Toumajian v. Frailey, 95-56213

Decision Date29 January 1998
Docket NumberNo. 95-56213,95-56213
Citation135 F.3d 648
Parties98 Cal. Daily Op. Serv. 782, 98 Daily Journal D.A.R. 1055, Pens. Plan Guide (CCH) P 23940A Michael TOUMAJIAN, Plaintiff-Appellant, v. Richard FRAILEY and Frailey & Associates, Inc., Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

Robert C. Burlison, Jr., Burlison & Luostari, Glendale, California, for plaintiff-appellant.

Ronald S. Kravitz and Lowell H. Haky, Zelle & Larson LLP, San Francisco, California, for defendants-appellees.

Appeal from the United States District Court for the Central District of California; J. Spencer Letts, District Judge, Presiding. D.C. No. CV-93-07210-JSL.

Before: FLETCHER and TROTT, Circuit Judges, and JENKINS, * Senior District Judge.

JENKINS, District Judge:

OVERVIEW

Plaintiff Michael Toumajian filed a Complaint in California state court in which he asserted that the defendants, Richard Frailey and Frailey & Associates, Inc. (collectively "Frailey"), were negligent in advising him in setting up and administering a pension plan. The defendants had the matter removed to the district court. On motion of the defendants, the district court dismissed the Complaint. Following payment of sanctions to the defendant, plaintiff was permitted to file an amended complaint. Plaintiff also filed a Motion to Remand. The district court dismissed the Amended Complaint without leave to amend and denied the Motion to Remand as moot. On appeal, the plaintiff challenges both the first and second dismissals as well as the award of sanctions. Because we conclude the action was improvidently removed in the first instance, all orders subsequently entered by the district court dismissing the Complaint and the Amended Complaint are reversed. Although our conclusion that the district court lacked subject matter jurisdiction does not necessarily invalidate the district court's award of sanctions, we also reverse that award. Accordingly, the action is remanded to the district court with directions to remand the action to the state court.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

Once again the mysteries of the Employee Retirement Income Security Act of 1974 ("ERISA")-a statute intended to provide a system of uniformity and simplicity in the complex regulatory field of employee benefits-provide added complexity in this action. Specifically, this Court, as so many before and so many still to come, must determine whether the preemptive force of ERISA acts as a bar to an otherwise run-of-the-mill state law claim of professional malpractice. For purposes of simplicity-a proposition foreign to ERISA actions-the procedural and factual history of this action is only briefly described. (The parties, active participants in the torturous history, are no doubt fully aware of the complete history so that a detailed repetition is not warranted.)

On October 22, 1993, Toumajian initially filed a Complaint in California Superior Court alleging state law claims of negligence and seeking unspecified damages from the defendants, in which he asserted that he retained Frailey, "to set up and administrate a pension and profit plan," and that as a result of Frailey's "fail[ure] to exercise reasonable care and skill" in the performance of those services, Toumajian personally sustained unascertained money damages.

Frailey removed the state action to the district court on December 2, 1993, pursuant to 28 U.S.C. § 1441(b) on the ground that district court had original jurisdiction over the action by virtue of 28 U.S.C. § 1331 in that the Complaint "arises under the Employment [sic] Retirement Income Security Act of 1974 (ERISA)." Soon thereafter Frailey filed a motion to dismiss, asserting that ERISA preempted Toumajian's state law negligence claims. Initially, on October 19, 1994, the district court dismissed the Complaint without prejudice and granted Toumajian twenty-days leave to amend.

On or about November 8, 1994, Toumajian, rather than filing an amended complaint as requested by the court, attempted to file a motion to remand. Toumajian's attempted filing, however, was thwarted by his failure to comply with the local district court rules. Instead of filing the motion by hand-delivering it to the clerk of the court, Toumajian's attorney attempted to file the motion via facsimile. Because the motion did not contain an original signature of Toumajian's attorney as required by Local Rule 3.1, the district court rejected the attempted filing. On November 29, 1994, the district court, noting that Toumajian did not file an amended complaint within twenty days, dismissed the action without leave to amend.

On December 13, 1994, Toumajian filed a motion seeking relief from the dismissal and/or reconsideration of the November 29, 1994 order. At a January 9, 1995 hearing on his motion seeking relief from dismissal, Toumajian's attorney tried to raise with the district court what he believed to be his prior outstanding motion to remand. 1 Although the district court believed it had already ruled on and denied Toumajian's motion to remand, the record indicates that it had not. There were no orders entered on the merits of that motion. The only determination made by the district court was that the motion as received by the court did not comply with the local rules because it had a "fax signature." The only court action on the motion was a Notice of Document Discrepancy, dated November 8, 1994, rejecting the attempted filing.

In addition, the record of the January 9th hearing does not support the view that the district court denied Toumajian's motion from the bench. See footnote 1, supra. Although the court stated initially that the motion was denied, it then states that: "I'll look at it. I think it was denied on the papers. If it wasn't, I'll reset it." The district court never re-set the motion for hearing.

On January 18, 1995, subject to the condition that Toumajian pay $2,500 in sanctions directly to Frailey, the district court granted Toumajian's motion for relief from dismissal and permitted Toumajian to file an amended complaint. All later rulings from the district court were based on the Amended Complaint.

In his Amended Complaint, filed on February 16, 1995, Toumajian described the action as an action for damages due to the negligence and the failure of the defendants to properly advise the plaintiff "in the setting up and administration of the plaintiff's company's employee retirement plan under the Employment [sic] Retirement Income Security Act of 1974." Specifically, Toumajian asserted that the negligence claims arose out of: (1) defendants' failure to properly advise the plaintiff on the legality of the "ERISA plan's creation, actions and administration"; (2) defendants' improper advice that "monies from the ERISA plan could be invested in [zero] coupon bonds"; (3) defendants' advice that "monies from the ERISA plan could be co-mingled with the plaintiff's monies"; (4) defendants' advice concerning "procedures to notify members of the ERISA plan"; and (5) defendants' failure to provide plaintiff with "competent and proper advice" concerning the withdrawal of "funds from the ERISA plan."

On March 17, 1995, Frailey filed a motion to dismiss the amended complaint on the grounds that ERISA preempted the state law negligence claims and that, among other things, Toumajian, as an individual, lacked standing to bring an action under ERISA. On April 3, 1995, Toumajian filed a motion to remand.

On May 31, 1995, Toumajian filed an untimely opposition to Frailey's motion to dismiss in which he again asked the district court to remand the matter to state court or, in the alternative, grant him leave to file a second amended complaint. Hearings on both the motion to dismiss and the motion to remand were held on June 12, 1995.

On July 19, 1995, the district court granted Frailey's motion to dismiss without leave to amend and denied Toumajian's motion to remand as moot. Toumajian filed a timely notice of appeal, appealing the following orders: (1) the November 29, 1994 order dismissing the original Complaint without leave to amend; (2) the January 18, 1995 order conditioning the filing of an Amended Complaint on the payment of $2,500 in sanctions to the defendants; and (3) the July 19, 1995 order dismissing the Amended Complaint and denying the motion to remand.

STANDARD OF REVIEW

Questions of subject matter jurisdiction and removal are reviewed de novo. Kruse v. State of Hawaii, 68 F.3d 331, 333 (9th Cir.1995); Harris v. Provident Life and Accident Ins. Co., 26 F.3d 930, 932 (9th Cir.1994). The burden of establishing federal subject matter jurisdiction falls on the party invoking removal. Harris, 26 F.3d at 932. The often-related issue of preemption is also a question of law reviewed de novo. Associated Builders & Contractors, Inc. v. Local 302 Int'l Bhd. of Elec. Workers, 109 F.3d 1353, 1355 (9th Cir.1997). The imposition of sanctions by the district court is reviewed for abuse of discretion. Chambers v. NASCO, Inc., 501 U.S. 32, 55, 111 S.Ct. 2123, 2138, 115 L.Ed.2d 27 (1991); Buster v. Greisen, 104 F.3d 1186, 1189 (9th Cir.1997), cert. denied, --- U.S. ----, 118 S.Ct. 441, 139 L.Ed.2d 378 (1997).

DISCUSSION

In this action, as in all actions before a federal court, the necessary and constitutional predicate for any decision is a determination that the court has jurisdiction-that is the power-to adjudicate the dispute. The foundational support for all the court's rulings flows from that power. See Marbury v. Madison, 5 U.S. (1 Cranch) 137, 2 L.Ed. 60 (1803). If that power is missing, however, the court is not in a position to act and its decisions cannot generally be enforced. Thus, even on appeal " 'it is this court's duty to see that the District Court's jurisdiction, defined and limited by statute, is not exceeded.' " Curtis v. Nevada Bonding Corp., 53 F.3d 1023, 1026 (9th Cir.1995) (quotation omitted)...

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