Takeda v. Northwestern Nat. Life Ins. Co.

• Decision Date: 08 July 1985
• Docket Number: No. 84-5811,84-5811
• Citation: 765 F.2d 815
• Parties: Jim TAKEDA and William H. Whitten, Plaintiffs-Appellants, v. NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY, Stephen Splan, and Does 1 through 100, inclusive, Defendants-Appellees. NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY, and Microdata Corporation, Counterclaimants-Appellees, v. Jim TAKEDA and William H. Whitten, Counterdefendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 815

765 F.2d 815

2 Fed.R.Serv.3d 1301

Jim TAKEDA and William H. Whitten, Plaintiffs-Appellants, v. NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY, Stephen Splan, and Does 1 through 100, inclusive, Defendants-Appellees.

NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY, and Microdata

Corporation, Counterclaimants-Appellees, v. Jim TAKEDA and William H. Whitten, Counterdefendants-Appellants.

No. 84-5811.

United States Court of Appeals Ninth Circuit.

Argued and Submitted March 8, 1985.

Decided July 8, 1985.

Richard S. MacNaughton, Beverly Hills, Cal., for plaintiffs-appellants.

Gary M. Lape, Rutan & Tucker, Costa Mesa, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before FLETCHER, PREGERSON, and HALL, Circuit Judges.

FLETCHER, Circuit Judge:

Plaintiffs Takeda and Whitten appeal the district court's refusal to remand this action to state court and the entry of a preliminary injunction against prosecution of a second state court action plaintiffs filed after removal of this action to federal court. We reverse and remand to the district court with directions to remand this case to state court.

I. BACKGROUND

Jim Takeda, a chiropractor, and William Whitten, one of his patients, ("plaintiffs") brought suit in California superior court against Northwestern National Life Insurance Company and Stephen Splan, an employee of Northwestern ("defendants" or "Northwestern"). Plaintiffs also included in their complaint 100 Doe defendants.

Plaintiffs alleged that Northwestern had contracted to provide medical insurance to employees of Microdata Corporation ("Microdata"), Whitten's employer, that Takeda had treated Whitten, and that Northwestern had refused to pay for all or part of this treatment. The complaint alleged that Northwestern was systematically underpaying claims such as Whitten's and was using improper bases for determining the allowance of claims. Takeda and Whitten purported to sue on behalf of all other medical practitioners and patients similarly situated. The complaint alleged state law claims for unfair competition, Cal.Bus. & Prof.Code Secs. 17000-17208 (West 1964 & 1985 Supp.), breach of contract, breach of the duty of good faith and fair dealing, breach of fiduciary duties, and violation of the California Insurance Code, Cal.Ins.Code Sec. 790.03 (West 1972 & Supp.1985).

Northwestern removed this case to the federal district court on the basis of diversity of citizenship. 28 U.S.C. Sec. 1441 (1982). Takeda and Whitten are California residents, Splan is a Minnesota resident, and Northwestern is a Minnesota corporation with its principal place of business in Minnesota. Microdata is a California corporation with its principal place of business in California.

After removal, Northwestern moved to dismiss plaintiffs' claims for breach of fiduciary duties and unfair competition. The district court granted the motion. Northwestern then answered and filed a counterclaim against plaintiffs. Microdata joined as an additional party counterclaimant. See Fed.R.Civ.P. 13(h). The counterclaim alleged that Whitten was not insured by Northwestern, but under a self-funded group medical plan established by Microdata pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Secs. 1001-1381 (1982). Microdata is the administrator of the plan, and Northwestern handles certain administrative responsibilities under the plan. The counterclaim sought a declaratory judgment that Microdata and Northwestern performed all duties they owed Whitten under the plan and ERISA and were not liable for the claims he and Takeda asserted.

Plaintiffs moved to remand the action to state court, at first on the basis that, with regard to the unfair competition claim, the amount in controversy requirement was not met as to all plaintiffs (i.e., the similarly situated medical practitioners and patients on whose behalf plaintiffs sued), and later, on the basis that the three California- resident Northwestern employees named in one of Northwestern's responses to interrogatories were Doe defendants who destroyed diversity.

Northwestern responded by moving to strike the Doe defendants. The district court granted the motion to strike on the ground that the Doe defendants were sham. The court also denied plaintiffs' motion for remand.

Plaintiffs then filed a second state court action alleging the same claims raised in the federal action. Plaintiffs named as defendants in that action Northwestern and Splan, as well as Microdata, and the three California-resident Northwestern employees. Northwestern and Microdata moved to enjoin prosecution of the state court action. The district court granted the preliminary injunction, and plaintiffs timely appealed.

II. DISCUSSION

A. Jurisdiction

Defendants contend that we lack jurisdiction to review the district court's refusal to remand and that the only issue before us is the propriety of the preliminary injunction. See La Chemise Lacoste v. Alligator Co., 506 F.2d 339, 341 (3d Cir.1974) (per curiam), cert. denied, 421 U.S. 937, 95 S.Ct. 1666, 44 L.Ed.2d 94 (1975). Our court has rejected this argument and allowed review of a refusal to remand on an appeal from a preliminary injunction. Albi v. Street & Smith Publications, Inc., 140 F.2d 310, 311 (9th Cir.1944). ¹ When a district court enjoins prosecution of a parallel state action, the propriety of the underlying removal is intertwined with the propriety of granting the injunction. It would be wasteful not to review the refusal to remand in these circumstances. See Alligator Co. v. La Chemise Lacoste, 421 U.S. 937, 938, 95 S.Ct. 1666, 1666, 44 L.Ed.2d 94 (1975) (White, J., dissenting from denial of certiorari), see also 14A C. Wright, A. Miller & E. Cooper, Federal Practice & Procedure Sec. 3740, at 598-99 (1985).

Accordingly, the district court's refusal to remand is an issue properly reviewable on this appeal.

B. Propriety of Removal

In reviewing a denial of a motion to remand a removed case, we look to whether the case was properly removed to federal court in the first place. Salveson v. Western States Bankcard Association, 731 F.2d 1423, 1426 (9th Cir.1984). We strictly construe the removal statute against removal jurisdiction, Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09, 61 S.Ct. 868, 872, 85 L.Ed. 1214 (1941); Salveson v. Western States Bankcard Association, 731 F.2d at 1426. We review a district court's determination of subject matter jurisdiction de novo. Carpenters Southern California Administration Corp. v. Majestic Housing, 743 F.2d 1341, 1343 (9th Cir.1984).

Plaintiffs principally argue that the Doe defendants included in their complaint destroy diversity jurisdiction and compel remand. We find the presence of Does irrelevant here since we conclude that Microdata is an indispensable party to this action, whose absence mandates remand to state court. ²

1. Microdata as an Indispensable Party

Ordinarily, when removal is proper at the outset, federal jurisdiction is not defeated by later changes or developments in the suit. Lopez v. General Motors Corp., 697 F.2d 1328, 1332 (9th Cir.1983); Southern Pacific Co. v. Haight, 126 F.2d 900, 903 (9th Cir.), cert. denied, 317 U.S. 676, 63 S.Ct. 154, 87 L.Ed. 542 (1942). But we have recognized an exception to this rule when an indispensable party would destroy diversity. See Othman v. Globe Indemnity Co., 459 F.2d 1458, 1465; Lopez v. General Motors Corp., 697 F.2d at 1332; Desert Empire Bank v. Insurance Co. of North America, 623 F.2d 1371, 1374 (9th Cir.1980); Molnar v. National Broadcasting Co., 231 F.2d 684, 687 (9th Cir.1956); accord In re Merrimack Mutual Fire Insurance Co., 587 F.2d 642, 646 (5th Cir.1978). ³

Rule 19 of the Federal Rules prescribes a bifurcated analysis to determine whether parties should or must be joined. We must first consider whether the party is necessary, i.e., whether:

(1) in his absence complete relief cannot be accorded among those already parties, or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest.

Fed.R.Civ.P. 19(a). If the party is necessary but his joinder will destroy jurisdiction, as is the case here if Microdata is joined as a defendant, then we must consider whether "in equity and good conscience" the action should proceed without his joinder, i.e., whether he is indispensable. Fed.R.Civ.P. 19(b). In connection with this inquiry, four factors are relevant:

to what extent a judgment rendered in the person's absence might be prejudicial to him or those already parties; the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; whether a judgment rendered in the person's absence will be adequate, whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder.

Fed.R.Civ.P. 19(b).

The Rule 19 analysis is easily stated, but not so easily applied. The rule emphasizes practical consequences and its application depends on the circumstances of each case. Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 118-19, 88 S.Ct. 733, 742-43, 19 L.Ed.2d 936 (1968); Kaplan v. International Alliance of Theatrical & Stage Employees, 525 F.2d 1354, 1361 (9th Cir.1975).

Our initial concern is whether plaintiffs can obtain complete relief from Northwestern alone. The ultimate responsibility for the medical plan and for decisions allowing or disallowing claims rests with Microdata. ⁴ It is not clear whether Microdata or Northwestern made the decisions about which plaintiffs complain (e.g.,...