Smith v. Furniture Deals, Inc.

• Court: District Court, E.D. California
• Decided: January 28, 2020
• Docket: 1:19-cv-01557
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 EASTERN DISTRICT OF CALIFORNIA 6 7 KEN A. SMITH, CASE NO. 1:19-CV-1557 AWI EPG

8 Plaintiff ORDER ON PLAINTIFF’S MOTION TO 9 v. REMAND AND DEFENDANT’S MOTION TO COMPEL ARBITRATION 10 FURNITURE DEALS, INC., a corporation d/b/a Ramos Furniture Home Store, 11 AMERICAN FIRST FINANCE, INC., and (Doc. Nos. 4, 11) DOES 1-20, inclusive, 12 Defendants 13 14 This case arises from Plaintiff Ken Smith’s (“Smith”) purchase of furniture from 15 Defendant Furniture Deals, Inc., doing business as Ramos Furniture Home Store, (“FDI”) and 16 financing from Defendant American First Finance, Inc. (“AFF”). Smith alleges violations of state 17 common law and statutory provisions, as well as violations of the federal Truth In Lending Act 18 and the Holder Rule (16 C.F.R. § 433). Defendant AFF removed this case from the Fresno 19 County Superior Court on the basis of federal question jurisdiction. Currently before the Court is 20 Smith’s motion to remand and request for monetary sanctions and AFF’s motion to compel 21 arbitration. For the reasons that follow, the Court will grant the motion to remand, decline to 22 sanction AFF, and deny the motion to compel arbitration without prejudice. 23 24 FACTUAL BACKGROUND 25 On August 29, 2018, Smith purchased a sofa and love seat from FDI for $1,887. Smith 26 paid $188 down and financed approximately $1,700. Smith was told at the store that he would be 27 emailed the financing information, but the salesman did not inform Smith of the financing terms, 28 the amount of payments, the number of payments, or the identity of the lender, and did not provide 1 Smith with any financing documents. FDI asked Smith to e-sign a document on a computer 2 screen and told Smith that the e-document merely authorized FDI to send the sales order to “the 3 lender.” Smith electronically signed based on the salesman’s representations. Smith was also told 4 that he was getting the best possible price because of the Labor Day sale. 5 In late September 2018, FDI delivered the furniture to Smith. FDI informed Smith that he 6 should ask AFF about payments and gave Smith AFF’s number. 7 On October 1, 2018, Smith called AFF and learned that his payment would be $108.16 per 8 month. Smith authorized the first payment. 9 On October 9, 2018, and unbeknownst to Smith, AFF made an automatic withdrawal from 10 Smith’s bank account for another $108.16, despite the prior October 1 payment. 11 On October 24, 2018, AFF made another automatic withdrawal from Smith’s bank account 12 for $108.16, which caused an overdraft charge to be made against Smith. Smith was not expecting 13 either the October 9 or 24 withdrawals because he was told his payments would be monthly. 14 In November 2018, December 2018, and January 2019, AFF made two automatic 15 withdrawals from Smith’s account, with the second withdrawal of each month causing Smith to 16 incur overdraft fees. 17 In February 2019, Smith finally called AFF and instructed them not to make the second 18 monthly withdrawal. AFF agreed. Smith also believes that he learned for the first time during the 19 February 2019 phone call that AFF was charging him a 144.9% interest rate. 20 In April 2019, AFF withdrew $108.16 from Smith’s account on April 1 and April 8. 21 On April 9, 2019, Smith called AFF and requested a copy of his loan contract. The 22 contract arrived two days later, and he learned for the first time that he would ultimately pay 23 $5,380.14 for his furniture. 24 On April 29, 2019, AFF withdrew another $108.16, and has continued to withdraw two 25 payments of $108.16 each month thereafter. 26 On August 28, 2019, Smith filed his complaint against Defendants in the Fresno County 27 Superior Court. AFF was served with the Complaint on October 4, 2019, and removed the matter 28 to this Court on November 1, 2019. 1 AFF’s notice of removal notes that this Court has federal question subject matter 2 jurisdiction through Smith’s Truth In Lending Act claim. The notice also expressly states that 3 “Defendant Furniture Deals, Inc., dba Ramos Furniture Home Store, consents to removal of this 4 action.” Doc. No. 1. In support of this assertion, Exhibit C is referenced. 5 Exhibit C to the notice of removal is a consent. The consent reads: 6 Whereas, on August 28, 2019, a complaint was filed against defendant Second Generation Furniture, Inc., erroneously sued herein as Furniture Deals, Inc., dba 7 Ramos Furniture Store, and defendant [AFF] by [Smith], in an action pending in the Superior Court of the State of California in and for the County of Fresno . . . . 8 Whereas, this action is a civil action of which this Court has original jurisdiction 9 under 28 U.S.C. § 1331 and which may be removed to this Court pursuant to the provisions of 28 U.S.C. § 1441(a); and, 10 Whereas, defendant [AFF] seeks to remove this action to this Court, 11 Therefore, defendant Second Generation Furniture, Inc., hereby consents to the 12 removal of this action. 13 Ex. C to Doc. No. 1. The consent is signed by Jorge Ramos as Secretary of Second 14 Generation Furniture Inc. dba Ramos Furniture (“SGF”). Id. 15 16 PLAINTIFF’S MOTION 17 Plaintiff’s Argument 18 Smith argues that FDI was properly served on October 9, 2019, and AFF did not obtain 19 FDI’s consent. Instead, AFF obtained SGF’s consent, but SGF is not a party to this lawsuit and is 20 a separate entity from FDI. Smith asserts that Ramos Furniture has 10 stores in California which 21 are independently owned operated, including two in Fresno. A fictitious business name search of 22 the Fresno County Clerk’s records shows that Ramos Furniture on Shaw Avenue in Fresno is 23 owned by SGF. The Fresno County Clerk’s records show that Ramos Furniture on Blackstone 24 Avenue in Fresno is owned by FDI. Smith purchased the furniture at issue from the Blackstone 25 location. Smith argues that the Fresno County Clerk’s records show that FDI is “inactive” and has 26 an expiration date of May 2020. Also, records from the California Secretary of State lists different 27 officers for SGF and FDI. Jorge Ramos, who signed the consent on behalf of SGF, told Smith’s 28 counsel that he signed the consent as a favor to AFF, he did not prepare the consent, he did not 1 question the contents of the consent, and he did not understand the content or the implications of 2 the consent. 3 Smith argues that he did not erroneously name FDI as a defendant, rather he named the 4 defendant that comports with the Fresno County Clerk’s records for the owner listed of the Ramos 5 Furniture location on Blackstone Ave. California Secretary of State records show that FDI is 6 suspended, but a suspended corporation is still a proper defendant in a civil action. Because FDI 7 is the identified owner of the Blackstone Ave. store, and because FDI was properly named and 8 served, the failure of AFF to obtain a consent from FDI renders the removal improper and remand 9 necessary. 10 Smith also argues that sanctions should be imposed for the improper removal. On 11 November 20, 2019, counsel for each party met, and Smith counsel explained the factual findings 12 and business findings regarding FDI and SGF. AFF’s counsel provided no further support for the 13 contention that FDI was erroneously sued instead of SGF, or that Ramos or SGF has any standing 14 to provide consent in this case. In the absence of contrary evidence, relying on SGF’s consent was 15 objectively unreasonable. Therefore, AFF should pay reasonable attorney fees in the amount of 16 $3,937 based on a rate of $375 per hour. 17 Defendant’s Opposition 18 AFF argues that the remand motion is little more than a disagreement between Smith and 19 the co-defendant as to the co-defendant’s proper legal name. As reflected in the consent, the co- 20 defendant contends that its legal name is SGF and that it was erroneously sued as FDI. On 21 October 31, 2019, AFF spoke with Jorge Ramos and Mr. Ramos advised that the proper name of 22 the co-defendant is SGF. Ramos expressed his authority to agree to consent on behalf of SGF and 23 he ultimately did so. Because of the disagreement regarding the co-defendant’s proper name, the 24 consent was styled by as a consent by SGF “erroneously sued herein as [FDI] . . . .” The consent 25 not only highlights the disagreement between Smith and the co-defendant, but it clearly reflects 26 the co-defendant’s agreement and consent to removal. Although AFF represents that it has been 27 unable to speak with Mr. Ramos regarding Smith’s remand motion, there remains sufficient 28 evidence to deny the motion. 1 Alternatively, AFF argues that a procedural defect can be cured before entry of judgment 2 and that limited jurisdictional discovery is permitted to establish the propriety of removal. If the 3 Court is persuaded by Smith’s arguments, limited jurisdictional discovery should occur, including 4 the deposition of Mr. Ramos. That way, the Court would have the benefit of hearing from the 5 unrepresented co-defendant. The limited discovery will likely cure any deficiencies from the 6 removal process. 7 Finally, AFF argues that sanctions are not appropriate. AFF argues that it reasonably 8 relied on Mr. Ramos’s statements that he had authority to consent on the co-defendant’s behalf. 9 Smith has cited no similar cases in which an objectively reasonable attempt to remove a matter 10 resulted in an award of sanctions. 11 Legal Standard 12 Removal statutes are strictly construed against removal, and any doubt as to the propriety 13 of removal is resolved against removability. Luther v. Countrywide Home Loans, 533 F.3d 1031, 14 1034 (9th Cir. 2008). 28 U.S.C. § 1446 establishes the procedures to be followed by a defendant 15 in removing a case from state court to federal court. Progressive W. Ins. Co. v. Preciado, 479 F.3d 16 1014, 1018 (9th Cir. 2007). In part, “all defendants who have been properly joined and served in 17 the action must join in or consent to the removal of the action.” 28 U.S.C. § 1446(b)(2)(A); see 18 Destfino v. Reiswig, 630 F.3d 952, 956 (9th Cir. 2011); Emrich v. Touche Ross & Co., 846 F.2d 19 1190, 1193 n.1 (9th Cir. 1988). Only defendants who have been properly served must join in or 20 consent to the removal. Destfino, 630 F.3d at 956; Emrich, 846 F.2d at 1193 n.1. Defendants who 21 have been improperly served, see Destfino, 630 F.3d at 956-57, or who have not been served, 22 Salveson v. W. States Bankcard Ass’n, 731 F.2d 1423, 1429 (9th Cir. 1984), or who are “nominal, 23 unknown or fraudulently joined” defendants, Emrich, 846 F.2d at 1193 n.1, are not required to 24 join in or consent to removal. A violation of the defendant unanimity rule, i.e. the failure to obtain 25 the joinder or consent of all properly served defendants, is a procedural defect. See Destfino, 630 26 F.3d at 956-57; Atlantic Nat’l Trust LLC v. Mt. Hawley Ins. Co., 621 F.3d 931, 938 (9th Cir. 27 2010). Further, the failure of a defendant to affirmatively explain the absence of a co-defendant in 28 the notice of removal is a procedural defect. Prize Frize, Inc. v. Matrix, Inc., 167 F.3d 1261, 1266 1 (9th Cir. 1999). “If the removal suffers from procedural defects, the plaintiff is responsible for 2 bringing those defects to the attention of the district court in a timely motion to remand.” Polo v. 3 Innoventions Int'l, LLC, 833 F.3d 1193, 1196 (9th Cir. 2016). Once the plaintiff raises a 4 procedural defect in the removal, it is the removing defendant's burden to show compliance with 5 the pertinent procedural requirement. See Gomez v. Global Video Games, 2016 U.S. Dist. LEXIS 6 98305, *2 (C.D. Cal. July 26, 2016); Bea v. Encompass Ins. Co., 2013 U.S. Dist. LEXIS 58251, 7 *5 (N.D. Cal. Apr. 23, 2013); Riggs v. Plaid Pantries, Inc., 233 F. Supp. 2d 1260, 1264 (D. Or. 8 2001). 9 Additionally, under 28 U.S.C. § 1447(c), the Court may require payment of attorneys’ fees 10 and costs incurred as a result of an improper removal. “Absent unusual circumstances, courts may 11 award attorney’s fees under § 1447(c) only where the removing party lacked an objectively 12 reasonable basis for seeking removal.” Martin v. Franklin Capital Corp., 546 U.S. 132, 141, 126 13 S. Ct. 704, 163 L. Ed. 2d 547 (2005); Chan Healthcare Group, PS v. Liberty Mut. Fire Ins. Co., 14 844 F.3d 1133, 1141 (9th Cir. 2017). “[R]emoval is not objectively unreasonable because the 15 removing party’s arguments lack merit, or else attorney’s fees would always be awarded whenever 16 remand is granted.” Lussier v. Dollar Tree Stores, Inc., 518 F.3d 1062, 1065 (9th Cir. 2008). 17 Discussion 18 1. Defendant Unanimity 19 Smith has submitted substantial evidence that there is more than a mere disagreement 20 about the proper name of the co-defendant, Smith’s evidence indicates that FDI and SGF are 21 separate entities. Smith has submitted documentation from the Fresno County Clerk and the 22 California Secretary of State regarding FDI and SGF. Smith is correct that documents relating to 23 fictitious business names, as recorded in the Fresno County Clerk’s office, reflect two locations 24 for Ramos furniture in Fresno, one on Blackstone and one on Shaw.1 See id. at Exs. C, D. 25

26 1 The Court notes that the Ramos Furniture website has a “store finder” function that lists two locations in Fresno, one on Blackstone and one on Shaw, each with the same address as the two stores listed in the Fresno County Clerk’s 27 records. Cf. Hinton Dec. Exs. C, D. with http://www.ramosfurniture.com. The Court takes judicial notice of the two locations identified on the Ramos Furniture website. See Fed. R. Civ. P. 201; Matthews v. National Football League 28 Mgmt Council, 688 F.3d 1107, 1113 & n.5 (9th Cir. 2012) (taking judicial notice of a website); 23-34 94th St. 1 Different registrants are listed for these stores. See id. SGF is listed as the only registrant of the 2 Shaw location, see id. at Ex. C, and FDI is listed as the only registrant of the Blackstone location. 3 See id. at Ex. D. Also, the Secretary of State documents show that FDI and SGF have different 4 registered officers and different locations, although they do share the same agent for service of 5 process. See Hinton Dec. Exs. G, I. No documentary evidence has been submitted that reflects 6 that SGF and FDI are essentially the same (through a merger, for example) or otherwise explains 7 the relationship between SGF and FDI. Therefore, the documentary evidence submitted indicates 8 that SGF and FDI are separate entities. If FDI and SGR are separate entities, then obtaining only a 9 consent from SGF is ineffectual, and AFF would be in violation of the defendant unanimity rule. 10 AFF does not in any way address or attempt to refute the governmental records submitted 11 by Smith, nor does it challenge Smith’s assertion that each Ramos furniture store is independently 12 owned and operated. Instead, AFF relies heavily on the consent itself and a conversation its 13 counsel had with Mr. Ramos. However, the consent merely states that Smith erroneously named 14 FDI instead of SGF. The consent does not explain why Ramos believes that FDI is the wrong 15 defendant and it does not explain the relationship between FDI and SGF. Further, AFF in 16 opposition has only generally described a conversation its counsel had with Mr. Ramos. No 17 particulars of the conversation are provided. Of note, AFF does not explain how or why AFF’s 18 counsel came to believe that Mr. Ramos was an appropriate contact person for the “co-defendant;” 19 AFF does not attempt to describe or clarify the relationship between FDI and SGF; AFF does not 20 explain why Ramos believed that FDI was improperly named instead of SGF; and AFF does not 21 explain why Ramos believed he could sign on behalf of FDI. In other words, AFF does not 22 explain why the conversation with Ramos justified obtaining his signature on the consent as the 23 secretary of SGF. The consent submitted by AFF and the description of the discussion with Mr. 24 Ramos are too general and conclusory to sufficiently negate Smith’s records from the Secretary of 25 State and the Fresno County Clerk. 26 Additionally, both sides have submitted declarations that somewhat describe conversations 27 with Mr. Ramos. AFF does not challenge Smith’s assertions that Mr. Ramos did not question the 28 consent or understand its content or implications, and that he signed it merely as a favor. See 1 Hinton Dec. ¶ 14. AFF has represented that it has been unable to reach Mr. Ramos to address the 2 issues raised in Smith’s motion. AFF apparently had no difficulty reaching Mr. Ramos prior to his 3 November 19 conversation with Smith’s counsel. It is not unreasonable to infer that Mr. Ramos 4 did not necessarily understand what he was signing and that he and SGF no longer wish to help 5 AFF. While the purported statements and actions of Mr. Ramos would not definitively negate the 6 consent, they do tend to undermine the consent and raise significant questions. 7 AFF argues that limited jurisdictional discovery can clear up the issues as to the co- 8 defendant’s proper name and the validity of the consent. In general, “a court may allow discovery 9 to aid in determining whether it has in personam or subject matter jurisdiction.” Wells Fargo & 10 Co. v. Wells Fargo Express Co., 556 F.2d 406, 430 n.24 (9th Cir. 1977). Such discovery “may be 11 appropriately granted where pertinent facts bearing on the question of jurisdiction are controverted 12 or where a more satisfactory showing of the facts is necessary.” Boschetto v. Hansing, 539 F.3d 13 1011, 1020 (9th Cir. 2008). Here, however, there is no dispute that the Court has jurisdiction over 14 this matter. Smith’s Truth In Lending Act claim clearly provides federal question jurisdiction. 15 There is no ambiguity or questions regarding subject matter jurisdiction (and nothing suggests that 16 personal jurisdiction is at issue). The problem with the removal in this case is the defendant 17 unanimity rule. The defendant unanimity rule is a procedural rule and thus, its violation is a 18 procedural defect, not jurisdictional. See Destfino, 630 F.3d at 956-57; Atlantic Nat’l Trust LLC 19 v. Mt. Hawley Ins. Co., 621 F.3d 931, 938. AFF cites no cases that authorize “limited procedural 20 discovery” to correct a procedural defect. Therefore, no limited discovery will be permitted.2 21 Finally, it is true that a violation of the defendant unanimity rule may be corrected prior to 22 entry of judgment. Destfino, 630 F.3d at 957. When a plaintiff objects to a violation of the rule of 23 unanimity, often defendants who did not initially join the notice of removal will file a separate 24 joinder or consent, e.g. Parrino v. FHP, Inc., 146 F.3d 699, 703 (9th Cir. 1998),3 or the removing 25

26 2 The Court notes that some courts have held that post-removal jurisdictional discovery is improper. E.g. Lowery v. Alabama Power Co., 483 F.3d 1184, 1217-18 (11th Cir. 2007); May v. Wal-Mart Stores, Inc., 751 F.Supp.2d 946, 952 27 (E.D. Ky. 2010). Because there is not jurisdictional problem in this case, it is enough for the Court to note that there are questions regarding post-removal jurisdictional discovery. 28 1 defendant will seek leave to file an amended notice of removal that properly addresses all served 2 defendants. E.g. Destfino v. Kennedy, 2008 U.S. Dist. LEXIS 95149, *11 (E.D. Cal. Nov. 12, 3 2008). Here, there has been no joinder by FDI or anyone purporting to act on FDI’s behalf. 4 Further, as discussed above, Mr. Ramos is not communicating with AFF, so it is hardly surprising 5 that AFF has not submitted significant contrary evidence in opposition to Smith’s motion or 6 attempted to file an amended notice of removal. Therefore, there is no indication that any defects 7 with the unanimity rule can be timely cured or addressed. Cf. Destfino, 630 F.3d at 957. 8 In sum, the documentation submitted by Smith, Mr. Ramos/SGF’s apparent unwillingness 9 to cooperate further with AFF, and the absence of evidence that describes any particulars 10 regarding either AFF’s conversations with Ramos or its investigative efforts, together create 11 significant doubt about the procedural propriety of removal. That doubt is resolved against 12 removal. See Luther, 533 F.3d at 1034. Because AFF has not sufficiently shown compliance with 13 the § 1446(b)’s unanimity requirement, the Court will grant Smith’s motion to remand. See 28 14 U.S.C. § 1447(c); Atlantic Nat’l, 621 F.3d at 940. 15 2. Sanctions 16 The Court cannot find that sanctions are appropriate. First, Smith’s counsel does not 17 explain the basis for the requested hourly rate of $375 per hour. What counsel charges and what 18 this Court has found to be a reasonable rate in the community in other cases may or may not 19 coincide. Second, and more importantly, it is apparent that AFF’s counsel somehow received Mr. 20 Ramos’s name and, after speaking with Mr. Ramos, believed that Smith erroneously named FDI 21 instead of SGF. Through Mr. Ramos, AFF had some objective basis for removal. It is not clear 22 what investigative efforts AFF actually undertook to find the appropriate co-defendant or to 23 research FDI and SGF. It is possible that AFF simply contacted Mr. Ramos without asking or 24 attempting to learn specifics about FDI, the Shaw location, or the Blackstone location. However, 25 the standard for imposing fees is not whether a thorough investigation has been conducted, it is 26 whether there was an objectively reasonable basis for removal. Although a close call, the Court 27 does not conclude that AFF removed this matter without any objectively reasonable basis. 28 Therefore, Smith’s request for attorney’s fees will be denied. 1 3. Motion to Compel Arbitration 2 Because the Court is remanding this case, it would be inappropriate to rule on AFF’s 3 | motion to compel arbitration. For administrative purposes, the Court will deny the motion to 4 |compel arbitration without prejudice to refiling in the Superior Court. 5 6 ORDER 7 Accordingly, IT IS HEREBY ORDERED that: 8 Plaintiff's motion to remand (Doc. No. 11) is GRANTED; 9 12. Pursuant to 28 U.S.C. § 1447(c) and the violation the defendant unanimity rule, this case is 10 REMANDED forthwith to the Fresno County Superior Court; 11 The Court DECLINES to impose sanctions against Defendant for an improper removal; 12 AFF’s motion to compel arbitration (Doc. No. 4) is DENIED without prejudice to refiling 13 in the Superior Court; and 14 The Clerk shall CLOSE this case. 15 16 IT IS SO ORDERED. 17 Dated: _ January 27, 2020 Z : Cb it "SENIOR DISTRICT JUDGE 18 19 20 21 22 23 24 25 26 27 28

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