Butler America, LLC v. UCOMMG, LLC

O [1] JS-6 [7] United States District Court [8] Central District of California [10] 11 BUTLER AMERICA, LLC, Case № 2:21-cv-00041-ODW (AFMx) 12 Plaintiff, 13 v. ORDER REMANDING ACTION AND DENYING MOTION TO 14 UCOMMG, LLC, et al., COMPEL ARBITRATION AND 15 Defendants. MOTION TO DISMISS [12][20] [16] 17 I. INTRODUCTION AND BACKGROUND 18 Plaintiff Butler America filed this action in the Superior Court of California, 19 County of Santa Barbara, against Defendants United Communications Group, Inc.; 20 UCOMMG, LLC; Kenneth W. Newbatt; Bianca Newbatt; Mitchell C. Lipkin; 21 Michael J. Bellas; Jimmie Garrett Baker, Jr. (“Baker”); and WesTele Utility 22 Solutions, LLC (“WesTele”) (collectively, “Defendants”). (Notice of Removal 23 (“NOR”), Ex. A (“Complaint” or “Compl.”), ECF No. 1-1.) Defendants removed the 24 action based on alleged diversity jurisdiction despite Butler’s allegation that Baker 25 and WesTele are citizens of California. (See Compl. ¶¶ 19, 21.) On July 28, 2021, the 26 Court ordered the parties to show cause why this action should not be remanded for 27 lack of subject matter jurisdiction. (ECF No. 31.) Defendants filed a Response in [28] 1 support of their contention that this Court has subject matter jurisdiction. (See 2 Response, ECF No. 33.) 3 After reviewing Defendants’ Notice of Removal and Butler’s Complaint, the 4 Court finds that it lacks subject matter jurisdiction over this action because the parties 5 are not completely diverse.1 Consequently, the Court REMANDS this action to state 6 court. See 28 U.S.C. § 1447 (c).2 7 II. LEGAL STANDARD 8 Federal courts have subject matter jurisdiction only as authorized by the 9 Constitution and Congress. U.S. Const. art. III, § 2, cl. 1; see also Kokkonen v. 10 Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). A suit filed in state court 11 may be removed to federal court only if the federal court would have had original 12 jurisdiction over the suit. 28 U.S.C. § 1441 (a). Federal courts have original 13 jurisdiction where an action arises under federal law or where each plaintiff’s 14 citizenship is diverse from each defendant’s citizenship and the amount in controversy 15 exceeds $75,000. Id. §§ 1331, 1332(a). 16 The removal statute is strictly construed against removal, and “[f]ederal 17 jurisdiction must be rejected if there is any doubt as to the right of removal in the first 18 instance.” Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). The party seeking 19 removal bears the burden of establishing federal jurisdiction. Id. The court must 20 remand the action sua sponte “[i]f at any time before final judgment it appears that the 21 district court lacks subject matter jurisdiction.” 28 U.S.C. § 1447 (c); United Inv’rs 22 Life Ins. Co. v. Waddell & Reed Inc., 360 F.3d 960, 967 (9th Cir. 2004). [25] 1 For jurisdictional allegations, the Court looks to the Complaint and Notice of Removal, because 26 diversity jurisdiction “is determined (and must exist) as of the time the complaint is filed and removal is effected.” Strotek Corp. v. Air Transp. Ass’n. of Am., 300 F.3d 1129 , 1131–32 (9th Cir. [27] 2002). 28 2 Having carefully considered the papers filed in connection with the Motion, the Court deemed the matter appropriate for decision without oral argument. Fed. R. Civ. P. 78; C.D. Cal. L.R. 7-15. 1 III. DISCUSSION 2 Defendants invoke diversity as the basis of the Court’s subject matter 3 jurisdiction. (NOR ¶ 1.) The Supreme Court has “consistently interpreted § 1332 as 4 requiring complete diversity: In a case with multiple plaintiffs and multiple 5 defendants, the presence in the action of a single plaintiff from the same State as a 6 single defendant deprives the district court of original diversity jurisdiction over the 7 entire action.” Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546 , 553 8 (2005). 9 “An exception to the requirement of complete diversity exists where it appears 10 that a plaintiff has fraudulently joined a ‘sham’ non-diverse defendant.” Sanchez v. 11 Lane Bryant, Inc., 123 F. Supp. 3d 1238, 1241 (C.D. Cal. 2015). “If the plaintiff fails 12 to state a cause of action against a resident defendant, and the failure is obvious 13 according to the settled rules of the state, the joinder of the resident defendant is 14 fraudulent.” Hamilton Materials, Inc. v. Dow Chem. Corp., 494 F.3d 1203 , 1206 15 (9th Cir. 2007) (quoting McCabe v. Gen. Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 16 1987)). There is a strong presumption against fraudulent joinder, and thus, 17 “[f]raudulent joinder must be proven by clear and convincing evidence.” Hamilton 18 Materials, 494 F.3d at 1206 . 19 Merely showing that an action is likely to be dismissed against the alleged sham 20 defendant does not demonstrate fraudulent joinder. See Grancare, LLC v. Thrower by 21 & through Mills, 889 F.3d 543, 550 (9th Cir. 2018). This is because the standard for 22 establishing fraudulent joinder is more exacting than that for dismissal for failure to 23 state a claim. Id. at 549 . “[I]f there is a possibility that a state court would find that 24 the complaint states a cause of action against any of the resident defendants, the 25 federal court must find that the joinder was proper and remand the case to the state 26 court.” Id. at 548 (quoting Hunter v. Philip Morris USA, 582 F.3d 1039 , 1046 27 (9th Cir. 2009)). [28] 1 Here, Defendants attempt to invoke diversity jurisdiction because Butler is a 2 citizen of California and Delaware, and some Defendants are citizens of Washington, 3 Minnesota, and North Carolina. (NOR ¶¶ 8–15.) Butler alleges that Baker and 4 WesTele are citizens of California, but Defendants contend that the Court should 5 disregard Baker’s and WesTele’s California citizenship because they were 6 fraudulently joined. (Compl. ¶¶ 19, 21; NOR ¶¶ 17–23.) 7 Defendants fail to show there is no possibility that Butler can state a claim 8 against either Baker or WesTele. According to the allegations in the Complaint, 9 Baker is an individual who is alleged to have misappropriated Butler’s trade secrets, 10 and WesTele is a company which is alleged to have benefited from that 11 misappropriation. (Compl. ¶ 52.) Defendants attempt to reduce Butler’s claims 12 against Baker to contract claims based on non-compete clauses Defendants contend 13 are unenforceable, but Butler has asserted more than merely contract claims against 14 Baker. (NOR ¶ 21.) Defendants did not attempt to argue that the non-contract claims 15 against Baker are insufficient. Accordingly, Defendants have not demonstrated that 16 Butler failed to state any claim at all against Baker, and Defendants certainly have not 17 shown by clear and convincing evidence that there is no possibility of stating a claim 18 against Baker. (Accord Grancare, 889 F.3d at 549–50 (discussing the clear and 19 convincing evidence standard under which a defendant must show that there is no 20 possibility a plaintiff could recover against a non-diverse defendant to establish 21 fraudulent joinder). And even assuming Butler’s allegations are insufficient, 22 Defendants fail to establish that Butler could not cure any potential deficiency in a 23 future amendment. See id. at 550 (“[T]he district court must consider . . . whether a 24 deficiency in the complaint can possibly be cured by granting the plaintiff leave to 25 amend.”); Revay v. Home Depot U.S.A., Inc., No. 2:14-CV-03391-RSWL (ASx), 2015 26 WL 1285287 , at *3 (C.D. Cal. Mar. 19, 2015) (emphasis added) (quoting Hunter, [27] 582 F.3d at 1044 ) (“If there is ‘any possibility that the state law might impose liability 28 on a resident defendant under the circumstances alleged in the complaint,’ or in a 1 || future amended complaint, ‘the federal court cannot find that joinder of the resident 2 | defendant was fraudulent, and remand is necessary.””). 3 Accordingly, the Court finds that either Baker or WesTele or both were 4 || properly joined, and the Court cannot disregard their California citizenship. As there 5 || is not complete diversity, the Court must remand. See Gaus, 980 F.2d at 566 . 6 IV. CONCLUSION 7 For the reasons discussed above, the Court REMANDS this action to the 8 | Superior Court of California, County of Santa Barbara, 1100 Anacapa Street, Santa Barbara, California, Case No. 20CV03877. Defendants’ Motion to Compel 10 | Arbitration and Motion to Dismiss are DENIED AS MOOT. (ECF Nos. 12, 20.) 11 || The Clerk of the Court shall close the case. [12] 13 IT IS SO ORDERED. [14] 15 August 3, 2021 ss 16 fy Gidllid 18 OTIS D. WRIGHT, II 9 UNITED STATES DISTRICT JUDGE