Grancare, LLC v. Thrower

• Decision Date: 26 April 2018
• Docket Number: No. 16-15533,16-15533
• Citation: 889 F.3d 543
• Parties: GRANCARE, LLC, dba Vale Healthcare Center ; Mariner Health Care, INC., Defendants–Appellants, v. Ruth THROWER, BY AND THROUGH her Successor in Interest, Rosie Lee MILLS; Rosie Lee Mills; Helen Mills; Loretta Eddings; Lashawn Thrower; Perry Johnson, Jr.; Ellen Mason, Plaintiffs–Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

889 F.3d 543

GRANCARE, LLC, dba Vale Healthcare Center ; Mariner Health Care, INC., Defendants–Appellants,

v.Ruth THROWER, BY AND THROUGH her Successor in Interest, Rosie Lee MILLS; Rosie Lee Mills; Helen Mills; Loretta Eddings; Lashawn Thrower; Perry Johnson, Jr.; Ellen Mason, Plaintiffs–Appellees.

No. 16-15533

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 18, 2017, San Francisco, California

Filed April 26, 2018

Ben Ogletree (argued), Verdi & Ogletree PLLC, Washington, D.C., for Defendants–Appellants.

David M. Medby (argued), Mark A. Schadrack, and Stephen M. Garcia, Garcia Artigliere & Medby, Long Beach, California, for Plaintiffs–Appellees.

Before: Michael Daly Hawkins, William A. Fletcher, and Richard C. Tallman, Circuit Judges.

OPINION

W. FLETCHER, Circuit Judge:

Defendant–Appellant GranCare LLC ("GranCare") removed a diversity case to federal court, arguing that the sole non-diverse defendant, nursing home administrator Remy Rhodes, was fraudulently joined as a defendant in order to defeat diversity and prevent removal. The district court remanded the case and awarded costs and attorney's fees to Plaintiffs pursuant to 28 U.S.C. § 1447(c) after finding that Rhodes was not fraudulently joined and that removal was objectively unreasonable. GranCare appeals the award, arguing that the district court applied an improper standard for fraudulent joinder and that removal was objectively reasonable. We have jurisdiction under 28 U.S.C. § 1291. We affirm.

I. Factual and Procedural Background

Ruth Thrower died on July 30, 2015, after a stay at a nursing facility operated by GranCare LLC. On September 14, 2015, Thrower's estate and her successors ("Thrower's heirs") filed suit in California state court naming as defendants, among others, GranCare and a GranCare administrator, Remy Rhodes. The complaint alleged that Thrower suffered a fall while residing at the facility, which could have been prevented by the adoption of an adequate care plan, and that GranCare staff delayed before sending Thrower to a hospital for treatment. The complaint alleged claims under California law against all defendants for elder abuse, negligence, negligent hiring and supervision, and wrongful death, and an additional claim against GranCare only for fraud.

On December 7, 2015, defendants removed to federal court, even though the named parties are not completely diverse. Thrower's heirs and defendant Rhodes are all California citizens. The remaining defendants contended that Rhodes is a sham defendant who was fraudulently joined to the lawsuit for the purpose of defeating diversity. They also contended that the complaint was "devoid of allegations that Defendant Rhodes herself committed any specific wrongdoing" and failed to "ascrib[e] any particular act or omission by Rhodes." Finally, they contended that Rhodes, as a non-clinician administrator, owed no duty of care to Thrower under California law.

Defendants relied on a district court order in Johnson v. Grancare LLC , No. 15-CV-03585-RS, 2015 WL 6865876 (N.D. Cal. Nov. 9, 2015) as supporting removal. In Johnson , the heirs of a different resident who died at a GranCare facility sued the same set of defendants in California state court for elder abuse. Id. at *1. As in this case, defendants removed to federal court on the basis of diversity, asserting that Rhodes had been fraudulently joined. Id. The district court in Johnson concluded that "[t]he standard for determining whether a defendant is fraudulently joined is similar to that of a 12(b)(6) motion to dismiss." Id. at *2. Under that standard, the court held that the complaint failed to plead viable claims against Rhodes and denied plaintiffs' motion to remand. GranCare argued in the district court that the reasoning and result in the Johnson order compelled the same outcome in this case because plaintiffs "[did] not plead a viable cause of action against Rhodes." At a hearing in this case, GranCare conceded that there was "some possibility, if plaintiff[s] properly pleaded such," that Thrower's heirs could state a cause of action against Rhodes, but GranCare emphasized that the complaint contained "no allegations" against her.

The district court granted plaintiffs' motion to remand. In the court's view, Johnson improperly conflated the test for fraudulent joinder with the test under Rule 12(b)(6). The court observed that no appellate decision has "explicitly established how [the] standard [for fraudulent joinder] interacts with the ‘plausibility’ standard used in evaluating motions to dismiss under Rule 12(b)(6)," but concluded that fraudulent joinder should not be found if there is "any possibility" that a plaintiff could state a claim against the defendant, even if the complaint actually fails to state a claim. Applying this standard, the district court remanded. The district court granted plaintiffs' request for costs and attorney's fees after finding that removal was "patently unreasonable."

GranCare now appeals the award of costs and attorney's fees.

II. Standard of Review

We review an award of costs and attorney's fees under 28 U.S.C. § 1447(c) for abuse of discretion. Moore v. Permanente Med. Grp., Inc. , 981 F.2d 443, 447 (9th Cir. 1992). We will reverse a district court decision only if it is premised on "clearly erroneous findings of fact or erroneous determinations of law." Dahl v. Rosenfeld , 316 F.3d 1074, 1077 (9th Cir. 2003).

III. Discussion

GranCare makes two arguments on appeal. First, it argues that the award is improper because the district court's remand order is legally incorrect. Second, it argues that, even if incorrect, removal was objectively reasonable. We address each argument in turn.

A. Remand Order

While an order remanding a case for lack of subject matter jurisdiction is unreviewable under 28 U.S.C. § 1447(d), we may consider the merits of a remand order when determining whether an award that flows from that order is proper. Balcorta v. Twentieth Century–Fox Film Corp. , 208 F.3d 1102, 1105 (9th Cir. 2000).

A defendant may remove "any civil action brought in a State court of which the district courts ... have original jurisdiction." 28 U.S.C. § 1441(a). Diversity removal requires complete diversity, meaning that each plaintiff must be of a different citizenship from each defendant. Caterpillar Inc. v. Lewis , 519 U.S. 61, 68, 117 S.Ct. 467, 136 L.Ed.2d 437 (1996). In determining whether there is complete diversity, district courts may disregard the citizenship of a non-diverse defendant who has been fraudulently joined. Chesapeake & Ohio Ry. Co. v. Cockrell , 232 U.S. 146, 152, 34 S.Ct. 278, 58 L.Ed. 544 (1914).

There are two ways to establish fraudulent joinder: "(1) actual fraud in the pleading of jurisdictional facts, or (2) inability of the plaintiff to establish a cause of action against the non-diverse party in state court." Hunter v. Philip Morris USA , 582 F.3d 1039, 1044 (9th Cir. 2009) (quoting Smallwood v. Illinois Cent. RR. Co. , 385 F.3d 568, 573 (5th Cir. 2004) ). Fraudulent joinder is established the second way if a defendant shows that an "individual[ ] joined in the action cannot be liable on any theory." Ritchey v. Upjohn Drug Co. , 139 F.3d 1313, 1318 (9th Cir. 1998). But "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, the federal court must find that the joinder was proper and remand the case to the state court." Hunter , 582 F.3d at 1046 (quoting Tillman v. R.J. Reynolds Tobacco , 340 F.3d 1277, 1279 (11th Cir. 2003) (per curiam) ) (emphasis added). A defendant invoking federal court diversity jurisdiction on the basis of fraudulent joinder bears a "heavy burden" since there is a "general presumption against [finding] fraudulent joinder." Id . (citations omitted).

We have upheld rulings of fraudulent joinder where a defendant demonstrates that a plaintiff is barred by the statute of limitations from bringing claims against that defendant. See Ritchey , 139 F.3d at 1320 ; Hamilton Materials, Inc. v. Dow Chem. Corp. , 494 F.3d 1203, 1206 (9th Cir. 2007). We have also upheld such rulings where a defendant presents extraordinarily strong evidence or arguments that a plaintiff could not possibly prevail on her claims against the allegedly fraudulently joined defendant. See McCabe v. Gen. FoodsCorp. , 811 F.2d 1336, 1339 (9th Cir. 1987) (defendant's conduct was privileged under state law); United Comput. Sys. Inc. v. AT&T Corp. , 298 F.3d 756, 761 (9th Cir. 2002) (plaintiff's claims against alleged sham defendant were all predicated on a contract to which the defendant was not a party); Kruso v. Int'l Tel. & Tel. Corp. , 872 F.2d 1416, 1426–27 (9th Cir. 1989) (same). We have declined to uphold fraudulent joinder rulings where a defendant raises a defense that requires a searching inquiry into the merits of the plaintiff's case, even if that defense, if successful, would prove fatal. See Hunter , 582 F.3d at 1046 (holding that an implied preemption affirmative defense was not a permissible ground for finding fraudulent joinder).

GranCare argues that the district court in this case applied an incorrect standard for fraudulent joinder. Specifically, it argues that the district court's standard incorrectly requires a removing party to show that there is no possibility that the plaintiff could demonstrate a viable claim against the allegedly fraudulently joined defendant. GranCare argues that the correct standard is close to that of a Rule 12(b)(6) motion to dismiss, as applied by the district court in Johnson . We disagree.

We agree with GranCare's contention that the fraudulent joinder standard shares some similarities with the analysis under Rule 12(b)(6). Both require some assessment of the plaintiff's lawsuit. Indeed, we have previously framed the test in terms of an "obvious" failure to state a claim. See McCabe , 811 F.2d at 1339 (holding that fraudulent joinder is...