Spence v. Clary

GERRY SPENCE, Plaintiff, v. JAMES R. CLARY, et al., Defendants.

CV 20-11166 DSF (JPRx)

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

January 29, 2021

Order GRANTING Plaintiff Gerry Spence's Motion to Remand (Dkt. 24)

Before the Court are several motions requesting the remand, dismissal, stay, or transfer of this case. Plaintiff Gerry Spence moves to remand the case to Los Angeles Superior Court. Dkt. 24 (Spence Mot. to Remand). Defendants James R. Clary, Dana Cole, John Sloan, and Milton Grimes oppose. Dkt. 29. Defendants also filed various motions to dismiss, stay, or transfer the case. Dkts. 20, 21, 27. The Court decides only the motion for remand because the case was improperly removed.

The Court deems this matter appropriate for decision without oral argument. See Fed. R. Civ. P. 78; Local Rule 7-15. For the reasons stated below, Spence's motion to remand is GRANTED.

I. BACKGROUND

Spence opened the Gerry Spence Trial Lawyers College (TLC) at the Thunderhead Ranch in 1993. Dkt. 1-4 (Compl.) ¶ 1. Spence is a 92-year-old attorney. ¶ 17. TLC is a 501(c)(3) nonprofit corporation "providing continuing legal educational services and conducting seminars and other training programs for lawyers and judges." Id. ¶ 28. In 1975, Spence bought the Thunderhead Ranch, where TLC operated, and bred cattle there until 1993. Id. ¶ 3. In 1965, Spence drew a brand that he used for twenty-four years to identify the Thunderhead Ranch and his livestock. Id. ¶ 4. On December 2, 1965, Spence registered the brand, three clouds with a lightning bolt near the top, with the State of Wyoming. Id. ¶ 6.

Defendants Clary, Sloan, Cole, and Grimes are attorneys who have served on TLC's board of directors. Id. ¶¶ 19-22. Defendants "advis[ed] [Spence] on financial and legal matters," and Spence "relied on them to protect his interests and keep him fully informed of all material facts concerning the Thunderhead Ranch and the Trial Lawyers College." Id. ¶¶ 35-36. On January 17, 2012, "lawyers, at the behest and direction of Defendant Clary, falsely represented to the United States Patent and Trademark Office (the 'USPTO') that TLC was the owner of the Thunderhead Ranch logo." Id. ¶ 37.

Although Clary "represented to Gerry Spence and the TLC Board that he would seek a trademark for the separate and distinct TLC logo," "Clary spearheaded the effort to trademark the Thunderhead Ranch brand and logo as the TLC logo." Id. ¶ 39. Clary "fraudulently concealed from Plaintiff that he had already caused an application to be filed to trademark the separate and distinct Thunderhead Ranch brand and logo owned and registered by Plaintiff in Wyoming . . . [and] that he had no intention of seeking a trademark for the separate and distinct TLC brand and logo." Id. At a TLC board meeting on January 25, 2012, Defendants assured Spence that they were seeking to trademark only the TLC logo. Id. ¶ 44. Spence discovered Defendants had misappropriated his brand and logo in June 2020. Id. ¶ 49.

Additionally, Defendants have some of Spence's intellectual property, which they refuse to return to Spence. Id. ¶ 59. This includes "a lifetime of photographs, paintings, and videos of Gerry Spence at the ranch, at regional seminars, and myriad events in the last 25 years." Id.

On November 5, 2020, Spence brought a lawsuit in Los Angeles Superior Court, asserting state law claims against Defendants forfraud, conversion, breach of fiduciary duty, negligent misrepresentation, intentional infliction of emotional distress, and elder financial abuse. Id. ¶¶ 63-129. On December 9, 2020, Defendants removed the case.

II. LEGAL STANDARD

A. Removal

"Federal courts are courts of limited jurisdiction" and "possess only that power authorized by [the] Constitution and statute." Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). Generally, a case may be removed on the basis of diversity of citizenship if the amount in controversy exceeds $75,000 and the plaintiff and defendant are citizens of different states. 28 U.S.C. § 1332(a). But cases may not be removed on the basis of diversity of citizenship "if any of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought." 28 U.S.C. § 1441(b)(2).

"The defendant bears the burden of establishing that removal is proper." Provincial Gov't of Marinduque v. Placer Dome, Inc., 582 F.3d 1083, 1087 (9th Cir. 2009). Generally, doubts as to removability are resolved in favor of remanding the case. See Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-109 (1941); Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992).

B. Fraudulent Joinder

A fraudulently joined defendant is ignored when determining if removal was proper. Virginia A. Phillips & Karen L. Stevenson, Practice Guide: Federal Civil Procedure Before Trial § 2:2345 (The Rutter Group 2020); see also Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001). A defendant is fraudulently joined if "the plaintiff fails to state a cause of action against a resident defendant, and the failure is obvious according to the settled rules of the state." McCabe v. Gen. Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987).

"[T]he test for fraudulent joinder and for failure to state a claim under Rule 12(b)(6) are not equivalent." Grancare, LLC v. Thrower, 889 F.3d 543, 549 (9th Cir. 2018). In evaluating a claim of fraudulent joinder, "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 resident defendants.'" Id. (quoting Hunter v. Philip Morris USA, 582 F.3d 1039, 1044 (9th Cir. 2009)). In this inquiry, "the district court must consider . . . whether a deficiency in the complaint can possibly be cured by granting the plaintiff leave to amend." Id. at 550.

III. DISCUSSION

Spence contends removal was improper because a case cannot be removed "if any of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought," 28 U.S.C. 1441(b)(2), and Grimes is a citizen of California. Defendants counter that Grimes was fraudulently joined in order to avoid removal, which is otherwise proper because (1) Spence and Defendants are otherwise diverse and (2) the amount in controversy exceeds $75,000.

"[F]raudulent joinder claims can be resolved by piercing the pleadings and considering summary judgment-type evidence such as affidavits and deposition testimony." Cavallini v. State Farm Mut. Auto Ins. Co., 44 F.3d 256, 263 (5th Cir. 1995) (internal quotation marks and citations omitted); see Morris, 236 F.3d at 1068. The Court considers the materials submitted by Grimes in assessing whether he was fraudulently joined, though the result would be the same if it had not done so.

Spence asserted state law claims against Defendants, including Grimes, for fraud, conversion, breach of fiduciary duty, negligent misrepresentation, intentional infliction of emotional distress, and elder financial abuse. Compl. ¶¶ 63-129. The Court must thereforedetermine whether there is any possibility that Spence will be able to establish any of these causes of action.¹

A. Individual Capacity

Grimes first asserts Spence cannot bring claims against him in his individual capacity because the actions at issue were taken by TLC, acting through its board of directors. Dkt. 20 (Grimes Mot. to Dismiss) at 5. To support this, Grimes attaches minutes from a meeting of TLC's board. Because the board discussed TLC's trademark registration, Grimes asserts "there can be no dispute that the digitization process was approved by the TLC Board with Plaintiff's knowledge." Id. at 6.

Grimes cites a single case, U.S. Liab. Ins. Co. v. Haidinger-Hayes, Inc., 1 Cal. 3d 586, 595 (1970), to support his claim that "[d]irectors or officers of a corporation do not incur personal liability for torts of the corporation merely by reason of their official position, unless they participate in the wrong or authorize or direct that it be done" and that liability has mostly been restricted to cases involving physical injury. Grimes Mot. to Dismiss at 6.

But as Spence notes and Grimes acknowledges, "[u]nder California law, shareholders, officers, and directors of corporations can be 'held personally liable for intentional torts when they knew or had reason to know about but failed to put a stop to tortious conduct.'"²Dkt. 32 (Spence Opp'n to Grimes Mot. to Dismiss) at 7 (quoting Johnson v. Altamirano, 418 F. Supp. 3d 530, 554-56 (S.D. Cal. 2019), reconsideration denied, stay granted, No. 3:19-CV-01185-H-BLM, 2020 WL 487301 (S.D. Cal. Jan. 30, 2020) (emphasis added by Spence)). The minutes from the 2012 winter TLC board meeting, which Spence, Clary, Grimes, and Sloan attended, establish only the board and Spence knew "JR was tasked with investigating and obtaining trademarks for the TLC and for the TLC logo." Dkt. 20-1, Ex. A-4 (2012 Meeting Minutes) at 6.³

Accepting the allegations in the complaint as true, Grimes has failed to demonstrate there is no possibility Spence could state a claim against him or the other Defendants for fraud. Spence pleaded the Defendants represented to him at the 2012 board meeting that they were seeking a trademark for the TLC logo, not the Thunderhead Ranch logo, which Spence claims is distinct and solely owned by him. Compl. ¶¶ 43, 44. Spence asserted Defendants, including Grimes "knew or should have known, that Defendant Clary had misappropriated the Thunderbird Ranch brand and logo. They used their position with TLC to wrongly retain the brand and logo. They did this knowing this would cause severe emotional distress to Plaintiff." Id. ¶ 61.

Spence's argument, therefore, is that Defendants represented to him in the board meeting that they were only trademarking the TLC logo but instead appropriated the Thunderbird Ranch logo...