Hamilton Materials v. Union Carbide Corp. ( 2007 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
HAMILTON MATERIALS INC., a 
California corporation,
Plaintiff-counter-defendant-
Appellant,
v.
DOW CHEMICAL CORPORATION, a
Delaware corporation e/s/a DOW
CHEMICAL COMPANY; KCAC INC., a No. 05-55976
California corporation; HARCROS
CHEMICALS INC., individually and
as Successor in Interest to
 D.C. No.
CV-04-08389-FMC
HARRISONS and CROSFIELD (Pacific OPINION
Inc.); BENSON CHEMICAL
CORPORATION; JOHN L. MYERS,
individually,
Defendants-Appellees,
UNION CARBIDE CORPORATION, a
New York corporation,
Defendant-counter-claimant-
Appellee.

Appeal from the United States District Court
for the Central District of California
Florence-Marie Cooper, District Judge, Presiding
Argued and Submitted
April 19, 2007—Pasadena, California
Filed July 23, 2007
8911
8912 HAMILTON MATERIALS v. UNION CARBIDE
Before: Jerome Farris and Ronald M. Gould, Circuit Judges,
and Kevin Thomas Duffy,* District Judge.
Opinion by Judge Duffy
*The Honorable Kevin Thomas Duffy, Senior Judge, United States
District Court for the Southern District of New York, sitting by designa-
tion.
8914 HAMILTON MATERIALS v. UNION CARBIDE
COUNSEL
Law Offices of Todd C. Ringstad, Todd C. Ringstad, Esq. for
appellant Hamilton Materials, Inc.
Lanier Law Firm, P.C., W. Mark Lanier, Esq., Kevin P. Par-
ker, Esq., Eugene R. Egdorf, Esq. for appellant Hamilton
Materials, Inc.
Orrick Herrington & Sutcliffe LLP, Peter A, Bicks, Esq.,
Edwin V. Woodsome, Jr., Esq., Andrew S. Wong, Esq., Khai
LeQuang, Esq. for defendant-appellee Union Carbide Corpo-
ration
Becherer, Kannett & Schweitzer, Anthony Bentivegna, Esq.,
Mark S. Kannett, Esq., Susan Beneville, Esq. for appellee
KCAC, Inc.
William H. Armstrong, Esq., for appellee Harcros Chemicals,
Inc.
McDermott Will & Emery LLP, by Chris M. Amantea, Esq.,
Hany Fangary, Esq., Robert Pryor, Esq. for appellee Harcros
Chemicals, Inc.
McKenna Long & Aldridge LLP, by William J. Sayers, Esq.,
Farah S. Nicol, Esq., Margaret I. Johnson, Esq., for appellee
John L. Myers.
OPINION
DUFFY, District Judge:
Hamilton Materials, Inc., a manufacturer of asbestos-based
construction products, appeals the district court’s order dated
HAMILTON MATERIALS v. UNION CARBIDE 8915
February 16, 2005 (the “Order”) finding that Appellant knew,
or should have known, about its potential claims against
Appellees long before the applicable statutes of limitations
ran. The Order (i) denied Hamilton’s motion to remand this
case to state court; (ii) converted Appellees’ motions to dis-
miss to motions for summary judgment; and (iii) granted in
part and denied in part Appellees’ motions for summary judg-
ment.
Courts of appeal review a district court’s conversion of a
motion to dismiss to a motion for summary judgment for an
abuse of discretion. See Bryce v. Episcopal Church in the
Diocese of Colo., 289 F.3d 648, 654 (10th Cir. 2002). This
court reviews de novo both a district court’s grant of a motion
for summary judgment, see Portland Adventist Med. Ctr. v.
Thompson, 399 F.3d 1091, 1095 (9th Cir. 2005), and a district
court’s denial of a motion to remand for want of removal
jurisdiction. See United Computer Sys., Inc. v. AT&T Corp.,
298 F.3d 756, 760 (9th Cir. 2002). Fraudulent joinder must be
proven by clear and convincing evidence. See Pampillonia v.
RJR Nabisco, Inc., 138 F.3d 459, 461 (5th Cir. 1998).
[1] Appellant alleges that the non-diverse parties were not
“sham defendants,” and therefore the district court did not
have diversity jurisdiction and improperly denied its motion
to remand. Although there is a general presumption against
fraudulent joinder, see Dodson v. Spiliada Maritime Corp.,
951 F.2d 40, 42 (5th Cir. 1998), “[i]f 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, the join-
der of the resident defendant is fraudulent.” See McCabe v.
General Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987).
[2] It is clear that any fraud claims Appellant holds for mis-
representations associated with its purchases of asbestos from
1965 to 1977, including those against the non-diverse defen-
dants, are time-barred. Statutes of limitation normally begin
to run when a claim accrues—that is, “when the cause of
8916 HAMILTON MATERIALS v. UNION CARBIDE
action is complete with all of its elements.” See Soliman v.
Philip Morris Inc., 311 F.3d 966, 971 (9th Cir. 2002) (internal
quotation marks omitted). A plaintiff is on inquiry notice of
its fraud claims when he “learns, or at least is put on notice,
that a representation [is] false.” See Brandon G. v. Gray, 3
Cal. Rptr. 3d 330, 334 (Cal. Ct. App. 2003).
[3] Although the parties have put forth evidence demon-
strating that there is an ongoing scientific debate regarding
whether Calidria is safe, this does not negate the host of publi-
cally available information, including government regula-
tions, books, and news articles, that have elaborated on the
dangers associated with all types of asbestos. It is clear that
Appellant, a knowledgeable and sophisticated manufacturer
of asbestos products and a defendant in hundreds of lawsuits
relating to these exact issues, knew enough about the contro-
versy to be suspicious that the position taken by Appellees
was false. Given the presence of the scientific debate sur-
rounding Calidria—a debate Appellant acknowledges and
admits to have participated in—Appellant should have known
that there was a chance, no matter how slight, that the position
it was taking did not fall on the correct side of the argument.
Therefore, even construing all of the evidence in favor of
Appellant, it is simply not possible that it was not on inquiry
notice of its claim. See, e.g., Miller v. Bechtel Corp., 33 Cal.
3d 868, 874-75 (1983) (plaintiff’s early suspicion of her ex-
husband’s misrepresentations regarding his stock’s value put
her on inquiry notice of his potential wrongdoing, which an
investigation would have confirmed).
Appellant argues that its fraud claim did not accrue until a
deposition in 2003, when it learned of Appellees’ specific
intention to deceive their customers regarding the health haz-
ards of Calidria. The district court found that the deposition
did not provide Appellant with any information that would
have been the source of this alleged eureka moment. Further-
more, it is not necessary that Hamilton had notice of Appel-
lees’ specific intention to deceive before the fraud action
HAMILTON MATERIALS v. UNION CARBIDE 8917
accrued. All that is relevant is that a reasonable person—
especially a sophisticated manufacturer of asbestos—would
have been on notice of a potential misrepresentation. This is
the date that the complaining party learns, or at least is put on
notice, that a representation is false. See Grisham v. Philip
Morris USA, Inc., 40 Cal. 4th 623, 646 (2007) (personal
injury claim for a tobacco company’s misrepresentation
accrued at the time that “the physical ailments themselves
were, or reasonably should have been, discovered”).1
[4] The district court properly converted the motions to dis-
miss to a motion for summary judgment. Federal Rule of
Civil Procedure 12(b)(6) specifically gives courts the discre-
tion to accept and consider extrinsic materials offered in con-
nection with these motions, and to convert the motion to one
for summary judgment when a party has notice that the dis-
trict court may look beyond the pleadings. See Portland Retail
Druggists Ass’n v. Kaiser Found. Health Plan, 662 F.2d 641,
645 (9th Cir. 1981). The court considered matters outside of
the pleadings in deciding the motions to remand and to dis-
1
This recent decision rendered by the Supreme Court of California in
response to certified questions from the Ninth Circuit rejected the proposi-
tion put forth in Soliman, 311 F.3d 966 (9th Cir. 2002), that plaintiffs are
charged with constructive knowledge of the risks of smoking, and the stat-
ute of limitations for personal injury claims against a tobacco company
accrue at the time the plaintiff learns of her addiction. See Grisham, 20
Cal. 4th at 629. The court stated that there is no special presumption that
smokers are aware of the addictiveness or the health hazards of smoking,
but that there is a general, rebuttable presumption that the planitiff had
knowledge of the wrongful cause of her injury. Id. at 647. Grisham is
inconsequential to this case, however, as a large asbestos manufacturer is
not akin to an individual who may or may not be educated about the dan-
gerousness of the product he is consuming. Furthermore, Grisham is pre-
dominantly a personal injury case, and does not speak to whether
knowledge of scienter is a required element for a fraud cause of action to
accrue. Nevertheless, if one were to draw a strained comparison between
the present case and Grisham, it is clear that Appellant has offered no
credible evidence to rebut a presumption that it had knowledge of the
wrongful cause of its alleged injuries.
8918 HAMILTON MATERIALS v. UNION CARBIDE
miss, which contained identical issues regarding the statute of
limitations. Following oral argument, the court gave the par-
ties the opportunity to submit evidence in support of their
arguments and to engage in additional briefing. Appellant was
clearly on notice that the court would look beyond the plead-
ings and would potentially convert the motion to dismiss to
a motion for summary judgment.
[5] Summary judgment is proper where “the pleadings,
depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law.” Fed. R.
Civ. P. 56(c). California courts hold that inquiry notice is only
a question of fact where the “facts alleged were susceptible to
opposing inferences.” See Saliter v. Pierce Brothers Mortu-
aries, 81 Cal. App. 3d 292, 300 (1978). Here, the only infer-
ence that can be drawn from the facts is that Appellant knew
or reasonably should have known of the Appellees’ alleged
wrongdoing. The district court properly decided this issue
pursuant to a summary judgment motion. The decision of the
district court is AFFIRMED in its entirety.