Arcon GC LLC v. KCL Excavating Inc

• Court: District Court, W.D. Washington
• Decided: January 11, 2024
• Docket: 2:23-cv-01720
• Status: Unknown

Opinion

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3 4 5 6 7 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON 8 AT SEATTLE

9 10 ARCON GC, LLC, CASE NO. C23-1720JLR 11 Plaintiff, ORDER v. 12 KCL EXCAVATING, INC., et al., 13 Defendants. 14

15 I. INTRODUCTION 16 Before the court is Defendant Western National Assurance Company’s (“Western 17 National”) motion to sever Plaintiff Arcon GC, LLC’s (“Arcon”) claims against Western 18 National as misjoined to the underlying contract litigation between Arcon and Defendant 19 KCL Excavating, Inc. (“KCL”). (Mot. (Dkt. # 4); Reply (Dkt. # 16).) Arcon opposes the 20 motion to sever. (Resp. (Dkt. # 15).) KCL has not responded to the motion. (See 21 generally Dkt.) The court has considered the motion, the submissions of the parties, the 22 1 relevant portions of the record, and the governing law. Being fully advised,1 the court 2 DENIES Western National’s motion to sever and REMANDS this action to King County

3 Superior Court. 4 II. BACKGROUND 5 This action arises from KCL and Western National’s alleged breaches of their 6 respective contracts with Arcon. Arcon and KCL are Washington corporations having 7 principal places of business in Washington. (Compl. (Dkt. # 1-3) ¶¶ 1.1-1.2.) In April 8 2022, Arcon entered into a prime contract as general contractor for a construction project

9 in Federal Way, Washington (the “Project”). (Id. ¶ 3.1.) About a month later, Arcon 10 entered into a subcontract with KCL for certain work at the Project. (Id. ¶ 3.2.) Among 11 other things, the subcontract required KCL to obtain commercial general liability 12 (“CGL”) insurance and name Arcon as an additional insured. (Id. ¶ 3.6; see also id. 13 ¶¶ 3.3-3.5 (describing other provisions of the subcontract).) Arcon alleges that it

14 discovered deficiencies in KCL’s work on the Project that caused extensive property 15 damage. (Id. ¶¶ 3.7-3.8.) After investigating, Arcon determined that KCL had not 16 performed its work in accordance with the contract. (Id.) Arcon formally notified KCL 17 of the deficiencies and instructed it to provide a plan to repair the work and the resulting 18 damage. (Id. ¶ 3.9.) When KCL failed to perform any corrective work, Arcon sent KCL

19 a notice of termination pursuant to the terms of the subcontract and notified KCL of its 20

21 1 No party has requested oral argument (see Mot. at 1; Resp at 1), and the court deems oral argument to be unnecessary for its disposition of the motion. See Local Rules W.D. Wash. 22 LCR 7(b)(4). 1 responsibility for all costs associated with remedying the defective work. (Id. 2 ¶¶ 3.10-3.11.) Arcon then engaged other subcontractors to complete the corrective work

3 and incurred over $500,000 in costs to remedy the damage. (Id. ¶¶ 3.12-3.13.) 4 As required by the subcontract, KCL obtained a CGL policy (the “Policy”) from 5 Western National, a Minnesota corporation with a principal place of business in 6 Minnesota. (Id. ¶¶ 1.3, 3.14.) Arcon alleges that the Policy covers Arcon’s liability for 7 the property damage caused by KCL; that it is an additional insured under that Policy; 8 and that it tendered a claim to Western National demanding indemnity for the damage

9 that KCL caused. (Id. ¶¶ 3.15-3.16.) Western National, however, denied Arcon’s claim 10 for coverage. (Id. ¶¶ 3.17-3.18.) 11 Arcon filed the instant lawsuit against both KCL and Western National in King 12 County Superior Court on October 16, 2023. (See id. at 1.) It alleges a claim against 13 KCL for breach of the subcontract (id. ¶¶ 4.1-4.4) and claims against Western National

14 for breach of the insurance contract, bad faith, violations of the Washington Consumer 15 Protection Act and Insurance Fair Conduct Act, and declaratory relief (id. ¶¶ 5.1-9.9). 16 On November 9, 2023, Western National filed a timely notice of removal from 17 King County Superior Court. (Not. of Removal (Dkt. # 1).) Western National filed this 18 motion to sever that same day. (Mot.)

19 III. ANALYSIS 20 A defendant may remove any civil action filed in state court over which federal 21 district courts have original jurisdiction. 28 U.S.C. § 1441(a)(1). District courts have 22 original jurisdiction on the basis of diversity “over suits for more than $75,000 where the 1 citizenship of each plaintiff is different from that of each defendant.” Hunter v. Philip 2 Morris USA, 582 F.3d 1039, 1043 (9th Cir. 2009) (citing 28 U.S.C. § 1332(a)). An

3 action that is otherwise removable solely on the basis of diversity may not be removed if 4 any of the properly-joined defendants is a citizen of the state in which the action is 5 brought. 28 U.S.C. § 1441(b)(2). Federal courts strictly construe the removal statute and 6 must reject jurisdiction if there is any doubt as to the right of removal in the first instance. 7 Hawaii ex rel. Louie v. HSBC Bank Nev., N.A., 761 F.3d 1027, 1034 (9th Cir. 2014); 8 Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). The removing defendant faces a

9 “strong presumption” against removal and bears the burden of establishing, by a 10 preponderance of the evidence, that removal was proper. Gaus, 980 F.2d at 566. 11 Western National asserts that this court has diversity subject matter jurisdiction 12 over this action—and thus removal is proper—because (1) the amount in controversy 13 exceeds $75,000; (2) Arcon is a citizen of Washington; (3) Western National is a citizen

14 of Minnesota; and (4) KCL’s Washington citizenship should be disregarded because 15 Arcon misjoined its claims against Western National to its contract litigation against 16 KCL. (Mot. at 1, 4-7 (arguing that Arcon’s claims against Western National were 17 misjoined under Federal Rule of Civil Procedure 20(a)(2)2); Not. of Removal ¶¶ 4.1-4.4.) 18 It asks the court to sever Arcon’s claims against Western National from its claims against

19 KCL. (Mot. at 7-8 (quoting Fed. R. Civ. P. 21).) 20

2 Parties may be permissively joined as a defendant where the plaintiff asserts “any right 21 to relief . . . against them jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences; and . . . any question 22 of law or fact common to all defendants will arise in the action.” Fed. R. Civ. P. 20(a)(2). 1 Arcon counters that there is no misjoinder exception to the jurisdictional 2 requirement of complete diversity between the parties and courts in the Ninth Circuit do

3 not recognize “fraudulent misjoinder” as a basis for ignoring the citizenship of the 4 nondiverse defendant upon removal. (Resp. at 4-7.) Thus, according to Arcon, this court 5 lacks subject matter jurisdiction over this action and must remand it to state court. (Id. at 6 1.) The court agrees with Arcon. 7 The court is persuaded by the court’s analysis in Sztroin v. Dituri, No. 8 C22-5608BHS, 2022 WL 7053149 (W.D. Wash. Oct. 12, 2022). In that case, a

9 Washington plaintiff sued several Washington parties and a diverse insurer. Id. at *1. 10 The insurer removed the case to this court on the basis of diversity jurisdiction. Id. The 11 plaintiff moved to remand, and the insurer moved to sever. Id. at *1-2. The insurer 12 argued, as Western National does here, that the plaintiff improperly joined it in the same 13 lawsuit against the nondiverse defendants and thus the court should sever the claims

14 against the nondiverse defendants, remand that portion of the case, and retain jurisdiction 15 over the remaining claims against the insurer. Id. at *2. 16 The court explained that fraudulent misjoinder “occurs when the plaintiff joins 17 both diverse and nondiverse defendants and the claim against the diverse defendant has 18 ‘no real connection’ to any claim against a nondiverse defendant.” Id. at *3 (quoting

19 Tapscott v. MS Dealer Serv. Corp., 77 F.3d 1353, 1360 (11th Cir. 1996), abrogated on 20 other grounds by Cohen v. Off. Depot, Inc., 204 F.3d 1069, 1072-73 (11th Cir. 2000)). 21 “Under this doctrine, such egregious ‘misjoinder’ of parties allows courts to ignore the 22 citizenship of the nondiverse parties upon removal.” Id. (quoting Tapscott, 77 F.3d at 1 1360). The court observed, however, that the Ninth Circuit has not adopted the doctrine 2 and that most district courts in the Ninth Circuit (including courts within this District)

3 have expressly declined to adopt it. Id. at *3 (citing Peterson v. Kennewick, No. 4 C18-1302BJR, 2018 WL 6573155, at *8 (W.D. Wash. Dec. 13, 2018) (collecting cases)). 5 The court was also mindful that the doctrine has been criticized on the grounds “that 6 questions of joinder under state law do not implicate federal subject matter jurisdiction, 7 federal jurisdiction is to be narrowly construed, and the fraudulent misjoinder doctrine 8 has created an unpredictable and complex jurisdictional rule.” Id. (quoting In re Prempro

9 Prods. Liab. Litig., 591 F.3d 613, 621-22 (8th Cir. 2010)); see also Williams v. Homeland 10 Ins. Co. of N.Y., 18 F.4th 806, 815-17 (5th Cir. 2021) (refusing to adopt the fraudulent 11 misjoinder because it would run contrary to 28 U.S.C. § 1441(b)(2), allow federal courts 12 to “engage in significant procedural wrangling in order to create jurisdiction,” and 13 improperly expand federal jurisdiction).

14 After considering “the great weight of authority,” the Sztroin court declined to 15 apply fraudulent misjoinder and instead followed the “better rule,” under which courts 16 remand the case to allow the state court to resolve the claimed misjoinder. Sztroin, 2022 17 WL 7053149, at *3 (quoting Osborn v. Metro. Life Ins. Co., 341 F. Supp. 2d 1123, 1127 18 (E.D. Cal. 2004)); see also Peterson, 2018 WL 6573155, at *9 (concurring with the

19 “overwhelming number of district courts in this Circuit that the better course of action is 20 to remand the entirety of the matter and leave to the sound judgment of the state court 21 any motion to sever”). Thus, having found that the insurer did not meet its “heavy 22 burden” to establish that removal was proper, the court granted the plaintiff’s motion to 1 remand and denied the insurer’s motion to sever without prejudice and with leave to 2 refile it in state court. Sztroin, 2022 WL 7053149, at *4.

3 The court agrees with and follows the approach taken by the Sztroin court. 4 Therefore, the court (1) concludes that Western National has failed to overcome the 5 “strong presumption” against removal, Gaus, 980 F.2d at 566, (2) denies Western 6 National’s motion to sever without prejudice, and (3) remands this matter to King County 7 Superior Court for lack of subject matter jurisdiction. See Sztroin, 2022 WL 7053149, at 8 *4; Peterson, 2018 WL 6573155, at *9.

9 Western National insists that its motion does not rely on the doctrine of fraudulent 10 misjoinder. (Reply at 1-2.) Instead, it asserts, “the issue presented is simply whether 11 permissible joinder of Arcon’s claims against both Defendants was or was not warranted, 12 under the federal rules regarding permissible joinder.” (Id.) Because the “great weight of 13 authority” in the Ninth Circuit rejects the principle that a court can ignore the citizenship

14 of nondiverse defendants in cases of “egregious” misjoinder, however, the court declines 15 to adopt a more permissive rule that would justify severing nondiverse claims in cases of 16 ordinary misjoinder under Rule 20(a)(2). Sztroin, 2022 WL 7053149, at *3; see also 17 Bank of Am., N.A. v. Fid. Nat’l Title Grp., Inc., 616 F. Supp. 3d 1090, 1098 (D. Nev. 18 2022) (declining “the invitation to create subject-matter jurisdiction by severing claims”

19 because “[i]f claims are truly misjoined, a removing defendant could—and should— 20 move to sever the claims in state court and then remove”); Williams, 18 F.4th at 815 21 (noting that state courts are better suited to analyze questions of misjoinder). 22 1 The court is not persuaded by Western National’s cited authority. West Star 2 Yacht, LLC v. Seattle Lake Cruises, LLC, for example, is readily distinguishable from this

3 case because it was originally filed in federal court and there is no indication that the 4 court’s jurisdiction was ever at issue. (Mot. at 5, 7 (citing W. Star Yacht, LLC v. Seattle 5 Lake Cruises, LLC, No. C21-0223RSM, 2022 WL 326786, at *5-6 (W.D. Wash. Feb. 2, 6 2022) (severing insurance claims against an insurer as misjoined to breach of contract 7 and negligence claims against its co-defendant)).) And although Hinrichs v. Burwell was 8 removed on the basis of diversity jurisdiction, that court did not consider whether it was

9 appropriate under the statutes governing removal and jurisdiction to sever the nondiverse 10 claims upon removal. (See Mot. at 5-6 (citing Hinrichs v. Burwell, No. C21-0080RAJ- 11 BAT, 2021 WL 1341083, at *1 (W.D. Wash. Feb. 23, 2021), report and recommendation 12 adopted, 2021 WL 1338516 (W.D. Wash. Apr. 9, 2021)).) Instead, the Hinrichs court 13 simply considered whether the claims against the nondiverse defendant were misjoined

14 and, finding that joinder was improper under Rule 20(a), recommended that the claims be 15 severed. Hinrichs, 2021 WL 1341083, at *3-4; see also Hinrichs, 2021 WL 1338516, at 16 *1 (adopting the recommendation, severing the claims, and remanding the claims against 17 the nondiverse defendants to King County Superior Court). The court declines to follow 18 Hinrichs and instead follows those cases that reject the principle that a court can create

19 subject matter jurisdiction by severing misjoined claims. See Sztroin, 2022 WL 7053149, 20 at *3; Peterson, 2018 WL 6573155, at *9; Williams, 18 F.4th at 816. Thus, the court 21 denies Western National’s motion to sever and remands this matter to King County 22 Superior Court for lack of subject matter jurisdiction. 1 IV. CONCLUSION 2 For the foregoing reasons, the court DENIES Western National’s motion to sever

3 (Dkt. # 4) without prejudice to refiling the motion in state court. This matter is 4 REMANDED to King County Superior Court for lack of subject matter jurisdiction. 5 Dated this 11th day of January, 2024. 6 A 7 8 JAMES L. ROBART United States District Judge 9 10 11 12 13 14 15 16 17 18

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