possibility 3 that the plaintiff will succeed in establishing his or her liability. Good v. Prudential Ins. Co., 5 4 F.Supp.2d 804, 807 (N.D. Cal. 1998). 5 III. 6 DISCUSSION 7 A. 8 Plaintiffs assert this matter must be remanded pursuant to Title 28 of the United States Summary of the Parties’ Positions 9 Code section 1441, yet provide no analysis in their points and authorities. (See Doc. 13.) 10 Plaintiffs counsel’s declaration filed simultaneously indicates subject matter jurisdiction is 11 lacking “because the defendant, Jake Harless, is a citizen of the State of California and is sued in 12 his individual capacity. Harless was the agent who sold the insurance to the plaintiffs and it is 13 our understanding, before discovery is completed, that he is an independent contractor.” (Doc. 14 14, ¶ 5.) In their opposition to Defendants’ motion to drop or sever claims, Plaintiffs argue their 15 claims against Jake Harless “are valid claims asserted under California law and therefore cannot 16 be dropped ” and that Jake Harless was not fraudulently joined nor are Plaintiffs’ claims against 17 him a “‘sham.’” (Doc. 19 at 3-5.) 18 Defendants contend however that as an agent of State Farm, Jake Harless cannot be held 19 individually liable for the acts alleged in Plaintiffs’ complaint, and therefore, Mr. Harless was 20 fraudulently joined to defeat diversity jurisdiction. (Docs. 11 & 21.) Defendants assert that Mr. 21 Harless was acting within the course and scope of his employment as an agent of State Farm, and 22 as such, any actions he took regarding the coverage obtained for Plaintiffs shield him from 23 liability. Defendants rely upon Gasnik v. State Farm Ins. Co., 825 F.Supp. 245 (E.D. Cal. 1992) 24 and Good v. The Prudential Ins. Co. of America, 5 F.Supp.2d 804 (N.D. Cal. 1998) in support of 25 their position. (Doc. 11 at 3-5 & Doc. 21 at 3-5.) Because Mr. Harless was fraudulently joined 26 to defeat diversity jurisdiction, assert Defendants, he “may be dropped or the claims against 27 28 4 1 [him] may be severed from the action in accordance with Federal Rule of Civil Procedure 21.” 2 (Doc. 11 at 5-6.) For those same reasons, Defendants assert that Plaintiffs’ motion for remand 3 should be denied. (Doc. 21 at 5-6.) In their reply to Plaintiffs’ opposition to the motion to drop 4 or sever claims, Defendants assert that the authorities upon which Plaintiffs rely are 5 distinguishable, and that Plaintiffs have made no effort to refute the holdings of the cases upon 6 which Defendants rely. (Doc. 23 at 2-5.) 7 B. 8 Plaintiffs’ complaint asserts three causes of action: intentional or negligent 9 The Complaint misrepresentation, breach of fiduciary duty, and general negligence. Plaintiffs name Jake or 10 Jacob Harless and State Farm in each cause of action. Plaintiffs also contend Mr. Harless was 11 acting both individually and on behalf of State Farm. Plaintiffs’ complaint does not specifically 12 include language that Mr. Harless was acting within the course and scope of his employment or 13 agency. (Doc. 1, Ex. A.) 14 More particularly, Plaintiffs contend that they had purchased insurance from Defendants 15 for several years, and that at all times, Harless assured Plaintiffs that they were fully insured, 16 including the maximum UI/UIM benefits available. Plaintiffs relied upon Defendants’ expertise, 17 including the fact Harless held himself out as a “‘2nd Generation State Farm’” agent. Following 18 an automobile accident with an uninsured driver on December 7, 2008, Plaintiffs learned for the 19 first time that Defendants negligently misrepresented that Plaintiffs were insured for the 20 maximum UI/UIM limits of $250,000/$500,000. Rather, Plaintiffs learned their insurance policy 21 included only $30,000/$60,000 UI/UIM limits, the minimum coverage available. (Doc. 1, Ex. 22 A.) 23 C. 24 All parties acknowledge that a defendant is fraudulently joined when there is no 25 possibility that the plaintiff will succeed in establishing his or her liability. Good v. Prudential 26 Ins. Co., 5 F.Supp.2d at 807. Whether Plaintiffs can establish liability against Jake Harless Analysis 27 28 5 1 individually is the question before this Court. If there is a possibility that the Lozanos can state a 2 claim against him individually, they are entitled to remand. If however Mr. Harless was only 3 acting as an agent of State Farm, thereby rendering State Farm solely liable for its agent’s 4 actions, there is no possibility Plaintiffs will succeed in establishing liability, making remand 5 unavailable. 6 California courts have recognized that an agent or employee of an insurance company is 7 not liable to an insured while acting in the scope of the agency or employment. Lippert v. Bailey, 8 241 Cal.App.2d 376, 382 (1966). Following Lippert however, California courts have accepted 9 three exceptions to the general rule. An agent may incur personal liability by assuming a greater 10 duty, or special duty, to the insured: (1) by entering into “an express agreement to ensure 11 adequate coverage;” (2) by “holding out [] to assume a greater duty toward an insured;” and (3) 12 by “misrepresenting the policy’s terms or extent of coverage.” Paper Savers, Inc. v. Nacsa, 51 13 Cal.App.4th 1090, 1097 (1996). Thus, California does not bar liability as against an individual 14 insurance agent. 15 In 2004, a California Court of Appeal held that “[l]ike other agents, an insurance 16 company’s [agent] may be personally responsible [for the torts of] intentional misrepresentation, 17 or fraud.” McNeil v. State Farm Life Ins. Co., 116 Cal.App.4th 597, 603. Several California 18 courts have determined that an agent could be, or was found to be, personally liable for negligent 19 misrepresentation to an insured. See Butcher v. Truck Insurance Exchange, 77 Cal.App.4th 20 1442, 1465 (2000) (insurance agent could be held liable for negligent misrepresentation where 21 agent misled insured into believing policy provided coverage it did not); Eddy v. Sharp, 199 22 Cal.App.3d 858, 866 (1998) (insurance agent deliberately assumed responsibility for finding 23 policy to suit specific policy needs and could be liable for negligent misrepresentation); Clement 24 v. Smith, 16 Cal.App.4th 39, 45 (1993) (judgment against insurance agent for negligently 25 misrepresenting the scope of coverage); Westrick v. State Farm Insurance, 137 Cal.App.3d 685, 26 692-693 (1982) (agent could be held liable for negligence re failure to advise insured that truck 27 28 6 1 was not covered under existing policy). Here, Plaintiffs have asserted a cause of action for 2 “intentional or negligent misrepresentation,” and there exists a possibility that Jake Harless could 3 be found individually liable on that basis. The complaint alleges that Harless held himself out as 4 an expert and misrepresented the scope of coverage under the policy. 5 Additionally, Defendants’ reliance on Gasnik v. State Farm Ins. Co., 825 F.Supp. 245 can 6 be distinguished. In Gasnik, the insurance agent was party to an express agreement with his 7 agency whereby the agency promised to accept responsibility for his acts regardless of whether 8 those acts were within or beyond the scope of employment. Gasnik, 825 F.Supp. at 249. The 9 Court is not aware of a similar express agreement here. 10 Because an insurance agent may assume a special duty to an insured where the agent 11 misrepresents the nature, extent, or scope of coverage being offered, individual liability may 12 attach. In that instance, the agent is not fraudulently joined in a lawsuit against a party’s insurer 13 to defeat diversity jurisdiction. Macey v. Allstate Property & Cas. Ins. Co., 220 F.Supp.2d 1116 14 (N.D. Cal. 2002). Plaintiffs appear to have a plausible theory of liability against Jake Harless for 15 misrepresentation of the policy’s terms. 16 In sum, Defendants have not met their burden of proving that the joinder of Jake Harless 17 as an individual was fraudulent by “clear and convincing evidence.” Hamilton Materials, Inc. v. 18 Dow Chemical Corp., 494 F.3d 1203, 1206 (9th Cir. 2007). It appears then that Mr. Harless was 19 properly joined. Therefore, this Court lacks subject matter jurisdiction because Jake Harless, like 20 the Lozanos, is a California citizen and, thus, there is no diversity of citizenship. 21 IV. 22 RECOMMENDATION 23 For the foregoing reasons, this Court hereby recommends that Plaintiffs’ motion to 24 25 26 remand be GRANTED and Defendants’ motion to sever or drop claims be DENIED. These findings and recommendations are submitted to the district judge assigned to this action, pursuant to Title 28 of the United States Code section 636(b)(1)(B) and this Court’s Local 27 28 7 1 Rule 304. Within fifteen (15) days of service of this recommendation, any party may file written 2 objections to these findings and recommendations with the Court and serve a copy on all parties. 3 Such a document should be captioned “Objections to Magistrate Judge’s Findings and 4 Recommendations.” The district judge will review the magistrate judge’s findings and 5 recommendations pursuant to Title 28 of the United States Code section 636(b)(1)(C). The 6 parties are advised that failure to file objections within the specified time may waive the right to 7 appeal the district judge’s order. Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991). 8 9 10 IT IS SO ORDERED. Dated: 6i0kij March 26, 2010 /s/ Gary S. Austin UNITED STATES MAGISTRATE JUDGE 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8
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