Graunstadt v. USS-Posco Industries, No. 3:2010cv03225 - Document 28 (N.D. Cal. 2010)
Court Description: ORDER GRANTING MOTION TO AMEND COMPLAINT, GRANTING MOTION TO REMAND AND REMANDING TO CONTRA COSTA COUNTY SUPERIOR COURT (SI, COURT STAFF) (Filed on 10/5/2010)
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Graunstadt v. USS-Posco Industries Doc. 28 1 2 3 4 IN THE UNITED STATES DISTRICT COURT 5 FOR THE NORTHERN DISTRICT OF CALIFORNIA 6 7 KENNETH P. GRAUNSTADT JR, 8 9 United States District Court For the Northern District of California 10 No. C 10-03225 SI Plaintiff, ORDER GRANTING MOTION TO AMEND COMPLAINT, GRANTING MOTION TO REMAND AND REMANDING TO CONTRA COSTA COUNTY SUPERIOR COURT v. USS-POSCO INDUSTRIES, 11 Defendant. / 12 13 Plaintiff has filed a motion to amend the complaint and a motion to remand this action to state 14 court. The motions are scheduled for hearing on October 7, 2010. Pursuant to Civil Local Rule 7-1(b), 15 the Court finds this matter appropriate for resolution without oral argument, and hereby VACATES the 16 hearing. 17 Having considered the papers submitted, and for good cause shown, the Court hereby GRANTS 18 both plaintiff’s motion to amend the complaint and plaintiff’s motion to remand, and REMANDS this 19 action to Contra Costa County Superior Court. 20 21 BACKGROUND 22 Plaintiff Kenneth Graunstadt operates Delta Scrap and Salvage and Graunstadt Enterprises, a 23 recycling facility. Compl. ¶¶ 1-2. In May 2009, plaintiff bought obsolete electrical equipment from 24 Defendant USS-POSCO Industries (“UPI”), a steel company. Id. ¶¶ 9-10. Plaintiff alleges that at the 25 time of the sale, he was not informed that the equipment contained waste oil contaminated with 26 polychlorinated biphenyls (“PCBs”). Id. PCBs are toxic chemicals, and their release into the 27 environment is prohibited by both state and federal statutes. Id. ¶ 9. Throughout plaintiff’s interactions 28 with UPI, UPI employee Mike Brevig was plaintiff’s primary point of contact. Id. ¶¶ 9-10. Dockets.Justia.com 1 After plaintiff moved the equipment to his facilities and begin dismantling it, plaintiff’s 2 employees allegedly discovered waste oil leaking from the equipment, which contaminated plaintiff’s 3 property. Id. ¶ 11. Plaintiff’s employees attempted to dispose of the oil by returning some to UPI and 4 putting the rest in its on site motor oil receptacles. Id. ¶¶ 12-13. Fremouw Environmental Services 5 (“Fremouw”), a waste oil recycler, picked up the oil from plaintiff and delivered it to Evergreen Oil 6 (“Evergreen”). Id. ¶ 14. Evergreen, however, discovered that the oil contained PCBs in levels above 7 the hazardous waste limits. Id. The oil allegedly contaminated both Fremouw and Evergreen’s oil 8 storage tanks and equipment, and plaintiff was forced to pay them damages. Id. ¶ 15. Furthermore, 9 plaintiff’s own facility allegedly was contaminated, incurring additional damages. Id. ¶ 16. United States District Court For the Northern District of California 10 Plaintiff originally filed suit in Contra Costa County Superior Court, alleging six causes of 11 action: (1) fraud/concealment, (2) negligence, (3) violation of Health and Safety Code § 25250.26, (4) 12 violation of California Business & Professions Code § 17200, et seq., for fraudulent, unfair, and 13 unlawful business practices, (5) trespass, and (6) nuisance. Id. ¶¶ 17-57. Plaintiff originally named 14 only UPI and its two parent companies, United States Steel Corporation and Pohang Steel America 15 Corporation,1 as defendants. On July 23, 2010, UPI removed the case to federal court, predicating 16 jurisdiction on diversity of citizenship. The grounds for removal were uncontested. 17 The instant motion seeks to amend the complaint, joining California resident Brevig as a 18 defendant to the fraud cause of action. As joinder of Brevig would destroy diversity jurisdiction, 19 plaintiff has also moved to remand this case to Contra Costa County Superior Court pursuant to 28 20 U.S.C. § 1447(e). 21 22 LEGAL STANDARD 23 If a plaintiff wishes to join additional defendants whose joinder would destroy federal diversity 24 jurisdiction after removal from state court, the court may deny joinder, or permit joinder and remand 25 to state court. 28 U.S.C. § 1447(e). “Congress added subsection (e) to § 1447 with the express purpose 26 of taking advantage of the opportunity opened by removal from a state court to permit remand if a 27 28 1 Plaintiff voluntarily dismissed these two parent companies on June 23, 2010. 2 plaintiff seeks to join a diversity-destroying defendant after removal.” IBC Aviation Servs., Inc. v. 2 Compañia Mexicana de Aviacion, S.A. de C.V., 125 F. Supp. 2d 1008, 1011 (N.D. Cal. 2000) (citing 3 H.R. Rep. No. 100-889, at 72-73). Whether to permit joinder under § 1447(e) remains an issue of sound 4 discretion for the court. Newcombe v. Adolf Coors Co., 157 F.3d 686, 691 (9th Cir. 1998); IBC, 125 F. 5 Supp. 2d at 1011; Clinco v. Roberts, 41 F. Supp. 2d 1080, 1082 (C.D. Cal. 1999). Generally, however, 6 when weighing whether to permit joinder, a court should consider: (1) whether the party plaintiff seeks 7 to join is required for just adjudication and would be joined under Federal Rule of Civil Procedure 19(a); 8 (2) whether the statute of limitations would bar an action against defendant in state court; (3) whether 9 the joinder is untimely, or there has been an unexplained delay in its request; (4) whether joinder is 10 United States District Court For the Northern District of California 1 intended solely to destroy diversity jurisdiction, (5) whether the claim against the defendant appears 11 valid, and (6) whether denial of joinder will prejudice the plaintiff. IBC, 125 F. Supp. 2d at 1011 (citing 12 Palestini, 193 F.R.D. 654, 658 (S.D. Cal. 2000)). Any of the factors might prove decisive, and none is 13 an absolutely necessary condition for joinder. 14 15 DISCUSSION 16 Defendant contends that joinder of Brevig should not be permitted under § 1447(e), primarily 17 because plaintiff seeks to join Brevig solely for the improper purpose of defeating diversity jurisdiction. 18 The factors relevant to determining whether joinder of a non-diverse defendant should be permitted are 19 considered below. 20 21 I. Federal Rule of Civil Procedure 19(a) 22 Plaintiff does not address whether Brevig is a necessary party under Federal Rule of Civil 23 Procedure 19(a).2 Defendant argues that Brevig is not a necessary party because the case can proceed 24 25 26 27 28 2 Plaintiff’s motion incorrectly argued that Rule 15, regarding amending a complaint as a matter of course, governs this case. As a result, he did not fully analyze the case under the § 1447(e) factors. As defendant correctly points out, however, joinder of diversity-destroying defendants is governed by § 1447(e), rather than Rule 15. See 28 U.S.C. § 1447(e) (“If after removal the plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to the State court.”); Trotman v. United Parcel Serv., No. C-96-1168-VRW, 1996 WL 428333, at *1 (N.D. Cal. July 16, 1996). 3 1 without Brevig, as his presence will not affect the merits of the case. Defendant also argues that because 2 UPI acknowledges that it is responsible for Brevig’s actions under respondeat superior, even if Brevig 3 is not joined, the parties will not be subjected to inconsistent obligations nor will the Court’s ability to 4 accord complete relief be impaired. When deciding whether to permit joinder of a non-diverse defendant, courts generally first 6 consider whether the defendant would be joined under Rule 19(a). IBC, 125 F. Supp. 2d at 1011. Rule 7 19(a), which governs the joinder of necessary parties, requires joinder of persons whose absence would 8 preclude the grant of complete relief, impede their ability to protect their interests, or subject a party to 9 the risk of incurring inconsistent obligations. Fed. R. Civ. P. 19(a); IBC, 125 F. Supp. 2d at 1011. A 10 United States District Court For the Northern District of California 5 necessary party is one having an interest in the controversy, and who ought to be made a party to the 11 action to enable the court to do complete justice and adjust the rights of the parties accordingly. IBC, 12 125 F. Supp. 2d at 1011. “This standard [for the joinder of necessary parties] is met when failure to join 13 will lead to separate and redundant actions [in different forums].” Id. (citing CP Nat’l Corp. v. 14 Bonneville Power Admin., 928 F.2d 905, 912 (9th Cir. 1991)). However, although joinder under 15 § 1447(e) employs a Rule 19 analysis, joinder under § 1447(e) is in fact more permissive than joinder 16 under Rule 19. Id. at 1011-12. Courts permit joinder of non-diverse defendants under § 1447(e) where 17 the proposed defendants are closely related to the cause of action or where their absence would prevent 18 the grant of complete relief between the parties. Id. at 1012 (citing Red Buttons v. Nat’l Broad. Co., 858 19 F. Supp. 1025, 1027 (C.D. Cal. 1994)). 20 In this case, plaintiff seeks to join the very employee, Brevig, whose conduct allegedly made UPI 21 liable for fraud. If the facts alleged are true, UPI cannot be found liable for fraud without first finding 22 that Brevig intentionally did not disclose that the equipment contained oil contaminated with PCBs, 23 Brevig knew that the equipment did in fact contain oil contaminated with PCBs, Brevig intended to 24 deceive plaintiff with this concealment, plaintiff reasonably relied on this misrepresentation, and 25 plaintiff has suffered damages as a result. The factual nexus is so great, that denying joinder and forcing 26 plaintiff to seek redress against Brevig in state court would lead to redundant litigation and potentially 27 inconsistent results and obligations. The fraud claim against Brevig is closely related to that pending 28 against UPI, and accordingly counsels in favor of joinder. 4 1 II. Statute of Limitations 2 As plaintiff acknowledges, the statute of limitations does not bar him from filing suit in state 3 court. The events giving rise to plaintiff’s cause of action against Brevig took place from April to June, 4 2009, and there is a three-year statute of limitations for causes of action based on fraud. Cal. Civ. Proc. 5 Code § 338(d). Generally, if a statute of limitations does not bar a plaintiff from filing suit in state court, a 7 federal court may be less inclined to permit joinder of a non-diverse defendant because he could still 8 theoretically seek relief from state court. See Clinco, 41 F. Supp. 2d at 1083. But where, as here, 9 requiring a plaintiff to litigate essentially identical issues turning on the same facts in two forums would 10 United States District Court For the Northern District of California 6 waste judicial resources and invite the risk of inconsistent results, the fact that a statute of limitations 11 has not yet tolled should not prevent joinder. See, e.g., IBC, 125 F. Supp. 2d at 1012. Accordingly, this 12 factor does not count significantly against Plaintiff. 13 14 III. Untimely Joinder 15 Courts generally consider the delay between removal from state court and a plaintiff’s motion 16 to amend in determining whether to permit joinder of a non-diverse defendant. See, e.g., Lopez v. Gen. 17 Motors Corp., 697 F.2d 1328, 1332 (9th Cir. 1983) (denying motion to amend complaint and join non- 18 diverse defendant that was filed more than six months after removal and just days before the court’s 19 consideration of a summary judgment motion); IBC, 125 F. Supp. 2d at 1012. Courts also consider the 20 procedural posture of the case. See Righetti v. Shell Oil Co., 711 F. Supp. 531, 534 (N.D. Cal. 1989). 21 For a motion to amend to be granted, it is important that the litigation has not yet made considerable 22 progress. See id. 23 The Court finds that there has not been undue delay in joining Brevig. Plaintiff filed the instant 24 motion to amend the complaint and motion to remand on August 12, 2010, less than one month after 25 the case was removed to federal court on July 23, 2010. No discovery has taken place, no other motions 26 have been filed by either party, and the first case management conference has not yet occurred. The 27 motion is timely, which counsels in favor of joinder. 28 5 1 IV. Motive for Joinder 2 Defendant argues that Brevig should not be joined because plaintiff’s sole motivation in 3 attempting to join him is to defeat the federal court’s diversity jurisdiction, so that the case will be 4 remanded to state court. In support of this assertion, defendant points to the fact that plaintiff knew of 5 Brevig’s involvement in the case from the beginning of the dispute, but did not attempt to join Brevig 6 as a defendant until UPI removed the case to federal court. Defendant also points to plaintiff’s failure 7 to offer an alternative explanation as to why he did not name Brevig as a defendant in the original 8 complaint. Plaintiff responds that motive for joinder is a minor consideration among many in a court’s 9 decision to join a non-diverse party. United States District Court For the Northern District of California 10 The motive of a plaintiff in seeking joinder of a non-diverse defendant is relevant to a court’s 11 decision as to whether to grant leave to amend his original complaint. Desert Empire Bank v. Ins. Co. 12 of N. Am., 623 F.2d 1371, 1376 (9th Cir. 1980) (superseded by 28 U.S.C. § 1447(e) (1996)); IBC, 125 13 F. Supp. 2d at 1012. The joinder of non-diverse defendants for the sole purpose of divesting a federal 14 court of diversity jurisdiction is improper, and courts should closely scrutinize such motives. Desert 15 Empire Bank, 623 F.2d at 1376. On the other hand, “[s]uspicion of diversity destroying amendments 16 is not as important now that § 1447(e) gives courts more flexibility in dealing with the addition of such 17 defendants.” IBC, 125 F. Supp. 2d at 1012 (citation omitted). Because of this, “when considering 18 motive, courts often consider whether plaintiff is attempting unreasonably to delay proceedings.” Gunn 19 v. Wild, No. C-01-4320 VRW, 2002 WL 356642, at *5 (N.D. Cal. Feb. 26, 2002) (citation omitted). 20 Because of the early stage of litigation in the present case, plaintiff is not attempting 21 unreasonably to delay proceedings. There are no decisive motions pending before the Court, and the 22 first case management conference has not yet occurred. Furthermore, plaintiff seeks to join an employee 23 of UPI who is allegedly the source of UPI’s liability for fraud. On the whole, this factor weighs in favor 24 of allowing joinder of Brevig. 25 26 V. Validity of Claims 27 If a plaintiff seeking joinder states meritorious claims against a non-diverse defendant, joinder 28 is favored. See, e.g., IBC, 125 F. Supp. 2d at 1012; Clinco, 41 F. Supp. 2d at 1083; Goodman v. 6 1 Travelers Ins. Co., 561 F. Supp. 1111, 1113-14 (N.D. Cal. 1983). Plaintiff seeks leave to amend his 2 complaint to assert a claim for fraud against Brevig. Under California law, the elements of a fraud claim 3 are: “(a) misrepresentation (false representation, concealment or nondisclosure); (b) knowledge of 4 falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) 5 resulting damage.” Agric. Ins. Co. v. Superior Court, 82 Cal. Rptr. 2d 594, 603 (Cal. Ct. App. 1999) 6 (citation omitted). Defendant does not dispute that plaintiff has asserted a valid fraud claim against Brevig. In his 8 proposed first amended complaint, plaintiff alleges that Brevig intentionally did not disclose that the 9 equipment contained waste oil contaminated with PCBs, Brevig knew that the equipment did in fact 10 United States District Court For the Northern District of California 7 contain contaminated oil, Brevig intended to deceive plaintiff with this misrepresentation, plaintiff 11 reasonably relied on this misrepresentation, and plaintiff has suffered damages as a result. Plaintiff has 12 thus provided information sufficient to state a valid, potentially meritorious fraud claim against Brevig. 13 Given the fact that UPI’s potential liability for fraud is derivative from its agent’s, this counsels heavily 14 in favor of allowing joinder. 15 16 VI. Prejudice to Plaintiff 17 Finally, a court must consider whether significant prejudice to plaintiff would result from the 18 denial of joinder. Significant prejudice to plaintiff results where claims against proposed non-diverse 19 defendants are so intimately connected to those against an original defendant that denial of joinder 20 would force a plaintiff to choose whether to pursue redundant litigation in another forum at the risk of 21 inconsistent results or forego its valid claims. See IBC, 125 F. Supp. 2d at 1013. The prospect of such 22 prejudice befalling a plaintiff should weigh in favor of joinder. Id. 23 Plaintiff would suffer significant prejudice if joinder of Brevig were denied. Denying plaintiff’s 24 motion would force him to forego his valid claim against Brevig, or begin wasteful and redundant 25 litigation on the same issues in state court at the risk of inconsistent results. At the same time, little 26 prejudice to defendant would result from permitting joinder. As discussed above, the parties have not 27 begun conducting discovery, the first case management conference has not yet occurred, and no other 28 motions are currently pending before the court. The prejudice to plaintiff which would result if the 7 1 Court denied his motion therefore exceeds any that might fall to defendant if the Court granted the 2 motion. For this reason, this factor counsels in favor of joining Brevig. 3 4 VII. Balancing of the Six Factors Weighing the six factors collectively, the Court finds that permitting the joinder of Brevig is 6 warranted. Although the statute of limitations has not tolled, the other five factors weigh in favor of 7 joinder. Brevig is a necessary party to the litigation, and joinder would thus conserve judicial resources 8 and avoid the risk of inconsistent results in different forums. Plaintiff’s motion to amend the complaint 9 was not unreasonably delayed or untimely. Plaintiff does not have an improper purpose for joining 10 United States District Court For the Northern District of California 5 Brevig, as plaintiff is not attempting to unreasonably delay proceedings. In addition, as there appears 11 to be potential evidence of Brevig’s alleged fraud, plaintiff has a valid claim against Brevig. Finally, 12 defendant would not be significantly prejudiced by joinder and remand to state court. The Court finds 13 that Brevig should be joined as a defendant. 14 15 CONCLUSION 16 For the foregoing reasons and for good cause shown, the Court hereby GRANTS plaintiff’s 17 motion to amend the complaint (Docket No. 8), and accordingly REMANDS to the Contra Costa County 18 Superior Court (Docket No. 9). 19 20 IT IS SO ORDERED. 21 22 Dated: October 5, 2010 SUSAN ILLSTON United States District Judge 23 24 25 26 27 28 8
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