Atneosen v. XPT, Inc.

Background

Steven Atneosen and Amer Akhtar filed a California state-court action against XPT, Inc., XPT Limited, NIO USA, Inc., and NIO Inc. The complaint asserted ten claims, including breach of contract, wage claims, discrimination and retaliation under California’s Fair Employment and Housing Act, wrongful termination in violation of public policy, a claim under the Unruh Civil Rights Act, and a claim under California’s Unfair Competition Law.

XPT Limited removed the case to federal court based on diversity jurisdiction. It argued that the parties were completely diverse because XPT, Inc. and NIO USA, Inc. had been fraudulently joined. In this context, fraudulent joinder means that a nondiverse defendant may be disregarded for jurisdictional purposes only if the removing party shows there is no possibility that the plaintiff could recover against that defendant.

The plaintiffs moved to remand, arguing that XPT, Inc. was still a California citizen and that neither XPT, Inc. nor NIO USA, Inc. was fraudulently joined. Defendants also filed an administrative motion for leave to file a surreply; the court granted that motion.

XPT, Inc.’s Citizenship

For diversity purposes, a corporation is a citizen of its state of incorporation and the state of its principal place of business. Citizenship is determined when the complaint is filed. XPT, Inc. was organized under Delaware law, and the complaint alleged that its principal place of business was in San Jose, California.

XPT, Inc. had filed a Certificate of Surrender with the California Secretary of State on December 14, 2020. The plaintiffs filed their complaint on March 22, 2021, so XPT, Inc. had been inactive for just over three months. The court adopted a “functional approach” for determining the citizenship of a defunct corporation. Under that approach, a corporation’s citizenship includes only its state of incorporation after a substantial period of inactivity.

The court held that just over three months was not a substantial period of inactivity. It therefore concluded that XPT, Inc. was still a California citizen when the plaintiffs filed the complaint.

Fraudulent Joinder

The court explained that the fraudulent-joinder inquiry is not the same as deciding whether a claim would survive a motion to dismiss. The question was whether the defendants had shown that the plaintiffs could not possibly recover against XPT, Inc. or NIO USA, Inc., with factual disputes and ambiguities in state law resolved in the plaintiffs’ favor.

Under California law, whether an entity is a joint employer depends on the totality of the circumstances, with particular attention to the entity’s right to control and direct the employee’s work. Relevant factors include who paid salary or benefits, owned work equipment, provided training, had authority to hire or discharge, set work schedules and assignments, determined compensation, supervised the work, and operated the business in which the work was performed.

The plaintiffs relied on allegations and evidence including an XPT, Inc. filing identifying Akhtar as its chief operating officer and agent for service of process; earnings statements listing XPT, Inc. as the sole entity; work performed at NIO USA, Inc.’s San Jose facility; directions from NIO Inc.’s chief executive officer involving NIO USA, Inc.’s employees; reassigned work; and alleged differential treatment and retaliation involving NIO USA, Inc. employees.

The court emphasized that defendants did not dispute that Akhtar held officer positions at XPT, Inc. or that XPT, Inc. appeared on the plaintiffs’ earnings statements. The court concluded that this evidence alone defeated the argument that it was impossible for Akhtar to recover against XPT, Inc. The remaining allegations and evidence were also relevant to the joint-employer inquiry. Because defendants had not shown that the plaintiffs could not prevail against XPT, Inc. or NIO USA, Inc. as a matter of law, the court could not find fraudulent joinder.

Disposition

The court held that XPT, Inc. was a California citizen and that neither XPT, Inc. nor NIO USA, Inc. was shown to be fraudulently joined. Complete diversity was therefore absent, and the court lacked subject-matter jurisdiction over the case. The court granted the plaintiffs’ motion to remand the matter to the Superior Court of the State of California, County of Santa Clara.

The court also found that an award of attorneys’ fees and costs under 28 U.S.C. § 1447(c) was warranted because defendants’ removal argument was objectively unreasonable. It did not set the amount in this order. Instead, it directed the plaintiffs to submit a sworn declaration stating the reasonable fees and costs incurred because of the removal, with supporting information about requested hourly rates. Defendants were permitted to object to the requested amount.