KB Home Nevada Inc. v. Steadfast Insurance Company

• Court: District Court, C.D. California
• Decided: June 10, 2021
• Docket: 2:21-cv-02885
• Status: Unknown

Opinion

JS-6 1 UNITED STATES DISTRICT COURT 2 CENTRAL DISTRICT OF CALIFORNIA

3 4 5 KB Home Nevada Inc., KB Home 6 Phoenix Inc., KB Home South 7 Bay Inc., and KB Home, 8 2:21-cv-02885-VAP-PLAx Plaintiffs,

9 v. Order GRANTING Plaintiffs’ Motion to Remand (Dkt. No. 14) 10 Steadfast Insurance Company, 11 The Zurich Services Corporation, 12 and John J. Diemer, 13 Defendants. 14

15 Before the Court is Plaintiffs KB Home Nevada Inc., KB Home 16 Phoenix Inc., KB Home South Bay Inc., and KB Home’s (“Plaintiffs”) Motion 17 to Remand (“Motion”), filed on May 3, 2021. Having considered the papers 18 filed in support of, and in opposition to, the Motion, the Court deems this 19 matter appropriate for resolution without a hearing pursuant to Local Rule 7- 20 15 and VACATES the hearing set on June 14, 2021 at 2:00 p.m. For the 21 following reasons, the Court GRANTS the Motion. 22

23 I. BACKGROUND 24 On February 25, 2021, Plaintiffs initiated this action by filing a 25 Complaint against Defendants Steadfast Insurance Company (“Steadfast”), 26 1 1 The Zurich Services Corporation (“Zurich”), and John J. Diemer (“Diemer”) 2 in the Los Angeles Superior Court and alleged the following claims: (1) 3 breach of contract by Plaintiffs KB Home Nevada Inc. and KB Home against 4 Defendants Steadfast and Zurich; (2) breach of contract by Plaintiffs KB 5 Home Phoenix Inc. and KB Home against Defendants Steadfast and Zurich; 6 (3) breach of contract by Plaintiffs KB Home South Bay Inc. and KB Home 7 against Defendants Steadfast and Zurich; (4) breach of the implied 8 covenant of good faith and fair dealing by Plaintiffs KB Home Nevada Inc. 9 and KB Home against Defendants Steadfast and Zurich; (5) breach of 10 fiduciary duties and/or aiding and abetting breach of fiduciary duties by 11 Plaintiffs against Defendant Zurich; (6) negligent misrepresentation by 12 Plaintiffs against Defendants Zurich and Diemer; and (7) intentional 13 misrepresentation by Plaintiffs against Defendants Zurich and Diemer. (See 14 Compl.) 15 This action arises out of an insurance dispute. Plaintiffs allege they 16 submitted several claims for self-insured retention (“SIR”) overpayments 17 totaling over $14 million to Defendant Steadfast. (See Compl. ¶¶ 1-2, 19- 18 20, 26-36.) Defendant Steadfast allegedly denied Plaintiffs’ claims and 19 failed to reimburse Plaintiffs according to the terms of three Home Builder’s 20 Protective (“HBP”) insurance policies issued by Defendant Steadfast to 21 Plaintiffs. (Id.) The HBP policies required Plaintiffs to make SIR payments 22 and seek reimbursement from Defendant Steadfast. (Id.) Plaintiffs allege 23 Defendant Steadfast overcharged them for their SIR obligations for several 24 residential construction projects in Arizona, California, and Nevada. (Id.) 25 Defendant Zurich provided third-party administration (“TPA”) services to 26 Plaintiffs to assist Plaintiffs with managing their SIR overpayments, inter 2 1 alia. (Id. ¶ 38.) Defendant Diemer was an employee of Steadfast and 2 Zurich and was appointed to be Plaintiffs’ TPA representative and fiduciary 3 agent. (Id.) Defendants Zurich and Diemer opened twenty files where 4 Diemer served as Plaintiffs’ TPA and fiduciary agent and charged a fee of 5 approximately $1,750 for each file. (Id. ¶¶ 39-40.) Plaintiffs allege 6 Defendants Zurich and Diemer failed to perform any legitimate TPA services 7 for Plaintiffs. (Id. ¶ 41.) Instead, Defendant Steadfast set up identical claim 8 files to those prepared by Defendant Zurich. (Id.) Defendant Diemer 9 performed claims adjustment services for Defendant Steadfast as its claims 10 adjuster and he worked against Plaintiffs’ interests, in direct contravention of 11 his obligations as Plaintiffs’ TPA and fiduciary agent. (Id. ¶¶ 41-42.) 12 Defendants Zurich and Steadfast removed this action to federal court 13 on April 2, 2021. (See Not. of Removal.) In the Notice of Removal, 14 Defendants claimed the Court’s subject matter jurisdiction is satisfied based 15 on diversity of citizenship of the parties. (Id.) 16 Pertinent here, according to the allegations in the Complaint, Plaintiff 17 KB Home Nevada Inc. is a citizen of Nevada; Plaintiff KB Home Phoenix 18 Inc. is a citizen of Arizona; Plaintiff KB Home South Bay Inc. is a citizen of 19 California; Plaintiff KB Home is a citizen of California and Delaware; 20 Defendant Steadfast Insurance Company is a citizen of California because it 21 is “licensed and otherwise authorized to do business” in California; 22 Defendant Zurich Services Corporation is a citizen of Illinois but also does 23 business in California; and Defendant John J. Diemer is a citizen of 24 California. (See Compl. ¶¶ 5-11.) 25 In the Notice of Removal, Defendants contend Defendant Steadfast, 26 like Defendant Zurich, is a citizen of Illinois (see Not. of Removal ¶ 9) and 3 1 each Plaintiff is diverse from each Defendant in this action, except 2 Defendant Diemer, whose California citizenship and inclusion as a party 3 ordinarily would destroy diversity of citizenship. Defendants argue 4 Defendant Diemer’s California citizenship should not be considered 5 because he was joined as a party fraudulently and should be considered a 6 “sham” defendant. (Id. ¶ 12.) According to Defendants, Plaintiffs are unable 7 to state a claim for negligent or intentional misrepresentation under 8 California law against Defendant Diemer because the Complaint fails to 9 allege any material fact Defendant Diemer misrepresented to Plaintiffs. (Id. 10 ¶¶ 17-20 (“Plaintiffs have not alleged facts sufficient to support a finding that 11 [Defendant Diemer] misrepresented an existing or past material fact or that 12 the alleged misrepresentation was made intentionally (for an intentional 13 misrepresentation cause of action) or without reasonable ground for 14 believing it to be true (for a negligent misrepresentation cause of action).”).) 15 Plaintiffs filed the instant Motion on May 3, 2021.1 Defendants filed 16 Opposition on May 24, 2021 along with a Request for Judicial Notice 17 (“RJN”), attaching an order issued in William Lyon, Inc., et al. v. Steadfast 18 Insurance Company, et al., No. 30-2018-01027345-CU-IC-CJC (Cal. Sup. 19 Ct. Dec. 30, 2020).2 On May 28, 2021, Plaintiffs filed a Reply to the 20 Opposition. 21 1 Defendants filed a motion to dismiss the Complaint on the same date 22 and that matter is also pending before the Court. As discussed herein, however, the Court is without subject matter jurisdiction and will not rule 23 on the motion to dismiss. 24 2 The Court has reviewed the RJN. Although it may take judicial notice of 25 orders issued in other cases, U.S. ex rel. Robinson Rancheria Citizens Council v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir. 1992) (The court “may 26 take notice of proceedings in other courts, both within and without the federal judicial system, if those proceedings have a direct relation to 4 1 II. LEGAL STANDARD 2 A defendant may remove any civil action from state court to federal 3 court if the federal court has original jurisdiction. 28 U.S.C. § 1441(a). 4 Under 28 U.S.C. § 1332, the Court has jurisdiction over civil actions where 5 there is complete diversity of citizenship and the amount in controversy 6 exceeds $75,000. Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 7 (9th Cir. 2001) (“Section 1332 requires complete diversity of citizenship; 8 each of the plaintiffs must be a citizen of a different state than each of the 9 defendants.”). 10 “The removal statute is strictly construed, and any doubt about the 11 right of removal requires resolution in favor of remand.” Moore-Thomas v. 12 Alaska Airlines, Inc., 553 F.3d 1241, 1244 (9th Cir. 2009) (citing Gaus v. 13 Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992)). The presumption against 14 removal means that “the defendant always has the burden of establishing 15 that removal is proper.” (Id.) Moreover, the district court must remand any 16 case previously removed from a state court “if at any time before final 17 judgment it appears that the district court lacks subject matter jurisdiction.” 18 28 U.S.C. § 1447(c). 19 Removal is proper even if a non-diverse defendant is present where 20 that defendant has been fraudulently joined or constitutes a sham 21 defendant. Caterpillar, Inc. v. Lewis, 519 U.S. 61, 68 (1996). The Ninth 22 Circuit recognizes “two ways to establish improper joinder: ‘(1) actual fraud 23 in the pleading of jurisdictional facts, or (2) inability of the plaintiff to 24

25 matters at issue.”) (citation omitted), the Court declines to do so here because the Orange County Superior Court’s December 30, 2020 order is 26 not germane to the issues raised in the Motion. 5 1 establish a cause of action against the non-diverse party in state court.’” 2 Hunter v. Phillip Morris USA, 582 F.3d 1039, 1044 (9th Cir. 2009) (quoting 3 Smallwood v. Illinois Cent. RR. Co., 385 F.3d 568, 573 (5th Cir. 2004)). 4 Fraudulent joinder is established by the latter method if a defendant shows 5 that a party “joined in the action cannot be liable on any theory.” Ritchey v. 6 Upjohn Drug Co., 139 F.3d 1313, 1318 (9th Cir. 1998). 7 “[I]f there is a possibility that a state court would find that the 8 complaint states a cause of action against any of the resident defendants, 9 the federal court must find that the joinder was proper and remand the case 10 to the state court.” Hunter, 582 F.3d at 1046. A defendant invoking federal 11 court diversity jurisdiction on the basis of fraudulent joinder bears a “heavy 12 burden” since there is a “general presumption against [finding] fraudulent 13 joinder.” GranCare, LLC v. Thrower, 889 F.3d 543, 548 (9th Cir. 2018). The 14 defendant must show that joinder was fraudulent by clear and convincing 15 evidence. Hamilton Materials, Inc. v. Dow Chem. Corp., 494 F.3d 1203, 16 1206 (9th Cir. 2007). Thus, “[t]he standard is not whether plaintiffs will 17 actually or even probably prevail on the merits, but whether there is a 18 possibility that they may do so.” Diaz v. Allstate Ins. Grp., 185 F.R.D. 581, 19 586 (C.D. Cal. Oct. 14, 1998). “If there is a non-fanciful possibility that 20 plaintiff can state a claim under California law against the non-diverse 21 defendants the court must remand.” Macey v. Allstate Prop. and Cas. Ins. 22 Co., 220 F. Supp. 2d 1116, 1117 (N.D. Cal. Sep. 11, 2002). 23 24 III. DISCUSSION 25 Plaintiffs move the Court to remand this action back to the Los 26 Angeles Superior Court because they contend the Complaint states “viable” 6 1 claims for negligent and intentional misrepresentation against Defendant 2 Diemer, there is not complete diversity among the parties because 3 Defendant Diemer is a citizen of California as are Plaintiffs KB Home South 4 Bay Inc. and KB Home, removal was not proper, and the Court lacks subject 5 matter jurisdiction. (See Mot.) 6 In Opposition, Defendants contend removal was proper because 7 Plaintiffs are unable to state a claim against Defendant Diemer, thereby 8 demonstrated his citizenship should be discounted for purposes of 9 establishing the Court’s subject matter jurisdiction. Defendants argue 10 Plaintiffs’ claims are governed by Illinois law pursuant to a choice of law 11 provision in the “Claims Services Agreements” between Plaintiffs and 12 Defendant Zurich. (Opp’n at 1.) Defendants contend Defendant Diemer’s 13 “duties to Plaintiffs were purely contractual; there was no legal, fiduciary, or 14 special relationship between Diemer and Plaintiffs.” (Id. at 1.) According to 15 Defendants, Plaintiffs cannot state claims for intentional or negligent 16 misrepresentation against Defendant Diemer under Illinois law because they 17 “cannot establish that Diemer misrepresented a statement of material fact.” 18 (Id. at 4-10.) 19 In the Reply, Plaintiffs point out their claims against Defendant Diemer 20 are for torts, not breach of contract, so the choice of law provision in their 21 agreements with Defendant Zurich do not apply and, in any event, they 22 have stated claims for negligent and intentional misrepresentation under 23 both California and Illinois law, which have nearly identical standards. 24 Plaintiffs argue Defendants have not shown it is obvious that they cannot 25 state those claims against Defendant Diemer. In the alternative, they seek 26 leave to amend the Complaint. 7 1 The Court discusses the parties’ arguments in turn. 2 Preliminarily, it is undisputed that Plaintiffs KB Home South Bay Inc. 3 and KB Home are citizens of California and Defendant Diemer also is a 4 citizen of California. Defendant Diemer’s citizenship destroys complete 5 diversity. See Caterpillar Inc., 519 U.S. at 68 (discussing 28 U.S.C. § 6 1332(a)(1), which requires complete diversity, i.e., “the citizenship of each 7 plaintiff is diverse from the citizenship of each defendant”). The parties do 8 not dispute the amount in controversy. As such, the Court’s requirements 9 for subject matter jurisdiction have not been satisfied, unless the fraudulent 10 joinder exception applies in this case. 11 Next, the Court need not determine whether the choice of law 12 provision applies here because even if the intentional and negligent 13 misrepresentation claims should be construed under Illinois or California 14 law, Defendants have not met their heavy burden of establishing fraudulent 15 joinder. See Ramirez v. FCA US LLC, No. 2:20-CV-11265-AB-JPR, 2021 16 WL 653022, at *4 (C.D. Cal. Feb. 18, 2021). 17 Plaintiffs at least possibly state claims for intentional or negligent 18 misrepresentation against Defendant Diemer. See SI 59 LLC v. Variel 19 Warner Ventures, LLC, 29 Cal. App. 5th 146, 154 (2018) (“Negligent 20 misrepresentation requires an assertion of fact, falsity of that assertion, [] 21 the tortfeasor’s lack of reasonable grounds for believing the assertion to be 22 true[,] . . . the tortfeasor’s intent to induce reliance, justifiable reliance by the 23 person to whom the false assertion of fact was made, and damages to that 24 person.” ); Manderville v. PCG&S Group, Inc., 146 Cal. App. 4th 1486, 1498 25 (2007) (“To establish a claim for deceit based on intentional 26 misrepresentation, the plaintiff must prove seven4 essential elements: (1) 8 1 the defendant represented to the plaintiff that an important fact was true; (2) 2 that representation was false; (3) the defendant knew that the 3 representation was false when the defendant made it, or the defendant 4 made the representation recklessly and without regard for its truth; (4) the 5 defendant intended that the plaintiff rely on the representation; (5) the 6 plaintiff reasonably relied on the representation; (6) the plaintiff was harmed; 7 and (7) the plaintiff's reliance on the defendant's representation was a 8 substantial factor in causing that harm to the plaintiff.”); Jane Doe-3 v. 9 McLean County Unit Dist. No. 5 Bd. of Directors, 973 N.E.2d 880, 889 (Ill. 10 2012) (listing elements of fraudulent misrepresentation claim as: “(1) a false 11 statement of material fact; (2) knowledge or belief of the falsity by the 12 person making it; (3) intention to induce the other party to act; (4) action by 13 the other party in reliance on the truth of the statements; and (5) damage to 14 the other party resulting from such reliance” and explaining “[a] claim for 15 negligent misrepresentation has essentially the same elements . . ., except 16 that the defendant’s mental state is different.”) 17 Plaintiffs allege Defendant Diemer, as well as Defendant Zurich, 18 “repeated representations to [Plaintiffs] that certain facts were purportedly 19 true” including that Defendant Diemer would act as Plaintiffs’ TPA and 20 fiduciary. (Compl. ¶ 80-81; see id. ¶¶ 37-38.) As to their intentional 21 misrepresentation claim, Plaintiffs allege the “repeated representations” 22 were made “intentionally.” (Id. ¶¶ 88-89, 95.) Plaintiffs paid Defendant 23 Zurich “approximately $1,750 per file for [Defendant] Diemer to act as their 24 TPA and fiduciary agent to administer each of the approximately 20 TPA 25 files set up.” (Id. ¶ 40.) “Zurich Services and Diemer never performed the 26 TPA services and fiduciary duties which were promised to Plaintiffs and for 9 1 which Plaintiffs were charged. Specifically, Zurich Services and Diemer 2 failed to monitor Plaintiffs’ SIR payments, identify expenses applicable to the 3 SIR, maximize SIR credit to Plaintiffs for expenditures, identify SIR 4 overpayments, and expedite reimbursement of SIR overpayments.” (Id. ¶ 5 41; see also id. ¶¶ 82, 90.) Defendant Diemer had “no reason to believe 6 that each of [the] representations [made to Plaintiffs] were true when they 7 made them, or made them recklessly and without regard for their truth,” he 8 “intended that Plaintiffs rely on the false representations,” Plaintiffs relied on 9 the representations reasonably,” and Plaintiffs’ reliance was “a substantial 10 factor in causing [Plaintiffs’] losses and damages.” (Id. ¶¶ 83-86, 91-97.) 11 On its face, the Complaint sets forth the elements of each claim for 12 intentional and negligent misrepresentation under both California and Illinois 13 law. Even assuming, arguendo, the allegations were insufficient to state a 14 claim, it is not evident from the Complaint’s allegations, nor from 15 Defendants’ Opposition, that Plaintiffs “could not possibly recover against” 16 Defendant Diemer. Mireles v. Wells Fargo Bank, N.A., 845 F. Supp. 2d 17 1034, 1063 (N.D. Cal. 2012). Defendants appear to rely on the standard set 18 forth in Federal Rule of Civil Procedure 12(b)(6) to show Plaintiffs cannot 19 state claims against Defendant Diemer. That standard is not applicable 20 here, however. See Diaz, 185 F.R.D. at 586; Macey, 220 F. Supp. 2d at 21 1117. To meet the heavy burden required here, Defendants must show, but 22 have failed to “establish that any deficiency in the [C]omplaint cannot 23 possibly be cured by granting Plaintiff leave to amend.” Ramirez, 2021 WL 24 653022 at *4; see also Gebran v. Wells Fargo Bank, N.A., No. CV 16-07616 25 BRO (MRWx), 2016 WL 7471292, at *8-9 (C.D. Cal. Dec. 28, 2016). 26 10 1 The burden to demonstrate that a party is a sham defendant is high. 2 | Defendants must provide clear and convincing evidence of Plaintiffs’ inability 3 | to establish a claim against Defendant Diemer. They have failed to do so. 4 | Accordingly, Court is without subject matter jurisdiction over this action 5 | because complete diversity of the parties is not present. 6 7 IV. CONCLUSION 8 The Court therefore GRANTS the Motion to Remand this case to the 9 | Los Angeles Superior Court. 10 11 | ITIS SO ORDERED. 12 3) Dated: 6/10/21 Vigna A, Ph, “Mana 14 Vifginia A. Phillips 5 United States District Judge 16 17 18 19 20 21 22 23 24 25 26