Millican v. Ford Motor Company

Background

The plaintiffs purchased a Ford Fusion in June 2013. Ford provided a warranty against defects and agreed to repair defects that arose during the warranty period. After a defect developed, the plaintiffs took the vehicle to Penske Ford, but the repair attempts were unsuccessful. Ford declined to promptly replace the vehicle or pay restitution. The plaintiffs sued Ford under, among other laws, California’s Lemon Law and sued Penske Ford for negligent repair.

Ford and the other defendants removed the case to federal court. The plaintiffs moved to remand, meaning they asked the federal court to return the case to state court. The dispute centered on whether Penske Ford had been fraudulently joined.

Jurisdiction and fraudulent joinder

Federal courts may hear a case based on diversity jurisdiction when the parties are completely diverse and more than $75,000 is at stake. Complete diversity requires every plaintiff to have different citizenship from every defendant. An in-state defendant does not defeat diversity if that defendant was fraudulently joined, but the defendants must show either actual fraud in stating jurisdictional facts or that the plaintiff cannot establish any cause of action against that defendant in state court.

The standard for fraudulent joinder is demanding. If there is any possibility that a state court could find that the complaint states a claim against the in-state defendant, the federal court must treat the joinder as proper and remand the case. The federal court must also consider whether the complaint’s problems could be corrected by amendment.

Court’s analysis

The defendants argued that the plaintiffs’ negligent-repair claim against Penske Ford was barred by California’s economic-loss rule. That rule generally prevents recovery in tort for losses that are essentially contractual, especially where a defective product has not caused personal injury or damage to other property.

The court concluded that California law did not obviously foreclose the plaintiffs’ claim. California decisions recognize that the economic-loss rule does not necessarily bar tort recovery when a defective part damages other portions of a larger product. The plaintiffs alleged that Penske Ford failed to store, prepare, and repair the vehicle according to industry standards, and they identified several defective components, including an engine defect. Although the negligent-repair claim might be thin, the fraudulent-joinder inquiry was not whether the plaintiffs would prevail or survive a motion to dismiss. It was whether California law obviously barred any possibility of recovery. The court found that the plaintiffs could amend their complaint to allege damage to other vehicle components, leaving a possibility of recovery against Penske Ford.

Ruling

The court found that Penske Ford had been properly joined. Because the in-state defendant was properly joined, complete diversity was lacking. Judge William Alsup therefore granted the plaintiffs’ motion to remand. The opinion did not decide the ultimate merits of the plaintiffs’ claims.