Lee v. Amguard Insurance Company

Background

Fuji Sushi, Jung Lee, and Young Lee sued Amguard Insurance Company over insurance benefits allegedly owed under a business owners insurance policy. A fire on February 5, 2019 damaged the restaurant premises and made them unsuitable for restaurant operations. The plaintiffs alleged that Amguard paid $148,010 for business-income losses through June 4, 2019, but then made no further payments because it believed the policy’s restoration period had ended.

The original suit, filed in Santa Clara County Superior Court, asserted claims for breach of the insurance contract and insurance bad faith. Amguard removed the case to federal court based on diversity jurisdiction. The plaintiffs later sought permission to file a first amended and supplemental complaint. They proposed adding further allegations and claims against Amguard and adding Altamont Insurance Brokers, Inc. as a defendant based on alleged insurance-broker contract and negligence theories.

Amendment of Claims Against Amguard

Because the deadline for amending pleadings had passed, the court applied Federal Rule of Civil Procedure 16(b)(4), which requires good cause and the judge’s consent to modify the schedule. The court found that the plaintiffs were diligent. It accepted their explanation that discovery produced additional information supporting the proposed allegations, noting that Amguard produced approximately 3,800 pages of documents between June and December 2020 and that the motion was filed in March 2021.

The court also found that allowing the additional allegations would not unduly prejudice Amguard. The proposed changes expanded on the existing claims rather than completely redefining them, and the discovery deadline had been extended. The court therefore granted the plaintiffs leave to amend and supplement their claims against Amguard.

Adding Altamont and Remand

The court applied 28 U.S.C. § 1447(e), which governs adding a defendant after removal when that addition would destroy diversity jurisdiction. The court considered factors including whether the new defendant was needed, whether the claims could be filed in a separate action, the plaintiffs’ diligence, whether the purpose was to defeat federal jurisdiction, whether the claims appeared potentially valid, and whether denying joinder would prejudice the plaintiffs.

The court concluded that the plaintiffs were not diligent in seeking to add Altamont. It also found that Altamont’s alleged representations before the insurance policy was purchased were only tangentially related to the dispute with Amguard, that Altamont was not necessary for the plaintiffs to obtain complete relief from Amguard, and that potentially viable claims against Altamont could still be pursued in state court. The court found no definitive evidence that the plaintiffs sought to add Altamont solely to destroy diversity, but concluded that five of the six relevant factors weighed against adding Altamont.

The court denied the plaintiffs’ motion to add Altamont as a defendant. Because Altamont was not added, diversity jurisdiction was not destroyed, so the court denied the motion to remand the proceedings to state court.

Disposition

The court granted the plaintiffs leave to file a first amended complaint asserting additional allegations against Amguard only. It denied the motion as to Altamont and denied the motion for remand to state court. The order did not decide whether the plaintiffs ultimately were entitled to the insurance benefits or other damages they sought.