Bennett v. Ohio Natonal Life Assurance Corp.

MARK BENNETT, D.D.S., Plaintiff, v. OHIO NATONAL LIFE ASSURANCE CORPORATION, et al., Defendants.

Case No. 19-cv-05774-DMR

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

November 15, 2019

ORDER ON MOTION TO REMAND AND MOTION TO DISMISS

Re: Dkt. Nos. 9, 14

Plaintiff Mark Bennett, D.D.S., filed this disability insurance action in Marin County Superior Court against Defendants Ohio National Life Assurance Corporation ("Ohio National") and Mitchell & Mitchell Insurance Agency, Inc. ("Mitchell"). Ohio National removed the action on the basis of diversity jurisdiction, asserting that there is complete diversity between the parties because Mitchell was fraudulently joined in the case. [Docket No. 1 (Notice of Removal) 6-10.] Bennett now moves to remand the action. [Docket No. 9.] Mitchell moves pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss the complaint against Mitchell. [Docket No. 14.] This matter is suitable for determination without oral argument. Civil L.R. 7-1(b). For the following reasons, the motion to remand is granted and the motion to dismiss is denied as moot.

I. BACKGROUND AND PROCEDURAL HISTORY

On August 13, 2019, Bennett filed suit in the Superior Court of California, County of Marin, against Ohio National, an insurance company authorized to do business in California, and Mitchell, a licensed insurance broker/agent with its principal place of business in California. Compl. ¶¶ 1, 2. Bennett makes the following allegations in the complaint: while practicing as an oral surgeon, Bennett purchased three disability insurance policies issued by Ohio National from Mitchell. Id. at ¶¶ 5-6. Bennett alleges that Mitchell represented that the Ohio National policies "would provide him disability coverage if he was no longer able to work as an oral surgeon due to injury or sickness, and that under the Policies Ohio National would be required to pay him a lifetime monthly disability benefit if he became disabled due to sickness or injury while the Policies were in force." Id. at ¶ 7. Specifically, "Mitchell represented . . . that the maximum benefit period under the Policies was 'lifetime' such that Plaintiff would be entitled to receive monthly disability benefits for the duration of his life so long as he became unable to work as an oral surgeon due to sickness or injury." Id.

While the policies were in effect, Bennett "was thrown from a horse, suffered serious and debilitating injuries to his shoulder and upper extremity necessitating surgery . . . and became totally disabled from the practice of oral surgery." He "remains totally disabled as a result of the injuries [he] suffered from the fall from the horse." Id. at ¶ 10. Bennett submitted a claim for benefits under the policies, and Ohio National accepted and approved payment of monthly total disability benefits. Id. at ¶¶ 11, 12. However, Ohio National claimed that Bennett's total disability was due to a sickness (degenerative disc disease) rather than due to the injuries he suffered due to the fall and determined that his disability benefits would end at age 65 because his disability commenced after his 55th birthday. Id. at ¶ 12. After Bennett reached age 65, Ohio National terminated his benefits and "has failed and refused to pay Plaintiff the ongoing monthly benefits to which he was entitled." Id. Bennett alleges that Ohio National wrongfully withheld benefits "based upon its wrongful determination" that Bennett's disability is due to sickness. In the event that his disability is properly characterized as due to sickness rather than injury, he alleges that "the cessation of his monthly disability benefits at Age 65 is in direct contravention" of Mitchell's representations "that the Maximum Benefit Period under the Policies was 'Lifetime' without regard to the cause of any disability. Id. at ¶ 13.

Bennett alleges claims for breach of contract and breach of the covenant of good faith and fair dealing against Ohio National. He alleges claims for breach of fiduciary duty, negligent misrepresentation, and negligence against Mitchell.

On September 13, 2019, Ohio National removed the case to federal court, asserting that removal is proper based on diversity jurisdiction. Ohio National states that it is an Ohio citizenand states upon information and belief that Bennett is a citizen of California. It contends that Mitchell's citizenship (California) should be disregarded because it is a sham defendant. Notice of Removal 6. According to Ohio National, Bennett's claims against Mitchell are untimely and barred by the statute of limitation. Id. at 6-9.

Bennett now moves to remand the case to state court, disputing Ohio National's claim that Mitchell is a sham defendant whose California citizenship may be disregarded. He asserts that his claims against Mitchell are timely. Mitchell cross-moves pursuant to Rule 12(b)(6) to dismiss Bennett's claims against Mitchell on the grounds that they are untimely.

II. MOTION TO REMAND

A. Legal Standard

Under 28 U.S.C. § 1441(a), a defendant may remove to federal court any matter that originally could have been filed in federal court. Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987). Federal courts are courts of limited jurisdiction and possess subject matter jurisdiction in civil cases based only on federal question or diversity jurisdiction. Id.; see 28 U.S.C. §§ 1331, 1332. To invoke diversity jurisdiction in an action involving United States citizens, the complaint must allege that "the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between . . . citizens of different States . . . . " 28 U.S.C. § 1332(a)(1).

"Although an action may be removed to federal court only where there is complete diversity of citizenship, 'one exception to the requirement for complete diversity is where a non-diverse defendant has been fraudulently joined.'" Hunter v. Philip Morris USA, 582 F.3d 1039, 1043 (9th Cir. 2009) (internal citations omitted) (quoting Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001)). Under Ninth Circuit law, the joinder of a non-diverse defendant is deemed fraudulent when a plaintiff's failure to state a claim against the resident defendant is "obvious according to the settled rules of the state." Hunter, 582 F.3d at 1043. In such cases, the court may ignore the presence of the non-diverse defendant for purposes of determining diversity. Id. (citing Morris, 236 F.3d at 1067). There is a strong presumption against removal jurisdiction and a general presumption against fraudulent joinder, which means that the removing defendants bear a "heavy burden" to prove fraudulent joinder, with all ambiguity resolved in favor of remandto state court. Hunter, 582 F.3d at 1046.

The Ninth Circuit recently underscored that a fraudulent joinder analysis is different from a Rule 12(b)(6) analysis, and requires remand if there is a "possibility" that a state court could find that the plaintiff has stated a cause of action against the allegedly fraudulent defendant:

A claim against a defendant may fail under Rule 12(b)(6), but that defendant has not necessarily been fraudulently joined. We emphasized in Hunter that a federal court must find that a defendant was properly joined and remand the case to state court if there is a "possibility that a state court would find that the complaint states a cause of action against any of the [non-diverse] defendants." Hunter, 582 F.3d at 1046 (emphasis added) (internal quotations and citation omitted) (quoting Tillman, 340 F.3d at 1279). This standard accords with that adopted by a majority of our sister circuits.

. . .

A standard that equates fraudulent joinder with Rule 12(b)(6) conflates a jurisdictional inquiry with an adjudication on the merits. Because the purpose of the fraudulent joinder doctrine is to allow a determination whether the district court has subject matter jurisdiction, the standard is similar to the "wholly insubstantial and frivolous" standard for dismissing claims under Rule 12(b)(1) for lack of federal question jurisdiction. Bell v. Hood, 327 U.S. 678, 682-83, 66 S.Ct. 773, 90 L.Ed. 939 (1946); Franklin v. Murphy, 745 F.2d 1221, 1227 n.6 (9th Cir. 1984) ("A paid complaint that is 'obviously frivolous' does not confer federal subject matter jurisdiction."). The relative stringency of the standard accords with the presumption against removal jurisdiction, under which we "strictly construe the removal statute," and reject federal jurisdiction "if there is any doubt as to the right of removal in the first instance." Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992) (per curiam).

Grancare, LLC v. Thrower by & through Mills, 889 F.3d 543, 549-50 (9th Cir. 2018).

Removing defendants must prove fraudulent joinder by "clear and convincing evidence," Hamilton Materials, Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1206 (9th Cir. 2007), and courts may consider "summary judgment-type evidence" when resolving claims of fraudulent joinder. See Morris, 236 F.3d at 1068.

B. Analysis

Ohio National does not address the Ninth Circuit's standard for fraudulent joinder in its Notice of Removal or opposition to the motion to remand but instead argues that the complaint fails to state a claim against Mitchell because Bennett's claims against Mitchell are barred by the statute of limitations. According to Ohio National, Bennett's breach of fiduciary duty, negligentmisrepresentation, and negligence claims are each subject to the two-year statute of limitations set forth in California Code of Civil Procedure section 339.¹ It notes Bennett's allegation that Ohio National "determined Plaintiff's disability benefits would end at Age 65" because his disability was due to sickness and not injury. Compl. ¶ 12. Ohio National states that it informed Bennett of this determination and notified him that it would cease paying him disability benefits when he reached age 65 in a letter dated June 8, 2015. [Docket No. 1-2 (...