Good v. Prudential Ins. Co. of America, C 98-0894 CW.

• Decision Date: 16 April 1998
• Docket Number: No. C 98-0894 CW.,(MDL 1061).,C 98-0894 CW.
• Citation: 5 F.Supp.2d 804
• Court: U.S. District Court — Northern District of California
• Parties: Walter L. GOOD, Plaintiff, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA; Barbara Magid; and Does 1 through 50, Defendants.

5 F.Supp.2d 804

Walter L. GOOD, Plaintiff, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA; Barbara Magid; and Does 1 through 50, Defendants.

No. C 98-0894 CW.

(MDL 1061).

United States District Court, N.D. California.

April 16, 1998.

Alexander B. Trueblood, Chavez & Gertler L.L.P., San Francisco, CA, for Walter L. Good.

Gregory L. Smith, Sonnenschein Nath & Rosenthal, San Francisco, CA, for Prudential Ins. Co. of America.

Robert D. Phillips, Jr., Fleming & Phillips, Walnut Creek, CA, for Barbara Magid.

ORDER DENYING PLAINTIFF'S MOTION TO REMAND AND GRANTING DEFENDANT'S MOTION TO STAY

WILKEN, District Judge.

Plaintiff Walter L. Good moves to remand this case to State Court and seeks attorneys' fees incurred as a result of the removal. Defendant Prudential Insurance Company of America ("Prudential") opposes. Prudential moves separately to stay all proceedings in this case pending a final decision by the Judicial Panel on Multidistrict Litigation ("the MDL Panel") whether to transfer this case. Mr. Good opposes. The matter was decided on the papers. Having considered all of the papers filed by the parties, the Court denies the motion to remand and grants the motion to stay.

BACKGROUND

On January 21, 1998, Mr. Good filed a complaint in the Marin County Superior Court against Prudential and Defendant Barbara Magid, a Prudential insurance agent. Mr. Good alleges that in February, 1994, he met with Ms. Magid and Dianne Garcia, a Prudential insurance agent not named in the complaint, to discuss the possibility of purchasing an additional insurance policy with Prudential.¹ According to Mr. Good, Ms. Magid made numerous representations concerning the benefits of a variable appreciable life insurance policy ("VAL"). Mr. Good alleges that Ms. Magid told him that Mr. Good could obtain a $1,000,000 VAL by paying an annual premium of $10,000 for three to six years, after which time the premiums would "vanish." Complaint at ¶ 11. According to Mr. Good, he bought a $1,000,000 VAL based on this representation.

Mr. Good alleges that Prudential never intended to allow his premiums to vanish after three to six years. He alleges further that Prudential's misrepresentations to the contrary were part of a nationwide pattern of deceptive conduct by Prudential. Complaint at ¶ 12. Mr. Good asserts claims for fraud, negligent misrepresentation, unfair competition, and money had and received against Prudential and Ms. Magid. He also asserts a claim for recision against Prudential.

On March 6, 1998, Prudential removed the case to this Court, asserting diversity jurisdiction. Prudential argued in the notice of removal that diversity jurisdiction exists even though Ms. Magid and Mr. Good are both citizens of California because Ms. Magid is a sham Defendant. On March 10, 1998, four days after removing the case, Prudential filed a notice of related action in In re the Prudential Insurance Company of America Sales Practices Litigation, MDL Docket No. 1061, a matter pending in the New Jersey District Court.

Mr. Good moves to remand this case to Superior Court, asserting that Ms. Magid was properly joined as a Defendant because she is personally liable for her misrepresentations to Mr. Good. Prudential responds that the undisputed evidence in the case indicates that Ms. Magid was not involved in this sale of the VAL, and that, even if she were, she is not a proper Defendant because she acted at all times as Prudential's agent in the course and scope of her agency.

Prudential also moves to stay the proceedings in this case pending final decision by the MDL Panel, which, on March 26, 1998, issued a conditional order of transfer of this case. Prudential argues that a temporary stay is appropriate to achieve the judicial economies that underlie 28 U.S.C. § 1407. Mr. Good responds that such a stay will prejudice him.

DISCUSSION

I. Legal Standards

A. Motion to Remand

Title 28 U.S.C. § 1447 provides that if, at any time before judgment, it appears that the district court lacks subject matter jurisdiction over a case previously removed from State court, the case must be remanded. 28 U.S.C. § 1447(c). The Ninth Circuit has held that courts should resolve doubts as to removability in favor of remanding the case to State court. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir.1992).

B. Motion to Stay

The power to stay proceedings is within the Court's discretion. The Supreme Court has described the power to stay proceedings as "incidental to the power inherent in every court to manage the schedule of cases on its docket to ensure fair and efficient adjudication." Landis v. American Water Works & Elec. Co., 299 U.S. 248, 254-255, 57 S.Ct. 163, 81 L.Ed. 153 (1936).

II. Motion to Remand

A. Fraudulent Joinder

A defendant may remove a case with a non-diverse defendant on the basis of diversity jurisdiction and seek to persuade the district court that this defendant was fraudulently joined. Zogbi v. Federated Dept. Store, 767 F.Supp. 1037, 1041 (C.D.Cal.1991) (citing McCabe v. General Foods Corp., 811 F.2d 1336, 1339 (9th Cir.1987)). The Ninth Circuit has held, "If a 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, the joinder of the resident defendant is fraudulent." McCabe v. General Foods Corp., 811 F.2d 1336, 1339 (9th Cir.1987).

The defendant need not show that the joinder of the non-diverse party was for the purpose of preventing removal. Instead, the defendant must demonstrate that there is no possibility that the plaintiff will be able to establish a cause of action in State court against the alleged sham defendant. Dodson, 951 F.2d at 42. The defendant seeking removal is entitled to present facts showing that the joinder is fraudulent. McCabe, 811 F.2d at 1339. The district court, however, must resolve all disputed questions of fact in favor of the Plaintiff. Dodson, 951 F.2d at 42.

B. Analysis

Defendants assert that under California law, an insurance agent, acting within the scope of her agency for a disclosed insurance agency, is an improper defendant. The California Court of Appeal in Lippert v. Bailey, 241 Cal.App.2d 376, 382, 50 Cal.Rptr. 478 (1966), held that liability to the insured "for acts or contracts of an insurance agent within the scope of his agency, with a full disclosure of the principal, rests on the company." See also, Kurtz, Richards, Wilson & Co., Inc. v. Insurance Communicators Marketing Corporation, 12 Cal.App.4th 1249, 1257-58, 16 Cal.Rptr.2d 259 (1993) (in a negligence case, "where the agent contracts in the name of the insurer and does not exceed that authority, the insurer is liable, and not the agent").

In Gasnik v. State Farm Ins. Co., 825 F.Supp. 245, 249 (E.D.Cal.1992), the court found that the plaintiff, in his case against an insurance company, had fraudulently joined the insurance agent who sold him his policy. The plaintiff asserted causes of action against the insurance agent for negligently failing to obtain the increased coverage he requested and for negligently misrepresenting that his coverage would be increased. Id. at 248. Citing Lippert, the Gasnik court held that the plaintiff's failure to state a claim against the agent was obvious under settled California law: "it is settled law that an insurance agent acting within the course and scope of his employment cannot be held liable for damages resulting from a negligent failure to insure."

Federal courts within this circuit have applied Lippert and Gasnik to find insurance agents to be improper defendants in cases in which the agent was sued for fraud and negligent misrepresentation. See e.g., Duffy v. Allstate Ins. Co., 1997 U.S. Dist. LEXIS 18023 (C.D.Cal.1997) (agent sued for negligent misrepresentation not proper defendant because he was acting within scope of agency); Campbell v. Allstate Ins. Co., 1995 WL 376926 1995 U.S. Dist. LEXIS 21849 (C.D.Cal.1995) (dismissing claims including fraud and negligent misrepresentation because principal was disclosed and plaintiff alleged that agent was acting within scope of agency); Griffin v. Allstate Ins. Co., 1995 U.S. Dist. LEXIS 11126 (C.D.Cal.1995) (agent sued for bad faith and breach of fiduciary duty fraudulently joined because, under California law, company is liable to insured for acts of agent within scope of agency).

Mr. Good asserts that Lippert applies only to attempts to hold agents liable for breaches of contractual obligations. His authority for this proposition is Witkin's Summary of California Law, which discusses Lippert in a section entitled "Liability to Agent on Contracts." 2 Witkin, Summary of California Law, Agency § 145. Nothing in Witkin's Summary, however, or in Lippert itself, limits the rule in the case to contractual claims. Indeed, the agents in Lippert were not sued on the insurance contract. Instead, they were sued for a negligent failure to make the contract that the plaintiffs wished to make with the insurer. See Lippert, 241 Cal.App.2d at 381, 50 Cal.Rptr. 478. The courts in Kurtz and Gasnik indicated further that Lippert applied to cases based on an agent's negligence and negligent misrepresentations. See Kurtz, 12 Cal.App.4th at 1257-58, 16 Cal.Rptr.2d 259; Gasnik, 825 F.Supp. at 249. Furthermore, the court in Campbell applied Lippert to a fraud claim. Campbell, 1995 WL 376926 at *1, 1995 U.S. Dist. LEXIS at * 1.

Mr. Good presents no California case, and the Court knows of none, holding that an insurance agent whose principal is disclosed can ever be held liable for acts committed within the scope of his or her agency. Mr. Good relies instead on cases outside of the insurance context, which hold that agents are liable for their own torts even when they are acting within the scope of their employment. See Bayuk v. Edson, 236 Cal.App.2d 309, 319-320, 46 Cal.Rptr. 49 (1965) (architect's agent liable for own torts); Stirnus v. Adams, 50 Cal.App. 730, 195 P. 955 ...