Bennett, D.D.S. v. Ohio National Life Assurance Corporation

• Court: District Court, N.D. California
• Decided: November 15, 2019
• Docket: 4:19-cv-05774
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 MARK BENNETT, D.D.S., Case No. 19-cv-05774-DMR

8 Plaintiff, ORDER ON MOTION TO REMAND 9 v. AND MOTION TO DISMISS

10 OHIO NATONAL LIFE ASSURANCE Re: Dkt. Nos. 9, 14 CORPORATION, et al., 11 Defendants. 12 13 Plaintiff Mark Bennett, D.D.S., filed this disability insurance action in Marin County 14 Superior Court against Defendants Ohio National Life Assurance Corporation (“Ohio National”) 15 and Mitchell & Mitchell Insurance Agency, Inc. (“Mitchell”). Ohio National removed the action 16 on the basis of diversity jurisdiction, asserting that there is complete diversity between the parties 17 because Mitchell was fraudulently joined in the case. [Docket No. 1 (Notice of Removal) 6-10.] 18 Bennett now moves to remand the action. [Docket No. 9.] Mitchell moves pursuant to Federal 19 Rule of Civil Procedure 12(b)(6) to dismiss the complaint against Mitchell. [Docket No. 14.] 20 This matter is suitable for determination without oral argument. Civil L.R. 7-1(b). For the 21 following reasons, the motion to remand is granted and the motion to dismiss is denied as moot. 22 I. BACKGROUND AND PROCEDURAL HISTORY 23 On August 13, 2019, Bennett filed suit in the Superior Court of California, County of 24 Marin, against Ohio National, an insurance company authorized to do business in California, and 25 Mitchell, a licensed insurance broker/agent with its principal place of business in California. 26 Compl. ¶¶ 1, 2. Bennett makes the following allegations in the complaint: while practicing as an 27 oral surgeon, Bennett purchased three disability insurance policies issued by Ohio National from 1 “would provide him disability coverage if he was no longer able to work as an oral surgeon due to 2 injury or sickness, and that under the Policies Ohio National would be required to pay him a 3 lifetime monthly disability benefit if he became disabled due to sickness or injury while the 4 Policies were in force.” Id. at ¶ 7. Specifically, “Mitchell represented . . . that the maximum 5 benefit period under the Policies was ‘lifetime’ such that Plaintiff would be entitled to receive 6 monthly disability benefits for the duration of his life so long as he became unable to work as an 7 oral surgeon due to sickness or injury.” Id. 8 While the policies were in effect, Bennett “was thrown from a horse, suffered serious and 9 debilitating injuries to his shoulder and upper extremity necessitating surgery . . . and became 10 totally disabled from the practice of oral surgery.” He “remains totally disabled as a result of the 11 injuries [he] suffered from the fall from the horse.” Id. at ¶ 10. Bennett submitted a claim for 12 benefits under the policies, and Ohio National accepted and approved payment of monthly total 13 disability benefits. Id. at ¶¶ 11, 12. However, Ohio National claimed that Bennett’s total 14 disability was due to a sickness (degenerative disc disease) rather than due to the injuries he 15 suffered due to the fall and determined that his disability benefits would end at age 65 because his 16 disability commenced after his 55th birthday. Id. at ¶ 12. After Bennett reached age 65, Ohio 17 National terminated his benefits and “has failed and refused to pay Plaintiff the ongoing monthly 18 benefits to which he was entitled.” Id. Bennett alleges that Ohio National wrongfully withheld 19 benefits “based upon its wrongful determination” that Bennett’s disability is due to sickness. In 20 the event that his disability is properly characterized as due to sickness rather than injury, he 21 alleges that “the cessation of his monthly disability benefits at Age 65 is in direct contravention” 22 of Mitchell’s representations “that the Maximum Benefit Period under the Policies was ‘Lifetime’ 23 without regard to the cause of” any disability. Id. at ¶ 13. 24 Bennett alleges claims for breach of contract and breach of the covenant of good faith and 25 fair dealing against Ohio National. He alleges claims for breach of fiduciary duty, negligent 26 misrepresentation, and negligence against Mitchell. 27 On September 13, 2019, Ohio National removed the case to federal court, asserting that 1 and states upon information and belief that Bennett is a citizen of California. It contends that 2 Mitchell’s citizenship (California) should be disregarded because it is a sham defendant. Notice of 3 Removal 6. According to Ohio National, Bennett’s claims against Mitchell are untimely and 4 barred by the statute of limitation. Id. at 6-9. 5 Bennett now moves to remand the case to state court, disputing Ohio National’s claim that 6 Mitchell is a sham defendant whose California citizenship may be disregarded. He asserts that his 7 claims against Mitchell are timely. Mitchell cross-moves pursuant to Rule 12(b)(6) to dismiss 8 Bennett’s claims against Mitchell on the grounds that they are untimely. 9 II. MOTION TO REMAND 10 A. Legal Standard 11 Under 28 U.S.C. § 1441(a), a defendant may remove to federal court any matter that 12 originally could have been filed in federal court. Caterpillar Inc. v. Williams, 482 U.S. 386, 392 13 (1987). Federal courts are courts of limited jurisdiction and possess subject matter jurisdiction in 14 civil cases based only on federal question or diversity jurisdiction. Id.; see 28 U.S.C. §§ 1331, 15 1332. To invoke diversity jurisdiction in an action involving United States citizens, the complaint 16 must allege that “the matter in controversy exceeds the sum or value of $75,000, exclusive of 17 interest and costs, and is between . . . citizens of different States . . . . ” 28 U.S.C. § 1332(a)(1). 18 “Although an action may be removed to federal court only where there is complete 19 diversity of citizenship, ‘one exception to the requirement for complete diversity is where a non- 20 diverse defendant has been fraudulently joined.’” Hunter v. Philip Morris USA, 582 F.3d 1039, 21 1043 (9th Cir. 2009) (internal citations omitted) (quoting Morris v. Princess Cruises, Inc., 236 22 F.3d 1061, 1067 (9th Cir. 2001)). Under Ninth Circuit law, the joinder of a non-diverse defendant 23 is deemed fraudulent when a plaintiff’s failure to state a claim against the resident defendant is 24 “obvious according to the settled rules of the state.” Hunter, 582 F.3d at 1043. In such cases, the 25 court may ignore the presence of the non-diverse defendant for purposes of determining diversity. 26 Id. (citing Morris, 236 F.3d at 1067). There is a strong presumption against removal jurisdiction 27 and a general presumption against fraudulent joinder, which means that the removing defendants 1 to state court. Hunter, 582 F.3d at 1046. 2 The Ninth Circuit recently underscored that a fraudulent joinder analysis is different from a 3 Rule 12(b)(6) analysis, and requires remand if there is a “possibility” that a state court could find 4 that the plaintiff has stated a cause of action against the allegedly fraudulent defendant:

5 A claim against a defendant may fail under Rule 12(b)(6), but that defendant has not necessarily been fraudulently joined. We 6 emphasized in Hunter that a federal court must find that a defendant was properly joined and remand the case to state court if there is a 7 “possibility that a state court would find that the complaint states a cause of action against any of the [non-diverse] defendants.” Hunter, 8 582 F.3d at 1046 (emphasis added) (internal quotations and citation omitted) (quoting Tillman, 340 F.3d at 1279). This standard accords 9 with that adopted by a majority of our sister circuits. . . . 10 A standard that equates fraudulent joinder with Rule 12(b)(6) 11 conflates a jurisdictional inquiry with an adjudication on the merits. Because the purpose of the fraudulent joinder doctrine is to allow a 12 determination whether the district court has subject matter jurisdiction, the standard is similar to the “wholly insubstantial and 13 frivolous” standard for dismissing claims under Rule 12(b)(1) for lack of federal question jurisdiction. Bell v. Hood, 327 U.S. 678, 682–83, 14 66 S.Ct. 773, 90 L.Ed. 939 (1946); Franklin v. Murphy, 745 F.2d 1221, 1227 n.6 (9th Cir. 1984) (“A paid complaint that is ‘obviously 15 frivolous’ does not confer federal subject matter jurisdiction.”). The relative stringency of the standard accords with the presumption 16 against removal jurisdiction, under which we “strictly construe the removal statute,” and reject federal jurisdiction “if there is any doubt 17 as to the right of removal in the first instance.” Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992) (per curiam). 18 Grancare, LLC v. Thrower by & through Mills, 889 F.3d 543, 549-50 (9th Cir. 2018). 19 Removing defendants must prove fraudulent joinder by “clear and convincing evidence,” 20 Hamilton Materials, Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1206 (9th Cir. 2007), and courts 21 may consider “summary judgment-type evidence” when resolving claims of fraudulent joinder. 22 See Morris, 236 F.3d at 1068. 23 B. Analysis 24 Ohio National does not address the Ninth Circuit’s standard for fraudulent joinder in its 25 Notice of Removal or opposition to the motion to remand but instead argues that the complaint 26 fails to state a claim against Mitchell because Bennett’s claims against Mitchell are barred by the 27 statute of limitations. According to Ohio National, Bennett’s breach of fiduciary duty, negligent 1 misrepresentation, and negligence claims are each subject to the two-year statute of limitations set 2 forth in California Code of Civil Procedure section 339.1 It notes Bennett’s allegation that Ohio 3 National “determined Plaintiff’s disability benefits would end at Age 65” because his disability 4 was due to sickness and not injury. Compl. ¶ 12. Ohio National states that it informed Bennett of 5 this determination and notified him that it would cease paying him disability benefits when he 6 reached age 65 in a letter dated June 8, 2015. [Docket No. 1-2 (Heibert Decl., Sept. 13, 2019) ¶ 5, 7 Ex. E (June 8, 2015 Letter).] According to Ohio National, Bennett learned of Mitchell’s alleged 8 misrepresentations regarding the policies on that date, June 8, 2015. Therefore, it argues, his 9 claims against Mitchell accrued on that date. However, he did not file suit until August 2019, over 10 four years later. Accordingly, Ohio National contends that Bennett’s claims against Mitchell are 11 untimely, and Mitchell is a sham defendant whose citizenship should be disregarded. 12 Bennett does not challenge Ohio National’s contention that his claims are subject to a two- 13 year statute of limitations but disputes its assertion that his claims against Mitchell accrued on 14 June 8, 2015, the date he learned of Mitchell’s alleged misrepresentations. Bennett asserts that 15 damages is a required element of each of his claims against Mitchell, and that under applicable 16 California authority, his claims did not accrue until he sustained damages. He states that he first 17 suffered damages on September 3, 2018, which is the date he reached age 65 and Ohio National 18 ceased paying his monthly benefits. See Heibert Decl. ¶ 4 (noting Ohio National “ceased paying 19 benefits to Plaintiff” as of September 3, 2018). Therefore, he argues, his claims against Mitchell 20

21 1 Section 339 provides in relevant part

22 Within two years: 1. An action upon a contract, obligation or liability not founded upon an instrument of writing, except as provided in 23 Section 2725 of the Commercial Code or subdivision 2 of Section 337 of this code; or an action founded upon a contract, obligation or 24 liability, evidenced by a certificate, or abstract or guaranty of title of real property, or by a policy of title insurance; provided, that the cause 25 of action upon a contract, obligation or liability evidenced by a certificate, or abstract or guaranty of title of real property or policy of 26 title insurance shall not be deemed to have accrued until the discovery of the loss or damage suffered by the aggrieved party thereunder. 27 1 are timely. 2 Thus, the current dispute boils down to whether Bennett’s claims against Mitchell accrued 3 on June 8, 2015, in which case they are untimely, or on September 3, 2018, in which case they are 4 timely. In support of its position, Ohio National primarily relies on an unpublished Ninth Circuit 5 decision, Flynn v. Paul Revere Insurance Group, 2 Fed. Appx. 885 (9th Cir. 2001), and district 6 court cases following Flynn. In Flynn, the Ninth Circuit affirmed summary judgment on the 7 plaintiff’s breach of contract and breach of the duty of good faith and fair dealing claims against 8 his insurer on the ground that they were time-barred. The court rejected the plaintiff’s argument 9 that his claims accrued when the insurer stopped making monthly disability payments and held 10 that the claims instead accrued four years earlier, when his “right to accidental benefits was 11 denied.” Id. at 886 (“the statute of limitations began running when [the plaintiff] knew or had 12 reason to know that his claim for disability payments under the accident provision had been 13 denied.”). See also Finkelstein v. AXA Equitable Life Ins. Co., 325 F. Supp. 3d 1061, 1067 (N.D. 14 Cal. 2018) (holding statute of limitations on claims against insurer “began to accrue when 15 [insurer] denied Plaintiff’s request for reclassification and not when the insurance company ceased 16 making payments to Plaintiff,” citing Flynn); Hong v. AXA Equitable Life Ins. Co., No. 18-cv- 17 04039-JST, 2018 WL 6331012, at *4 (N.D. Cal. Dec. 4, 2018) (same, relying on Finkelstein). 18 However, these decisions appear contrary to California cases regarding accrual of similar 19 claims. Bennett urges the court to follow Lederer v. Gursey Schneider LLP, 22 Cal. App. 5th 508, 20 530-31 (2018), which involves facts similar to this case. In Lederer, plaintiff Joyce Lederer 21 employed the defendant, an accounting firm, to manage her finances. Lederer asked the defendant 22 to purchase uninsured/underinsured insurance with policy limits of $5 million, but the defendant 23 purchased a policy with a limit of only $1.5 million. Id. at 512. In February 2010, Lederer’s son 24 Jonathan was seriously injured in a motorcycle incident, and she learned shortly thereafter that the 25 limit on her policy was only $1.5 million. Two years later, the insurer for the other driver 26 involved in the accident tendered its $15,000 policy to Jonathan, and in June 2012, Lederer’s own 27 insurer tendered its $1.5 million limit to Jonathan. Id. In March 2013, Lederer and Jonathan sued 1 money they would have been entitled to had [the defendant] purchased an insurance policy with 2 the limits [Lederer] had requested,” among other reasons. Id. at 512-13. The trial court granted 3 the defendant summary judgment on the plaintiffs’ claims, finding that they were untimely 4 because they accrued “shortly after the accident when plaintiffs discovered that the insurance 5 coverage [the defendant] purchased was less than what” Lederer had requested. Id. at 513. 6 The Court of Appeal reversed the trial court’s order holding the claims time-barred. The 7 court noted that “[g]enerally speaking, a cause of action accrues ‘at the time when the cause of 8 action is complete with all of its elements.’” Id. at 521 (quoting Fox v. Ethicon Endo-Surgery, 9 Inc., 35 Cal. 4th 797, 806 (2005)). This means that the statute of limitations “begins to run when 10 (1) the aggrieved party discovers the negligent conduct causing the loss or damage and (2) the 11 aggrieved party has suffered actual injury as a result of the negligent conduct.” Id. (quotation 12 omitted; emphasis added). The court explained that “actual harm is required before a cause of 13 action accrues,” as follows:

14 If the allegedly negligent conduct does not cause damage, it generates no cause of action in tort. The mere breach of a professional duty, 15 causing only nominal damages, speculative harm, or the threat of future harm—not yet realized—does not suffice to create a cause of 16 action for negligence. 17 Id. (quoting Budd v. Nixen, 6 Cal. 3d 195, 200 (1971)). While it was undisputed that the plaintiffs 18 discovered the defendant’s failure to secure the insurance coverage Lederer had requested shortly 19 after the 2010 accident, the court held that the relevant question was when the plaintiffs incurred 20 “actual injury,” and not when they had discovered the defendant’s alleged negligence. Id. The 21 court found that even though Jonathan suffered damages as a result of the accident in 2010, the 22 plaintiffs “did not suffer the damages alleged to be caused by [the defendant]—diminished 23 benefits under the underinsured motorist coverage—until Jonathan received that diminished 24 benefit payment in June 2012.” Id. at 522. Moreover, the court noted that Jonathan was not even 25 entitled to coverage from the underinsured motorist policy until after he settled with the other 26 driver’s insurance, which was in January 2012. Id. (“Under relevant statutes and case law, a right 27 to underinsured motorist coverage does not accrue until the insured has reached a settlement or 1 claims against the defendant were not time-barred, because “a cause of action accrues when it is 2 complete with all of its elements”:

3 Damages is an element of the torts alleged in this case. Jonathan did not incur actual damages arising from [the defendant’s] negligence 4 until June 2012, when he recovered $1.5 million from the underinsured motorist policy instead of the higher amount he 5 allegedly would have received in the absence of [the defendant’s] negligence. Jonathan’s cause of action against [the defendant] 6 therefore did not accrue until June 2012. The trial court erred by granting summary adjudication on the basis that plaintiffs’ causes of 7 action were time barred. 8 Id. at 530-31. See also Thomsen v. Canyon, 198 Cal. App. 4th 594, 604 (2011) (holding that 9 where “damages are an element of a cause of action, the cause of action does not accrue until the 10 damages have been sustained . . . when the wrongful act does not result in immediate damage, the 11 cause of action does not accrue prior to the maturation of perceptible harm.” (quotation omitted)). 12 Here, Bennett asserts that Lederer “is on all fours with the present matter,” and that as with 13 the claims at issue in that case, damages is an element of each of the claims he alleges against 14 Mitchell. He states that he did not suffer actual damages until he failed to receive the benefits that 15 he contends he should have received absent Mitchell’s misconduct, which was after September 16 2018. Therefore, under Lederer, none of his claims for relief accrued until that date, rendering his 17 2019 claims timely. 18 Although Lederer involves facts that are somewhat different from those in Flynn, there is a 19 clear tension between the two decisions. Applying Flynn, a court could find that Bennett’s claims 20 accrued in June 2015, when Ohio National notified him of its coverage determination and 21 intention to cease monthly disability benefits. However, the analysis in Flynn is not detailed and 22 does not address the rule relied upon by Lederer court that “actual harm is required before a cause 23 of action accrues.” Lederer, 22 Cal. App. 5th at 521 (citing Budd, 6 Cal. 3d at 200). 24 The court need not resolve the tension between Flynn and Lederer. Given these apparently 25 contradictory opinions, Ohio National has failed to meet its burden to show that there is “no 26 possibility that the plaintiff will be able to establish a cause of action against the in-state defendant 27 in state court.” See Green v. Amerada Hess Corp., 707 F.2d 201, 205 (5th Cir. 1983); Hunter, 582 1 Bennett’s claims accrued in September 2018, because that is the date that Ohio National ceased 2 || paying his monthly benefits causing him damages as a result of Mitchell’s misconduct. As a 3 result, this court lacks subject matter jurisdiction and the matter must be remanded. See 28 U.S.C. 4 § 1447(c) (If at any time before final judgment it appears that the district court lacks subject 5 || matter jurisdiction, the case shall be remanded.”’). 6 || I. MOTION TO DISMISS 7 Given the court’s conclusion that it lacks jurisdiction over this matter, Mitchell’s motion to 8 || dismiss is denied as moot. 9 || IV. CONCLUSION 10 For the foregoing reasons, Bennett’s motion to remand is granted. This matter is remanded 11 to Marin County Superior Court. The clerk shall close the case file. 12 KE DELLS 13 IT IS SO ORDERED. □□ 14 || Dated: November 15, 2019 hs 2[\i0 3s ~ NM. R 16 yh | LoNidecsinN |Z ON Vuder Dor □□

19 VORTICES 20 21 22 23 24 25 26 27 28