Davis v. Frank ( 2022 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 JOHN DAVIS, an individual, THE No. 2:21-cv-00383-MCE-JDP PARSONAGE, L.L.C., DATA 12 INTERNATIONAL, INC., PRIMO ACQUISITIONS 1, L.L.C., and 13 MAGGIE FUNDING, L.L.C., ORDER 14 Plaintiffs, 15 v. 16 CHRISTINE FRANK, individually, and DOES 1 through 30, inclusive, 17 Defendant. 18 19 20 On January 29, 2021, John Davis (“Plaintiff”) on behalf of himself and Parsonage 21 L.L.C. (“Parsonage”); Data International, Inc. (“Data”); Primo Acquisitions 1, L.L.C. 22 (“Primo”); and Maggie Funding, L.L.C. (“Maggie”) (collectively, “Entity Plaintiffs”) filed suit 23 against Defendant Christine Frank (“Defendant”) for fraudulent transfer of real property, 24 imposition of constructive trust, violations of the California Corporations Code, intentional 25 infliction of emotional distress, and conversion of personal property in Sacramento 26 County Superior Court. Compl., ECF No. 1-1 (“Compl.”). Defendant removed the case 27 to this Court on March 1, 2021, on diversity grounds pursuant to 28 U.S.C. §§ 1332(a) 28 and 1441(a). Not. Removal, ECF No. 1. Subsequently, Defendant filed a Motion to 1 Dismiss for Lack of Personal Jurisdiction pursuant to Federal Rule of Civil 2 Procedure 12(b)(2)1 and/or Transfer the Complaint pursuant to 28 U.S.C. § 1404(a).2 3 ECF Nos. 3–7. 4 Before reaching the merits of Defendant’s Motion, however, the Court must 5 scrutinize the basis for its own jurisdiction. Federal courts are of limited jurisdiction and 6 are presumptively without jurisdiction over civil actions. Kokkonen v. Guardian Life Ins. 7 Co. of Am., 511 U.S. 375, 377 (1994). The burden of establishing the contrary rests 8 upon the party asserting jurisdiction. Id. Because subject matter jurisdiction involves a 9 court’s power to hear a case, it can never be forfeited or waived. United States v. 10 Cotton, 535 U.S. 625, 630 (2002). Accordingly, lack of subject matter jurisdiction may be 11 raised by the district court sua sponte. Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 12 583 (1999). Indeed, “courts have an independent obligation to determine whether 13 subject matter jurisdiction exists, even in the absence of a challenge from any party.” 14 Id.; see Fed. R. Civ. P. 12(h)(3) (requiring the court to dismiss the action if subject matter 15 jurisdiction is lacking). While a district court may not sua sponte remand a case for 16 procedural defects, a court may sua sponte remand a case if it lacks jurisdiction. Kelton 17 Arms Condo. Owners Ass’n, Inc. v. Homestead Ins. Co., 346 F.3d 1190, 1192 (9th Cir. 18 2003). 19 On November 10, 2021, the Court issued an Order to Show Cause in writing as to 20 why this action should not be dismissed for lack of subject matter jurisdiction pursuant to 21 Rule 12(h)(3). ECF No. 17. The Order stated, in relevant part: 22 According to the Complaint [1-1], Plaintiff Davis is a citizen of California, the Entity Plaintiffs were incorporated and had 23 their principal places of business in Iowa, and Defendant is a citizen of Iowa. Since the Entity Plaintiffs and Defendant are 24 citizens of Iowa, the Court does not have diversity jurisdiction over this action. In the Notice of Removal, Defendant asserts 25 that the Entity Plaintiffs are fraudulently joined because the 26 1 All further references to “Rule” or “Rules” are to the Federal Rules of Civil Procedure, unless otherwise noted. 27 2 Because oral argument would not be of material assistance, the Court ordered this matter 28 submitted on the briefs. E.D. Local Rule 230(g). 1 first three entities are dissolved and/or Plaintiff Davis has no authority to represent or bring legal action on their behalf. 2 The Ninth Circuit has not set forth a test for determining the citizenship of a defunct corporation, and there is a split 3 among the district courts as to the proper test. See C-One Tech. v. Mount & Stoelker, P.C., 2008 WL 4453562, at *3 4 (N.D. Cal. Oct. 3, 2008). . . . 5 Id. Defendant responded to the Order to Show Cause on November 22, 2021, and 6 Plaintiffs replied on November 29, 2021. ECF Nos. 18–19. 7 As stated above, Defendant removed the instant case pursuant to the Court’s 8 diversity jurisdiction, which requires, in part, complete diversity of citizenship, with each 9 plaintiff being a citizen of a different state from each defendant. 28 U.S.C. § 1332(a)(1). 10 In her response to the Order to Show Cause, Defendant concedes that the Entity 11 Plaintiffs would all be deemed citizens of Iowa.3 Def.’s Response Order to Show Cause, 12 ECF No. 18, at 2; see also Not. Removal, ECF No. 1, at 3. However, Defendant raises 13 two arguments in support of jurisdiction, each of which the Court will address in turn.4 14 First, Defendant argues that the Entity Plaintiffs lack capacity or authorization to 15 sue. See Def.’s Response Order to Show Cause, ECF No. 18, at 2–5. “The ‘question of 16 a litigant’s capacity or right to sue or to be sued generally does not affect the subject 17 matter jurisdiction of the district court,’ however, even when jurisdiction is based on 18 diversity of citizenship.” Deirmenjian v.Deutsche Bank, A.G., Case No. CV 06-00774 19 MMM (CWx), 2006 WL 4749756, at *30 n.156 (C.D. Cal. Sept. 25, 2006) (quoting 20 21 3 As a corporation, Data is a citizen of both the state where it was incorporated and the state 22 where it has its primary place of business. See 28 U.S.C. § 1332(c). On the other hand, as limited liability companies, Primo, Parsonage, and Maggie are “citizen[s] of every state of which its owners/members are 23 citizens.” Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006). 24 4 There is no dispute that Data, Primo, and Parsonage were administratively dissolved under Iowa law at the time Plaintiff filed the state court complaint, when this action was removed to this Court, and 25 even when Defendant filed her response to the Order to Show Cause. Def.’s Response Order to Show Cause, ECF No. 18, at 3; Pl.’s Reply Def.’s Response Order to Show Cause, ECF No. 19, at 5. However, on November 29, 2021, Plaintiff had those three entities reinstated and they are now listed as active on 26 the Iowa Secretary of State website. Pl.’s Reply Def.’s Response Order to Show Cause, ECF No. 19, at 3; see Exs. ISO Pl.’s Reply, ECF No. 19-1. Regardless, their reinstatement after the commencement of this 27 lawsuit “is irrelevant to the determination of jurisdiction under the ‘time of filing’ rule.” Tri-Cnty. Metro. Transp. Dist. of Or. v. Butler Block, LLC, Case No. 08-259-AA, 2008 WL 2037306, at *1 n.2 (D. Or. May 7, 28 2008) (citing Grupo Dataflux v. Atlas Global Grp., L.P., 541 U.S. 567, 574–75 (2004)). 1 Summers v. Interstate Tractor & Equipment Co., 466 F.2d 42, 50 (9th Cir. 1972)); see 2 also De Saracho v. Custom Food Machinery, Inc., 206 F.3d 874, 878 n.4 (9th Cir. 2000), 3 cert. denied, 531 U.S. 876 (2000) (“Even if defendants are correct that ECG lacked 4 authorization to sue, this court does not lack subject matter jurisdiction in the sense that 5 it would if plaintiffs lacked standing to sue under the ‘case or controversy’ requirement of 6 Article III of the Constitution.”). “Thus, the court must decide jurisdiction before it can 7 turn to any other issues, including capacity to sue.” Bank of N.Y. Mellon v. Brewer, 8 No. C-12-03179 RMW, 2012 WL 3904342, at * 1 (N.D. Cal. Sept. 7, 2012) (emphasis in 9 original). “Even if this court were to conclude that plaintiff lacks capacity to sue, there 10 would be no legal effect because lack of subject matter jurisdiction renders this court 11 without any authority to make such a determination.” Id. at *2. Therefore, whether the 12 Entity Plaintiffs lack capacity or authorization to sue is irrelevant as to this Court’s subject 13 matter jurisdiction. 14 Second, Defendant claims that the Entity Plaintiffs “were named for the fraudulent 15 purpose of defeating this Court’s diversity jurisdiction such that they should be 16 disregarded for purposes of determining whether there is complete diversity of 17 citizenship between the parties.” Def.’s Response Order to Show Cause, ECF No. 18, 18 at 1; see also Not. Removal, ECF No. 1 ¶ 9 (stating that the joinder of the Entity Plaintiffs 19 is a “sham” and that “the allegations of the complaint show that [Plaintiff] is suing as a 20 shareholder or member on his own behalf in those causes of action purporting to name 21 the entities as nominal plaintiffs.”). A fraudulently joined party is ignored for purposes of 22 diversity jurisdiction. Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 23 2001); see also Grancare, LLC v. Thrower by and through Mills, 889 F.3d 543, 549 24 (9th Cir. 2018) (stating that “the purpose of the fraudulent joinder doctrine is to allow a 25 determination whether the district court has subject matter jurisdiction”). There is a 26 general presumption against fraudulent joinder, and the removing defendant has the 27 burden to prove fraudulent joinder by clear and convincing evidence. Hamilton 28 Materials, Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1206 (9th Cir. 2007); see Hunter v. 1 Philip Morris USA, 582 F.3d 1039, 1046 (9th Cir. 2009) (stating a defendant’s burden to 2 establish fraudulent joinder is a “heavy” one). Joinder will be deemed fraudulent where 3 the plaintiff fails to state a cause of action against the resident defendant, and the failure 4 is obvious according to the settled rules of the state. Amarant v. Home Depot U.S.A., 5 No. 1:13-CV-00245-LJO-SKO, 2013 WL 3146809, at *4 (E.D. Cal. June 18, 2013) (citing 6 Ritchey v. Upjohn Drug Co., 139 F.3d 1313, 1318 (9th Cir. 1998)); McCabe v. Gen. 7 Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987). Merely showing that an action is 8 likely to be dismissed against that defendant does not demonstrate fraudulent joinder. 9 Diaz v. Allstate Ins. Grp., 185 F.R.D. 581, 586 (C.D. Cal. 1998). “The standard is not 10 whether plaintiffs will actually or even probably prevail on the merits, but whether there is 11 a possibility that they may do so.” Id. (citing Lieberman v. Meshkin, Mazandarani, 12 No. C-96-3344 SI, 1996 WL 732506, at *3 (N.D. Cal. Dec. 11, 1996)); Hunter, 582 F.3d 13 at 1044 (citing Florence v. Crescent Res., LLC, 484 F.3d 1293, 1299 (11th Cir. 2007)) 14 (“If there is any possibility that the state law might impose liability on a resident 15 defendant under the circumstances alleged in the complaint, the federal court cannot 16 find that joinder of the resident defendant was fraudulent, and remand is necessary.”). 17 While fraudulent joinder claims typically concern nondiverse defendants, a 18 handful of cases have applied the doctrine to nonresident plaintiffs. See, e.g., Pentz v. 19 Kimco Realty Corp., Case No. 8:11-CV-00111-JST (FMOx), 2011 WL 13227863, at *4–5 20 (C.D. Cal. Apr. 21, 2011) (“Even assuming that the standard for an improper plaintiff is 21 the same as for an improper defendant, Defendant fails to prove that ‘plaintiff fails to 22 state a cause of action,’ and that ‘there is no possibility that the plaintiff will be able to 23 establish a cause of action,’ against Defendant.”) (internal citations omitted); Hess v. 24 U.S. Surgical Corp., No. C-99-2118 MJJ, 1999 WL 638241, at *2 (N.D. Cal. Aug. 5, 25 1999) (applying fraudulent joinder doctrine and concluding that “Defendants fail to 26 overcome their heavy burden of showing that [nondiverse plaintiff] is an improper 27 plaintiff.”); Avila v. Atrium Med. Corp., Case No. 2:20-CV-09442-CAS-MRWx, 2020 WL 28 6940700, at *4 (C.D. Cal. Nov. 23, 2020) (“Furthermore, the non-resident plaintiffs 1 cannot be said to be ‘sham’ plaintiffs in that it is not ‘obvious’ that they ‘fail[] to state a 2 cause of action against [defendant].”). In any event, “federal court[s] must disregard 3 nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to 4 the controversy.” Kuntz v. Lamar Corp., 385 F.3d 1177, 1183 (9th Cir. 2004) (quoting 5 Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 461 (1980)). 6 Here, the Complaint asserts 25 causes of action on behalf of five plaintiffs. See 7 generally Compl., ECF No. 1-1. However, Defendant has only provided conclusory 8 statements that Plaintiff is only “suing as a shareholder or member on his own behalf in 9 those causes of action purporting to name the entities as nominal plaintiffs.” Not. 10 Removal, ECF No. 1 ¶ 9; see Def.’s Response Order to Show Cause, ECF No. 18, at 7– 11 8 (“Insofar as [Plaintiff] is purporting to bring derivative claims on behalf of these entities 12 to protect his rights as a shareholder / member of the entities they could theoretically be 13 nominal defendants.”). Without more, this Court cannot determine whether Defendant 14 has overcome the heavy burden of showing that the Entity Plaintiffs fail to state a cause 15 of action against Defendant, and that the failure is obvious according to the settled rules 16 of the state. See Amarant, 2013 WL 3146809, at *4. To the extent Defendant asserts 17 the Entity Plaintiffs lacked authorization to sue, those arguments fail for the reasons set 18 forth above. 19 Accordingly, the Court sua sponte REMANDS this case back to the originating 20 state court, the Superior Court of California, County of Sacramento, for final 21 adjudication.5 Pursuant to 28 U.S.C. § 1447(c), the Clerk of Court is ordered to mail a 22 certified copy of this Order of remand to the clerk of the originating state court. The state 23 /// 24 /// 25 /// 26 /// 27 5 Defendant’s Motion to Dismiss for Lack of Personal Jurisdiction pursuant to Rule 12(b)(2) and/or 28 Transfer the Complaint pursuant to 28 U.S.C. § 1404(a), ECF No. 3, is thus DENIED as moot. 1 || court may thereupon proceed with this case. The Clerk of Court shall thereafter close 2 | the case in this Court. 3 IT IS SO ORDERED. 4 5 | Dated: January 19, 2022 Matar LEK: Whip AX XC - ’ SENIOR UNITED STATES URTRICT JUDGE 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28