Brees Company, Inc. v. Oura Health OY

Background

Brees Company, Inc. sued Oura Health OY and others in San Francisco Superior Court. The defendants removed the case to federal court. The presence of Oura Ring, described in the opinion as a California company, defeated diversity jurisdiction unless Brees Company had fraudulently joined Oura Ring.

Fraudulent joinder is a doctrine allowing a federal court to disregard a nondiverse defendant only when the defendant was improperly included. The court explained that a defendant must show either actual fraud in the jurisdictional allegations or that the plaintiff cannot possibly establish a claim against the nondiverse defendant in state court. The defendants therefore faced a heavy burden.

Remand ruling

The court concluded that the defendants had not met that burden. Brees Company 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 option contract for Oura Health OY stock. The agreement was titled “Oura Health OY / Oura Ring Inc. Adviser Equity Plan 2018 US Stock Option Agreement.”

The court recognized that Brees Company’s allegations against Oura Ring were thin. It nevertheless held that the possibility could not be ruled out that Brees Company could state a claim against Oura Ring for negligent misrepresentation. The court therefore treated Oura Ring as properly joined and concluded that federal subject matter jurisdiction was lacking. The court did not need to evaluate Brees Company’s argument that Oura Ring was Oura Health OY’s alter ego. It also noted that the contract claims, without the alter ego allegations, did not state a claim against Oura Ring because Oura Ring was not a contract signatory.

Other rulings and disposition

The court denied Brees Company’s request for attorneys’ fees under 28 U.S.C. § 1447(c), finding that the removal was not objectively unreasonable. It explained that the defendants had reasonably investigated Brees Company’s principal place of business and that the defendants’ confusion was reasonable in light of evidence identifying the company’s principal address as being in Ohio.

The court denied Brees Company’s motion for sanctions. It found no indication that the removal notice or a notice concerning a potentially related case had been filed for an improper purpose, and it did not find the defendants’ counsel’s conduct sanctionable. The court also denied the defendants’ cross-motion for sanctions, concluding that Brees Company’s sanctions motion, although “nit-picky,” was not so unreasonable that filing it was sanctionable and that there was insufficient evidence that counsel had failed to conduct a reasonable inquiry.

Judge Vince Chhabria granted the motion to remand without attorneys’ fees, denied Brees Company’s motion for sanctions, denied the defendants’ cross-motion for sanctions, and dismissed the motion to dismiss as moot. The clerk was directed to remand the case to San Francisco Superior Court.