Apex Solutions, Inc. v. Falls Lake National Insurance Company

[3] 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA [6] 7 APEX SOLUTIONS, INC., Case No. 21-cv-05496-HSG 8 Plaintiff, ORDER GRANTING MOTION TO REMAND 9 v. Re: Dkt. No. 14 10 FALLS LAKE NATIONAL INSURANCE COMPANY, et al., [11] Defendants. [12] 13 Pending before the Court is Plaintiff Apex Solutions, Inc.’s motion to remand. Dkt. No. 14 14. The Court finds this matter appropriate for disposition without oral argument and the matter is 15 deemed submitted. See Civil L.R. 7-1(b). For the reasons detailed below, the Court GRANTS the 16 motion. 17 I. BACKGROUND 18 Plaintiff filed this action in Alameda County Superior Court on May 17, 2021, regarding a 19 commercial insurance policy issued by Defendant Falls Lake Insurance Management Company, 20 Inc. See Dkt. No. 1-1, Ex. A (“Compl.”). Plaintiff owns a business in Oakland, California, that 21 manufactures, sells, and distributes cannabis and cannabis-related products. See id. at ¶ 1. 22 Plaintiff alleges that on June 1, 2020, its business was burglarized twice. See id. at ¶¶ 9–10. First, 23 at 1:47 a.m., people broke into its warehouse and took cannabis products valued at approximately 24 $600,000 from what Plaintiff refers to as “Vault #1.” See id. at ¶ 9. Second, at 2:54 a.m., different 25 individuals broke into its warehouse and again stole cannabis products valued at approximately 26 $600,000, this time from what Plaintiff refers to as “Vault #2.” See id. at ¶ 10. Plaintiff further 27 alleges that the warehouse sustained damage as a result. See id. at ¶ 11. Plaintiff states that Falls 1 $1.5 million still remains unpaid. See id. at ¶ 13. Specifically, Plaintiff argues that Falls Lake 2 improperly (1) considered the burglaries of Vault #1 and Vault #2 as one occurrence under the 3 insurance policy; and (2) applied a coinsurance provision to reduce the amount payable under the 4 policy for Plaintiff’s business income losses. See id. at ¶¶ 14–15. 5 Based on these facts, Plaintiff brings causes of action against Falls Lake for breach of 6 contract and breach of the covenant of good faith and fair dealing. See id. at ¶¶ 17–28. In the 7 alternative, Plaintiff brings a negligence cause of action against Defendants CannGen Insurance 8 Services, LLC and Fidens International LLC,1 the insurance brokers. See id. at ¶¶ 29–31. Plaintiff 9 alleges that CannGen and Fidens “worked to secure insurance coverage for [P]laintiff.” See id. at 10 ¶¶ 3–4. Plaintiff further contends that to the extent Falls Lake’s interpretation and application of 11 the coinsurance provision was proper, CannGen and Fidens: [12] negligently failed to advise [Plaintiff] of the “coinsurance” provision 13 before the policy incepted []in order to allow plaintiff to obtain proper coverage, and/or negligently failed to request removal of that 14 coinsurance provision from the policy; and/or failed to secure proper coverage so that [Plaintiff] could be fully insured for any Business 15 Income and Extra Expense losses. [16] 17 Id. at ¶ 16; see also id. at ¶ 30. 18 Defendants Falls Lake and CannGen removed this action on July 16, 2021, arguing that 19 CannGen was fraudulently joined and its citizenship should therefore be disregarded for purposes 20 of diversity jurisdiction. See Dkt. No. 1 at 6–8. Plaintiff moves to remand the action back to state 21 court. Dkt. No. 14. 22 II. LEGAL STANDARD 23 “Except as otherwise expressly provided by Act of Congress, any civil action brought in a 24 State court of which the district courts of the United States have original jurisdiction, may be 25 removed” to federal court. 28 U.S.C. § 1441 (a). District courts have original jurisdiction over 26 civil actions between citizens of different states in which the amount in controversy exceeds [27] 1 $75,000. See 28 U.S.C. § 1332 (a)(1). To properly invoke diversity jurisdiction, the defendant 2 bears the burden of proving that the parties in the action are completely diverse, meaning that 3 “each plaintiff [is] of a different citizenship from each defendant.” Grancare, LLC v. Thrower by 4 & through Mills, 889 F.3d 543, 548 (9th Cir. 2018). 5 However, a district court may disregard a non-diverse party and retain federal jurisdiction 6 if the party resisting removal can show that the non-diverse party was fraudulently joined. See 7 Hunter v. Phillip Morris USA, 582 F.3d 1039, 1043 (9th Cir. 2009). Joinder is fraudulent “if the 8 plaintiff fails to state a cause of action against a resident defendant, and the failure is obvious 9 according to the settled rules of the state.” Id. However, there is a “general presumption against 10 fraudulent joinder,” and defendants who assert that a party is fraudulently joined carry a “heavy 11 burden.” Id. at 1046 . 12 III. DISCUSSION 13 The parties appear to agree that CannGen is a limited liability company, and has at least 14 one member that is a citizen of California. See Compl. at ¶ 3; see also Dkt. No. 17 at 2. Thus, 15 ordinarily, CannGen’s citizenship would defeat federal diversity jurisdiction because Plaintiff is 16 also a citizen of California. See Compl. ¶ 1. However, Defendants assert that the negligence 17 claim against CannGen is “no[t] viable . . . as a matter of California law.” See Dkt. No. 17 at 2. 18 As such, Defendants state that CannGen was fraudulently joined, and its California citizenship 19 should not defeat federal diversity jurisdiction. Id. at 5–9. 20 The Ninth Circuit has clarified that there are two ways to establish fraudulent joinder: [21] (1) actual fraud in the pleading of jurisdictional facts, or (2) inability 22 of the plaintiff to establish a cause of action against the non-diverse party in state court. [23] 24 Grancare, 889 F.3d at 548 (quotation omitted). In the absence of actual fraud, therefore, a 25 defendant must “show[] that an individual joined in the action cannot be liable on any theory.” Id. 26 “[I]f there is a possibility that a state court would find that the complaint states a cause of action 27 against any of the resident defendants, the federal court must find that the joinder was proper and 1 fraudulent if it is “obvious according to the settled rules of the state that [the plaintiff] has failed to 2 state a claim against [the resident defendant].” See Hunter, 582 F.3d at 1046 (quotation omitted). 3 Courts have found fraudulent joinder “where a defendant presents extraordinarily strong 4 evidence or arguments that a plaintiff could not possibly prevail on its claims against the allegedly 5 fraudulently joined defendant,” including where “a plaintiff is barred by the statute of limitations 6 from bringing claims against that defendant.” Grancare, 889 F.3d at 548 . However, by contrast, 7 fraudulent joinder is not established where “a defendant raises a defense that requires a searching 8 inquiry into the merits of the plaintiff’s case, even if that defense, if successful, would prove 9 fatal.” Id. at 548–49 (citing Hunter, 582 F.3d at 1046 ). 10 Here, Defendants contend that Plaintiff has not stated—and cannot state—a negligence 11 claim against CannGen because insurance brokers and agents have only a general duty of care to 12 “procure the insurance requested by the insured.” See Dkt. No. 17 at 5 (quoting Jones v. Grewe, [13] 189 Cal. App. 3d 950, 954 (Cal. Ct. App. 1987)). This duty “does not include the obligation to 14 procure a policy affording the client complete liability protection” or “to advise the insured on 15 specific insurance matters.” Jones, 189 Cal. App. 3d at 954, 956 . Rather, the parties appear to 16 agree that to state a negligence claim under California law, Plaintiff must allege that 17 (i) CannGen “misrepresent[ed] the nature, extent or scope of the coverage being offered or 18 provided”; (ii) Plaintiff requested “a particular type or extent of coverage” and CannGen failed to 19 procure it; or (iii) CannGen “assume[d] an additional duty by either express agreement or by 20 holding [itself] out as having expertise in a given field of insurance” sought by Plaintiff. See Pac. 21 Rim Mech. Contractors, Inc. v. Aon Risk Ins. Servs. W., Inc., 203 Cal. App. 4th 1278, 1283 (Cal. 22 Ct. App. 2012) (quotations omitted). 23 Defendant argues that neither the complaint nor the motion to remand alleges that 24 “CannGen misrepresented the nature, extent, or scope of coverage under the policy or its 25 coinsurance provisions,” or that it somehow assumed an elevated duty of care. See Dkt. No. 17 at 26 6–7. Rather, Defendant urges that CannGen “obtained the [insurance] policy that [Plaintiff] and 27 its broker, Fidens, applied for.” Id. at 2. Defendant further suggests that Plaintiff hired Fidens— 1 concludes that Plaintiff cannot assert facts or allegations sufficient to state a negligence claim 2 against CannGen. See id. 3 Plaintiff responds by suggesting that all three exceptions apply to this case: 4 • CannGen misrepresented the extent and scope of coverage under the policy; 5 • Plaintiff demanded a specific level of business income loss coverage ($2 6 million), but instead received a policy with a coinsurance provision that 7 precluded Plaintiff’s ability to recover the full requested coverage amount; and 8 • CannGen held itself out as an expert in cannabis insurance coverage, and 9 therefore assumed a higher duty to advise Plaintiff about its insurance coverage. 10 See Dkt. No. 20 at 4–5. The complaint, however, is devoid of factual allegations to support any of 11 these contentions. Rather, it simply states that CannGen “failed to advise [Plaintiff] of the 12 ‘coinsurance’ provision” and “failed to secure proper coverage so that [Plaintiff] could be fully 13 insured for any Business Income and Extra Expense losses.” See Compl. at ¶ 16. In short, the 14 complaint suggests that Plaintiff requested “proper coverage” so that it would be “fully insured.” 15 Id.; see also id. at ¶ 30. 16 But as explained above, insurance brokers and agents do not have a duty “to procure a 17 policy affording the client complete liability protection.” Jones, 189 Cal. App. 3d at 956 . 18 Moreover, “an insured’s request for ‘sufficient coverage’ and an agent’s assurance that the policy 19 provided ‘adequate’ coverage do not . . . imply an expanded principal-agent relationship.” Id. As 20 the California Court of Appeal has noted, such an exchange is typical between insureds and agents 21 because “[p]urchasers of insurance generally seek ‘sufficient coverage.’” Id. (quotations omitted). 22 Nevertheless, even assuming (without deciding) that Plaintiff fails to state a negligence 23 cause of action, that does not necessarily establish that it would be impossible for Plaintiff to 24 adequately plead a negligence claim if given leave to amend.2 See Williams v. Wyndham Vacation 25 Ownership, No. 13-CV-05088-WHO, 2014 WL 457835 , at *4 (N.D. Cal. Jan. 31, 2014) 26 (“[M]erely showing that an action is likely to be dismissed as against the purported sham [27] 1 defendant does not demonstrate fraudulent joinder.”) (quotation omitted). Rather, “[w]here there 2 || exists a non-fanciful possibility that Plaintiff can state a claim under California law against the 3 non-diverse defendant, the Court must remand this case to state court.” Jd. (quotation omitted). 4 || “{A]ll doubts concerning the sufficiency of a cause of action because of inartful, ambiguous or 5 || technically defective pleading must be resolved in favor of remand,” and “the Court may consider 6 evidence outside of the pleadings.” Rathbun vy. Barretts Mins., Inc., No. 21-CV-03228-HSG, 2021 7 WL 4014304 , at *2 (N.D. Cal. Sept. 3, 2021) (quotations omitted). 8 Because California courts have found insurance agents may be liable for failing to procure 9 insurance as requested by clients, the Court finds that it is at least possible that Plaintiff can 10 || establish a cause of action against CannGen. See, e.g., Desai v. Farmers Ins. Exchange, 47 Cal. 11 App. 4th 1110, 1119 (Cal. Ct. App. 1996) (finding that an insurer may be liable where the plaintiff 12 || “demanded a particular level of coverage at the outset” and “[i]t was then represented to him that 5 13 || he was receiving the demanded level of coverage”). The Court finds that Defendants have failed 14 || to meet their “heavy burden” of establishing fraudulent joinder. See Hunter, 582 F.3d at 1042 3 15 (“The strong presumption against removal jurisdiction means that the defendant always has the 16 || burden of establishing that removal is proper... .”). Because there is not complete diversity of 3 17 citizenship, the Court lacks subject-matter jurisdiction and thus GRANTS the motion to remand. 18 IV. CONCLUSION 19 The Court GRANTS the motion to remand and REMANDS the case to Alameda County 20 Superior Court. The clerk is directed to close the case. 21 IT IS SO ORDERED. 22 || Dated: 11/3/2021 23 Aepwred 5 HAYWOOD S. GILLIAM, JR. 24 United States District Judge