Knutson v. Stericyle, Inc.

Background

Daniel Knutson sued Stericycle, Inc., his former employer, and Cheryl Sanchez, identified as a Stericycle human resources manager. He asserted California state-law claims for discrimination, retaliation, harassment, and wrongful termination. Knutson alleges that Stericycle fired him from his position as a senior transportation supervisor because of kidney cancer.

Knutson originally filed the case in Contra Costa County Superior Court. The defendants removed it to federal court based on diversity jurisdiction under 28 U.S.C. § 1332(a). Diversity jurisdiction generally permits a federal court to hear a state-law case when the opposing parties are citizens of different states and more than $75,000 is at stake. Knutson moved to remand, meaning he asked the federal court to return the case to state court.

Fraudulent-joinder dispute

The parties agreed that Knutson and Stericycle have diverse citizenship, but they disagreed about Sanchez. The opinion states that Sanchez is a California resident and that her citizenship would defeat complete diversity. She is named in the sixth cause of action under the California Fair Employment and Housing Act.

The defendants argued that Sanchez was a “sham defendant” who had been fraudulently joined. Fraudulent joinder is a jurisdictional argument that asks whether a nondiverse defendant was added only to prevent removal to federal court. The court explained that the defendants had to show either actual fraud in the jurisdictional allegations or that Knutson could not possibly establish any state-law claim against Sanchez. The court also explained that this inquiry is less demanding than deciding whether the complaint states a plausible claim under Rule 12(b)(6), which tests whether a complaint adequately alleges a claim.

Court’s analysis

The court said the defendants’ main argument was that Knutson’s claim against Sanchez was not plausible under Rule 12(b)(6). But the relevant question for fraudulent joinder was whether Knutson could possibly recover against Sanchez based on the complaint’s allegations.

The court concluded that the defendants had not met that burden. It stated that the California Fair Employment and Housing Act allows a claim against a supervisor like Sanchez based on allegations of the type Knutson made, including adverse conduct connected to a medical condition or disability. The court also stated that California law permits a supervisor to be held individually liable for tortious conduct even when the conduct occurred within the scope of employment.

Disposition

The court held that it could not say Knutson had no chance of recovering against Sanchez. It therefore ruled that removal to federal court was improper and ordered the case remanded to the Superior Court of the State of California, County of Contra Costa, under 28 U.S.C. § 1447(c). Each side must bear its own costs and fees connected with the removal and remand proceedings.