Gardner v. Mega Life and Health ( 2007 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
CHARLES H. GARDNER, 
Plaintiff-Appellee,
v.
UICI, a Texas corporation;
NATIONAL ASSOCIATION FOR THE
SELF EMPLOYED, a Texas
corporation; PFL LIFE INSURANCE No. 06-55045
COMPANY, an Iowa corporation;
TRANSAMERICA LIFE INSURANCE  D.C. No.
CV-05-07735-FMC
COMPANY, an Iowa corporation;
STEVEN ALAN HEYMAN, OPINION
Defendants,
and
MEGA LIFE AND HEALTH
INSURANCE COMPANY, an Oklahoma
corporation,
Defendant-Appellant.

Appeal from the United States District Court
for the Central District of California
Florence-Marie Cooper, District Judge, Presiding
Argued and Submitted
June 5, 2007—Pasadena, California
Filed November 19, 2007
Before: Stephen S. Trott, A. Wallace Tashima, and
Johnnie B. Rawlinson, Circuit Judges.
Opinion by Judge Rawlinson
15025
GARDNER v. MEGA LIFE AND HEALTH INS. 15027
COUNSEL
Andre J. Cronthall (briefed and argued), Fred R. Puglisa
(briefed), Catherine La Tempa (briefed), Sheppard, Mullin,
Richter & Hampton LLP, Los Angeles, California, for the
defendant-appellant.
A. Douglas Mastroianni, Peter L. Weinberger & Associates,
Los Angeles, California, for the plaintiff-appellee.
OPINION
RAWLINSON, Circuit Judge:
The district court awarded fees and costs to Appellee
Charles H. Gardner (Gardner) upon remanding this case to the
state court from which it was removed. Because we conclude
that the Mega Life And Health Insurance Company (MEGA)
had an objectively reasonable basis for removal, we reverse
the district court’s award of fees and costs.
I. FACTS AND PROCEDURAL HISTORY
In 1994, Gardner purchased health insurance from PFL
Life Insurance Company. More than ten years later, in 2005,
Gardner canceled his insurance policy and filed an action in
15028 GARDNER v. MEGA LIFE AND HEALTH INS.
the Superior Court of the State of California against MEGA,
UICI, Transamerica Life Insurance Company (Transamerica),1
the National Association for the Self-Employed (the NASE),
and Steven Alan Heyman (Heyman) (collectively “Defen-
dants”) for violations of the Consumer Legal Remedies Act,
breach of contract, breach of the implied covenant of good
faith and fair dealing, fraud, breach of fiduciary duty, negli-
gence, and unfair competition based on the sale of the health
insurance coverage. MEGA removed the case to district court
on diversity grounds, asserting that Heyman, the only non-
diverse defendant, was fraudulently joined to destroy diver-
sity. In support of its notice of removal, MEGA argued that
“[a]ll of the claims [Gardner] attempted to assert against . . .
Heyman [were] barred by the applicable statutes of limita-
tions.”
Gardner subsequently moved to remand the case to state
court, asserting that because he alleged a conspiracy “to mis-
represent the nature of the [insurance] coverage offered to
[him],” the statute of limitations did not begin to run until
2005, when the “last overt act” in furtherance of the conspir-
acy occurred. Gardner also moved for attorney’s fees under
28 U.S.C. § 1447(c).2
The district court rejected MEGA’s assertion of diversity
jurisdiction and remanded the case to state court, holding that
because a California court “could” conclude that the conspir-
acy claim alleged against Heyman was not time-barred, Hey-
man was not fraudulently joined. The district court also
granted Gardner’s motion for an award of fees and costs, find-
ing that “[a]ny objective consideration of the allegations in
1
According to the First Amended Complaint (FAC), “PFL Life Insur-
ance Company was merged out of existence and became Transamerica
Life Insurance Company, or . . . merely changed its name to Transamerica
Life Insuance Company[.]”
2
Gardner’s reference in his motion to 28 U.S.C. § 1446(c) was appar-
ently a typographical error.
GARDNER v. MEGA LIFE AND HEALTH INS. 15029
the Complaint, state law regarding civil conspiracy, and the
legal standard regarding fraudulent joinder should have led
Defendants to the inescapable conclusion that removal was
not proper.” This timely appeal followed.
II. DISCUSSION
Although 28 U.S.C. § 1447(d) generally bars review of a
district court order remanding a case to state court, see Lively
v. Wild Oats Markets, Inc., 456 F.3d 933, 937 (9th Cir. 2006),
we have jurisdiction to review the district court’s award of
fees and costs incurred as a result of removing the case. See
Patel v. Del Taco, Inc., 446 F.3d 996, 999 (9th Cir. 2006). In
addressing whether the district court abused its discretion in
awarding fees to Gardner under 28 U.S.C. § 1447(c), we con-
sider whether the district court’s decision was “based on
clearly erroneous findings of fact or erroneous determinations
of law.” Patel, 446 F.3d at 999 (citation omitted).
“A civil case commenced in state court may, as a general
matter, be removed by the defendant to federal district court,
if the case could have been brought there originally.” Martin
v. Franklin Capital Corp., 546 U.S. 132, 134 (2005) (citation
omitted). Where, as is alleged by MEGA, “[a] 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 joinder of the resident defendant is fraudulent” and
removal is proper. Mercado v. Allstate Ins. Co., 340 F.3d
824, 826 (9th Cir. 2003) (citation omitted).3 However, if
removal is found to be improper, a court that remands a case
to state court may “require payment of just costs and any
actual expenses, including attorney fees, incurred as a result
of the removal.” 28 U.S.C. § 1447(c), see also Patel, 446 F.3d
at 999.
3
“In deciding whether a cause of action is stated . . . we will look only
to a plaintiff’s pleadings to determine removability.” Ritchey v. Upjohn
Drug Co., 139 F.3d 1313, 1318 (9th Cir. 1998) (citation and internal quo-
tation marks omitted).
15030 GARDNER v. MEGA LIFE AND HEALTH INS.
[1] “Absent unusual circumstances, courts may award attor-
ney’s fees under § 1447(c) only where the removing party
lacked an objectively reasonable basis for seeking removal.
Conversely, when an objectively reasonable basis exists, fees
should be denied.” Martin, 546 U.S. at 141 (citations omit-
ted). In Martin, the Supreme Court noted that § 1447(c) did
not indicate that fees “should either usually be granted or usu-
ally be denied.” Martin, 546 U.S. at 139. Recognizing “the
desire to deter removals sought for the purpose of prolonging
litigation and imposing costs on the opposing party, while not
undermining Congress’ basic decision to afford defendants a
right to remove as a general matter, when the statutory criteria
are satisfied[,]” id. at 140, the Supreme Court held that absent
unusual circumstances, fees should not be awarded when the
removing party has an objectively reasonable basis for
removal. See id. at 141. In so holding, the Supreme Court
explained that while courts retain discretion to determine
whether such unusual circumstances exist as to depart from
this rule, “[a court’s] reasons for departing from the general
rule should be faithful to the purposes of awarding fees under
§ 1447.” Id. (citations and internal quotation marks omitted).
MEGA argues that Gardner failed to state a claim against
Heyman and therefore, an objectively reasonable basis for
seeking removal existed because: (1) the First Amended Com-
plaint (FAC) failed to allege that the statute of limitations
applicable to the alleged conspiracy claim was tolled or sub-
ject to the last overt act doctrine; (2) the alleged conspiracy
claim fails as a matter of law under the theory that an agent
cannot conspire with his/her principal; and (3) on remand
from federal court, the state court sustained its demurrer.
[2] Gardner’s FAC alleged that contrary to Heyman’s rep-
resentations, his insurance premiums increased every year. In
turn, Gardner argues that, at a minimum, the last act in fur-
therance of Defendants’ conspiracy to collect insurance pay-
ments from him occurred in 2004, a year before he filed his
complaint, and well within the limitations period, when Hey-
GARDNER v. MEGA LIFE AND HEALTH INS. 15031
man made additional misrepresentations regarding Gardner’s
insurance premiums. See Aaroe v. First American Title Ins.
Co., 222 Cal.App.3d 124, 128 (1990) (providing for a three-
year limitations period for a civil conspiracy); see also People
v. Beaumont Inv., Ltd., 111 Cal.App.4th 102, 137 (2003)
(“[T]he statute of limitations does not begin to run until the
final act in furtherance of the conspiracy has been commit-
ted.”) (citation omitted). Because Gardner’s allegations
against Heyman pertain to actions taken in Heyman’s capacity
as an agent of the NASE and MEGA, they would generally
be barred as a matter of law under California’s “agent’s
immunity rule.” See Berg & Berg Enters, LLC v. Sherwood
Partners, Inc., 131 Cal.App.4th 802, 817 (2005).4 However,
California courts recognize that in some cases, “[a] cause of
action for conspiracy will lie against agents and employees of
insurers even though the former are not parties to the agree-
ment of insurance when they join the insurer in a conspiracy
to defraud the insured” as Gardner alleges. Younan v. Equifax
Inc., 111 Cal. App.3d 498, 511 (1980). Accordingly, a Cali-
fornia court could conclude that Gardner’s action against
Heyman was neither time-barred, see Aaroe, 222 Cal.App.3d
at 128, nor precluded under the “agent’s immunity rule,”see
Younan, 111 Cal.App.3d at 511, rendering diversity jurisdic-
tion and removal to federal court unavailable. Cf. Mercado,
340 F.3d at 826.
[3] Under Martin, however, whether a removal is improper
is not dispositive in determining whether fees should be
awarded under 28 U.S.C. § 1447(c). See Martin, 546 U.S. at
137. Rather, “the standard for awarding fees . . . turn[s] on the
reasonableness of the removal.” Id. at 141. Consequently, the
relevant inquiry is whether MEGA “lacked an objectively rea-
sonable basis for seeking removal.” Id. We agree with the dis-
4
Under the “agent’s immunity rule . . . an agent is not liable for conspir-
ing with the principal when the agent is acting in an official capacity on
behalf of the principal.” Berg & Berg Enters, LLC, 131 Cal.App.4th at 817
(citations and internal quotation marks omitted).
15032 GARDNER v. MEGA LIFE AND HEALTH INS.
trict court that a California court could find that the FAC
alleged a claim against Heyman. However, we also recognize
the existence of California cases that could potentially pre-
clude Gardner’s claim against Heyman in his capacity as an
agent of the NASE and MEGA. See, e.g., Berg & Berg
Enters, LLC, 131 Cal.App.4th at 817. The result is a close
question regarding whether Gardner’s failure to state a con-
spiracy claim against Heyman was “obvious according to the
settled rules of [California.]” Mercado, 340 F.3d at 826 (cita-
tion omitted). Under these circumstances, we hold that a rea-
sonable litigant in MEGA’s position could have concluded
that federal court was the proper forum in which to litigate
Gardner’s claims because the FAC failed to state a claim
against Heyman, the only resident defendant. Cf. Mercado,
340 F.3d at 826; see also Martin, 546 U.S. at 140 (“[T]here
is no reason to suppose Congress meant to confer a right to
remove, while at the same time discouraging its exercise in all
but obvious cases.”). Indeed, the record reflects that, on
remand, the state court judge concluded that MEGA’s argu-
ments in support of its demurrer were “well-taken,” further
buttressing our determination that MEGA’s basis for removal
was not “objectively unreasonable” under Martin.5
III. CONCLUSION
MEGA had an objectively reasonable basis for removal to
federal court. See Martin, 546 U.S. at 141. Additionally, there
is nothing in the record to suggest that there are “unusual cir-
cumstances” that justify departing from Martin’s general rule
that “when an objectively reasonable basis [for removal]
exists, fees should be denied.” Id. (citations omitted). Accord-
ingly, the district court abused its discretion in awarding fees
5
Under California practice, a general demurrer to a complaint is the
equivalent of a motion to dismiss under Fed. R. Civ. P. 12(b) in federal
practice. See Cal. Civ. Proc. Code §§ 430.10, 430.30; see generally 5 Wit-
kin, Cal. Procedure, Pleading § 905 (4th ed. 1997).
GARDNER v. MEGA LIFE AND HEALTH INS. 15033
and costs to Gardner under 28 U.S.C. § 1447(c).
REVERSED AND REMANDED.