Brees Company, Inc. v. Oura Health OY

Background

Brees Company, Inc. sued Oura Health OY and other defendants in San Francisco Superior Court. The defendants removed the case to federal court. The order identifies Oura Ring as a California company and Oura Health OY as a Finnish company.

The defendants argued that Oura Ring had been fraudulently joined to defeat diversity jurisdiction. Fraudulent joinder is a doctrine under which a federal court may disregard a nondiverse defendant if the plaintiff either knowingly misstated jurisdictional facts or cannot possibly establish a claim against that defendant in state court.

Remand

The court held that the defendants had not met the heavy burden required to show fraudulent joinder. Brees Company’s allegations against Oura Ring were described as thin, but the court could not rule out the possibility that Brees Company could state a negligent-misrepresentation claim against Oura Ring.

The court noted that the option agreement was titled “Oura Health OY / Oura Ring Inc. Adviser Equity Plan 2018 US Stock Option Agreement.” Brees Company also alleged that Harpeet Singh Rai, who represented both Oura Health OY and Oura Ring as the chief executive officer of each company, made representations on behalf of both companies that Brees Company was receiving a valid options contract for Oura Health OY stock. Because a claim against Oura Ring could not be ruled out, the court found that Oura Ring was not shown to be a sham defendant.

The court granted the motion to remand without attorney fees and directed the clerk to send the case back to San Francisco Superior Court. The court did not need to evaluate Brees Company’s alter-ego argument. It also observed that Brees Company’s contract claims, without that alter-ego theory, did not state a claim against Oura Ring because Oura Ring was not a signatory to the contract.

Sanctions and Motion to Dismiss

The court denied Brees Company’s motion for sanctions. It found that the defendants’ removal was not objectively unreasonable and that there was no indication that the removal notice was filed for an improper purpose. The court also found that the defendants’ counsel had reasonably investigated Brees Company’s principal place of business and that the notice concerning a potentially related case was not filed for an obviously improper purpose.

The court denied the defendants’ cross-motion for sanctions. Although it described Brees Company’s sanctions motion as “nit-picky,” the court found that filing it was not sufficiently unreasonable to warrant sanctions and found insufficient evidence that Brees Company’s counsel had failed to conduct a reasonable inquiry.

Because the case was being remanded, the court dismissed the motion to dismiss as moot.

Disposition

Judge Vince Chhabria granted the motion to remand without attorney fees, denied Brees Company’s motion for sanctions, denied the defendants’ cross-motion for sanctions, and dismissed the motion to dismiss as moot.