McAnally Enterprises, Inc. v. McAnally

• Decision Date: 07 August 2000
• Docket Number: No. EDCV99-420 RTMCX.,EDCV99-420 RTMCX.
• Citation: 107 F.Supp.2d 1223
• Parties: McANALLY ENTERPRISES, INC., Plaintiff, v. Larry McANALLY and Does 1 through 50, Defendants.
• Court: U.S. District Court — Central District of California

107 F.Supp.2d 1223

McANALLY ENTERPRISES, INC., Plaintiff, v. Larry McANALLY and Does 1 through 50, Defendants.

No. EDCV99-420 RTMCX.

United States District Court, C.D. California.

August 7, 2000.

Karl N. Haws, William P. Tooke, Mundell, Odlum & Haws, LLP, San Bernardino, CA, for plaintiff McAnally Enterprises, Inc.

Anthony J. Ellrod, David J. Wilson, Manning & Marder, Kass, Ellrod & Ramirez, Los Angeles, CA, for plaintiff Patricia A. McAnally, as Trustee of the Living Trust of Larry L. McAnally.

Eric B. Rasmussen, Law Offices of Eric B. Rasmussen, Newport Beach, CA, for defendant Larry L. McAnally.

Bruce D. Varner, Stephan G. Saleson, Varner, Saleson & Dobler LLP, Riverside, CA, for cross-defendants Raye M. Lofgren, Carlton R. Lofgren and Nyle A. McAnally.

ORDER GRANTING PLAINTIFF'S MOTION TO REMAND THE ACTION TO STATE COURT

TIMLIN, District Judge.

The Court, the Honorable Robert J. Timlin, has read and considered Plaintiff McAnally Enterprises, Inc. ("Plaintiff")'s motion to remand,¹ Defendant Patricia A. McAnally ("Defendant")'s opposition to motion to remand,² and Plaintiff's reply papers. Based on such consideration, the Court concludes as follows:

I.

BACKGROUND

This complaint was originally filed in the Superior Court of the State of California in and for the County of San Bernardino ("state court") on February 27, 1998 against Larry McAnally ("McAnally") and Does 1 through 50 for breach of a promissory note (Case No. SCV 45680). Plaintiff is a California corporation. McAnally was a shareholder of Plaintiff, and he used his shares as collateral to obtain promissory notes from Plaintiff. On July 17, 1998, Plaintiff served McAnally with the summons and complaint.

On September 18, 1998, McAnally responded to Plaintiff's complaint by filing a demurrer and cross-complaint. The state court overruled McAnally's demurrer. On December 15, 1998, McAnally initiated a separate action in the same state court (Case No. SCV 53549), seeking to enjoin Plaintiff from selling his shares which served as collateral to the promissory notes. The state court consolidated these two cases upon stipulation of the parties.

On March 13, 1999, McAnally died. McAnally was a Michigan resident, and he was survived by Defendant, his wife. When he was alive, McAnally created a living trust, the Living Trust of Larry L. McAnally, dated July 6, 1998 ("Larry McAnally Trust") and transferred all of his shares in Plaintiff into the Trust. McAnally named Defendant and Jerome Lyons ("Lyons") as co-trustees of the trust.

Defendant is a Michigan resident. Lyons is allegedly a California resident. Plaintiff alleges that, after McAnally's death, McAnally's attorney stated that both co-trustees would be substituted for McAnally as successors-in-interest in the pending state cases. Plaintiff then substituted Defendant as co-trustee of the Larry McAnally Trust in place of Doe 1 defendant on November 24, 1999, and Lyons as co-trustee of the Larry McAnally Trust in place of Doe 2 defendant on November 30, 1999.

On December 3, 1999, Defendant removed the action to the United States District Court for the Central District of California—Eastern Division based on diversity jurisdiction pursuant to 28 U.S.C. § 1332, based on Defendant's Notice of Removal which she filed on that date. Plaintiff now seeks to remand the action, arguing both that Defendant's removal was untimely and that complete diversity does not exist because Lyons is a California resident. Defendant counters that removal was timely and that Lyons' presence in the suit does not destroy diversity because he was fraudulently joined.³

II.

ANALYSIS

A defendant may remove a civil case from state to federal court if it there is diversity or federal question jurisdiction. See 28 U.S.C. § 1441(a) & (b). However, a defendant must comply with the procedural requirements for removal pursuant to 28 U.S.C. § 1446(b) ("section 1446(b)"). As set forth in paragraph one of section 1446(b), a defendant must file a notice of removal of the action within thirty 30 days after receipt of a complaint which reveals the presence of a substantial federal question or the existence of diversity. See section 1446(b).⁴ Furthermore, where there are multiple defendants, all defendants must join in the petition for removal; this proposition is referred to as the "unanimity rule." See Chicago, Rock Island & Pacific Railway Co. v. Martin, 178 U.S. 245, 248, 20 S.Ct. 854, 855, 44 L.Ed. 1055 (1900). Thus, any one defendant may prevent a case from being removed. If a defendant's removal notice fails to meet the procedural requirements of section 1446(b), such as timeliness or unanimity, a court may remand the action upon a plaintiff's timely motion. See 28 U.S.C. § 1447(c) ("A motion to remand the case on any basis other than subject matter jurisdiction must be made within 30 days after the filing of the notice of removal under section 1446(a)" ....); see also Maniar v. Federal Deposit Ins. Corp., 979 F.2d 782, 785 (9th Cir.1992) (holding failure to remove timely is a procedural defect, rather than a jurisdictional defect).

Removal statutes are strictly construed against removal jurisdiction. See Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir.1992). Thus, any doubt should be resolved in favor of remanding a case to state court. See id. Furthermore, "strict construction is especially warranted in diversity cases, where `concerns of comity mandate that state courts be allowed to decide state cases unless the removal action falls squarely within the bounds Congress has created.'" Hom v. Service Merchandise Co., Inc., 727 F.Supp. 1343, 1345 (N.D.Cal.1990), quoting Phillips v. Allstate Ins. Co., 702 F.Supp. 1466, 1468 (C.D.Cal. 1989).

In the instant action, Plaintiff filed a motion to remand within thirty days after Defendant filed her notice of removal, and therefore, the Court will determine whether the removal was proper. Defendant filed her notice of removal based on diversity jurisdiction within thirty days after she was served with the complaint substituting her as a defendant. However, the removal occurred almost one and a half years after the defendant McAnally was served. There was diversity of citizenship when the initial complaint was filed.

The basic question raised by this motion is whether McAnally's failure to file a notice of removal of this action within thirty days after he received the complaint precludes later added defendants from removing the action, or whether each defendant has thirty days after he or she is served with the complaint to file a notice of removal of the action. Courts are split on applying the thirty-day rule to cases with multi-defendants. The Ninth Circuit has not yet addressed the issue. The majority of courts have held that the thirty-day removal period begins to run for all defendants on the date the first defendant receives the initial complaint—the "first-served" rule. See Olsen v. Foundation Health Plan, et al., 1999 WL 390842, at * 2 (N.D.Cal. June 11, 1999); see, e.g. Brown v. Demco, Inc., 792 F.2d 478 (5th Cir.1986) (applying "first-served" rule); Innovacom, Inc. v. Haynes, et. al., 1998 WL 164933 (N.D.Cal. March 17, 1998) (same); Weimer v. City of Johnstown, 931 F.Supp. 985 (N.D.N.Y.1996) (same); Teitelbaum v. Soloski, 843 F.Supp. 614 (C.D.Cal.1994) (same); D. Kirschner & Sons, Inc. v. Continental Casualty Co., 805 F.Supp. 479, 482 (E.D.Ky.1992) (same); Transport Indemnity Co. v. Financial Trust Co., 339 F.Supp. 405 (C.D.Cal.1972) (same).

A minority of courts have allowed each defendant an opportunity to remove within thirty days from the day that defendant received the complaint—the "last-served" rule. See Olsen, 1999 WL 390842, at * 2; see, e.g. Brierly v. Alusuisse Flexible Packaging, Inc., 184 F.3d 527, 533 (6th Cir.1999) (applying "last-served" rule); McKinney v. Board of Trustees, 955 F.2d 924 (4th Cir.1992) (same); Ford v. New United Motors Manufacturing, 857 F.Supp. 707 (N.D.Cal.1994) (same); Garside v. Osco Drug, 702 F.Supp. 19 (D.Mass.1988) (same).⁵

A. Majority First Served Rule

Courts applying the majority first served rule have relied primarily upon three reasons, as explained more fully below: 1) that it follows logically from the unanimity rule, 2) that forum selection should be resolved as early as possible, and 3) that removal statutes must be construed narrowly. The particular facts of a case have also influenced these courts. Thus, some courts have noted there might be special circumstances where it would be inequitable to apply this rule. See, e.g. Brown, 792 F.2d at 482 ("Exceptional circumstances might permit removal even when a later-joined defendant petitions more than precisely thirty days after the first defendant is served.").

Under the rule of unanimity, all defendants must join in a removal petition even though they have not received a copy of the complaint. See Chicago, Rock Island & Pacific Railway Co., 178 U.S. at 248, 20 S.Ct. at 855. Some courts have held that the first-served defendant rule follows logically from the rule of unanimity. See, e.g. Brown, 792 F.2d at 482; see also Teitelbaum, 843 F.Supp. at 615 ("Because all defendants must join, the 30-day period for removal commences to run from the date the first defendant receives a copy of the complaint.") The Court in Transport Indemnity Co. explained that the "failure of a defendant to move for removal within the thirty-day period is equivalent to a decision not to remove" and, then, concluded that "such a decision is irrevocable. To hold otherwise would have the effect of extending the thirty-day limitation as applied to that defendant for an indefinite period...." Transport Indemnity Co., 339 F.Supp. at 409. Other courts have described the failure of a defendant to remove a case within thirty days as a "waiver" of the right to remove, and thus that defendant is precluded from consenting to a later-served defendant's notice of removal. See, e.g. Innovacom, Inc., 1998 WL...