Whispering Oaks Residential Case Facility LLC v. Travelers Property Casualty…

Background

Plaintiffs Naren Chaganti, Whispering Oaks Residential Care Facility LLC, and Whispering Oaks RCF Management Co Inc. sued Travelers Property Casualty Company of America, Robert Killingsworth, and Joseph Tancredy. The lawsuit arose from a lease under which Cricket Communications used space on the plaintiffs’ water tank for its telecommunications network and was required to maintain commercial general-liability insurance. After a frozen pipe caused property and business losses, the plaintiffs made a claim through Cricket and alleged that Travelers and its claims adjusters misrepresented or concealed information about the insurance policy and whether the plaintiffs’ losses were covered.

The complaint asserted seven claims: declaratory judgment, breach of contract, breach of the duty of good faith and fair dealing, bad faith, misrepresentation or concealment of policy provisions, vexatious refusal to pay, and conspiracy to injure. Travelers removed the case from California state court based on diversity jurisdiction, which generally requires that every plaintiff be a citizen of a different state from every defendant and that the amount in controversy exceed $75,000.

Remand and Jurisdiction

The court held that complete diversity was absent because Chaganti was a California citizen and Tancredy was also a California citizen. Travelers argued that Tancredy had been fraudulently joined, meaning that he had been added only to defeat federal jurisdiction and that the plaintiffs could not possibly recover against him under settled state law. The court explained that this defense has a heavy burden and that doubts must be resolved in favor of returning the case to state court.

The court found at least a possibility that the plaintiffs could recover against Tancredy on their claim concerning misrepresentation or concealment of insurance-policy provisions. The court rejected Travelers’ argument that California’s litigation privilege necessarily barred the claim because the plaintiffs appeared to base it on Tancredy’s conduct as a claims adjuster, not on an allegation that his testimony in the earlier California case was false. The court also concluded that any lack of specificity in the fraud allegations could potentially be corrected by amendment. Because Travelers failed to prove fraudulent joinder by clear and convincing evidence, the court held that it lacked subject-matter jurisdiction and granted the plaintiffs’ motion to remand.

The court did not reach the plaintiffs’ separate arguments that removal was untimely or that Tancredy had failed to join the removal. It also noted that Killingsworth had already been dismissed from the case before this order.

Fees, Motion to Dismiss, and Other Rulings

The court denied the plaintiffs’ request for attorney’s fees and costs under 28 U.S.C. § 1447(c). Although Travelers’ removal arguments were unsuccessful, the court found no evidence that they were entirely frivolous. The court also cited the plaintiffs’ conclusory pleadings, which contributed to the jurisdictional uncertainty, and found insufficient evidence of the type of bad faith that could support a fee award.

Because the federal court lacked subject-matter jurisdiction, the court denied as moot Travelers’ motion to dismiss for failure to state a claim or, alternatively, for a more definite statement. The court granted Travelers’ request to strike the plaintiffs’ late-filed opposition, finding that the filing was substantially late, lacked an explanation, would prejudice Travelers, and improperly attempted to supplement the remand briefing. The court overruled the defendants’ evidentiary objections because it did not rely on the challenged material and the objections did not comply with the applicable local rule.

Disposition

The court granted the motion to remand, remanded the case to the California Superior Court for the County of Santa Clara, denied the request for attorney’s fees and costs, and denied as moot the motion to dismiss. It directed the Clerk to close the file.