DAVID WEST, et al.,         )


                            )No. CV 98-116 SVW (Mcx)


Plaintiffs,                 )ORDER REMANDING CASE


v.                          )


Lloyd's, et al.,            )




Defendants                  )


  1. Background
  2. This case involves Lloyd's alleged fraud in enlisting investors, known as "Names", in the mid-1980s. Plaintiffs originally filed suit in Los Angeles Superior Court in August 23, 1994. The complaint asserted state law clauses of action for fraudulent concealment and violation of California corporate securities laws. The complaint named two defendants, Lloyd's, a British corporation, and "Ernst & Young" as an unincorporated association. In their complaint, Plaintiffs, who were California residents, accused Ernst & Young's British entity ("E&Y-UK") of negligence and breach of fiduciary duty. The complaint did not distinguish between Ernst & Young's British and U.S.-based ("E&Y-US") entities.

    Defendants removed to this court. Defendants conceded that E&Y-US was a citizen of California for diversity purposes, but argued E&Y-UK in a fraudulent attempt to defeat removal by destroying diversity. This court disagreed, holding that Plaintiffs could potentially state a claim against E&Y-US on a partnership by estoppel theory, and remanded to Los Angeles Superior Court for lack of diversity of citizenship.

    On remand, the Superior Court held on July 5, 1995, that E&Y-US was separate entity and quashed service as to the worldwide entity Ernst & Young. The Court also granted Defendants' motion to dismiss based upon choice of law and forum selection clauses in the Names agreement providing that any action against Lloyd's must be brought in England under British law. Plaintiffs appealed the Superior Court's holding. While the appeal was pending, Plaintiffs voluntarily dismissed Ernst & Young and E&Y-US, leaving only U.K.-based defendants. On October 23, 1997, the Court of Appeal reversed the dismissal of Plaintiffs' claims. The California Supreme Court denied review on January 21, 1998. On February 20, 1998, Lloyd's filed the instant notice of removal.

    Now before the Court are (1) Plaintiffs' motion to remand; and (2) Lloyd's motion to dismiss based on the form selection clause or, in the alternative, forum non conveniens.

  3. Analysis

Removal in this case is governed by the 28 U.S.C. 1446(b), which provides

The notice of removal of a civil action or proceeding shall be filed within the thirty days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based...

If the case stated by the initial pleading is not removable, a notice of removal may be filed within thirty days after receipt by the defendant... of [a paper] form which it may first be ascertained that the case is one which is or has become removable, except that a case may not be removed on the basis of jurisdiction conferred by [diversity of citizenship] more than one year after the commencement of the action.

Plaintiffs argue that Lloyd's attempt to remove this case in barred on two fronts. First, Lloyd's was aware as early as July, 1995, that E&Y-US was not a proper defendant in this action but did not remove until February 1998, seemingly outside the 30-day removal period. Second, because jurisdiction in this case is based on diversity, it could not be removed after August 23, 1995 one year after it was initially filed. Lloyd's February 28, 1998 removal was, according to Plaintiffs, nearly 2 and years late.

The Ninth Circuit has recently confirmed that the one-year bar on removal of diversity cases applies only to cases that were not removable at their inception. Ritchev v. Upjohn Drug Co. ---F.3d---, 1998 WL 151387 (Apr. 3, 1998); see also Zogbi v. Federated Dep't Store, 767 F. Supp. 1037, 1040 (C.D.Cal. 1991). Lloyd's argues that the cases was initially removable -- despite this Court's earlier ruling because the Superior Court found there to be no worldwide entity known as "Ernst & Young". Lloyd's thus concludes that Plaintiffs fraudulently joined E&Y as a defendant, making the case was removable when filed and not subject to the one-year bar.

Lloyd' s errs, however, in arguing that the case was initially removable. Merely because the state court concluded that Plaintiffs failed to establish the existence of "E&Y" as an entity dies not mean that E&Y or E&Y-U.S. was fraudulently joined. "If the 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) (emphasis added). The case must be remanded if there is "even a possibility" that a state court would find that the complaint stated a cause of action against a resident defendant. Coker v. Amoco Oil Co., 709 F.2d 1433, 1440-41 (11th Cir. 1983). There is no question that California law permits an action for partnership by estoppel. See Cal. Corp. Code 15015(1). Based upon the record before it, this Court held in 1994 that Plaintiffs could "potentially state a claim against E&Y-U.S. under the partnership by estoppel theory" and remanded for lack of diversity of citizenship. On remand, the state court admitted that the question of a worldwide partnership was trouble some and that it struggled with Lloyd's motion to squash service against E&Y-U.S., thus confirming this Court's conclusion that Plaintiff had not obviously failed to state a claim according California law.

Because the case was properly remanded in 1994, it necessarily follows that it was no removable at the outset. The one-year bar set forth in the second paragraph of 28 U.S.C. 1446(b) thus bars Lloyd's present attempt to remove.1 The Court therefore GRANTS Plaintiff's motion and REMANDS the case to Los Angeles Superior Court.

Defendant's pending motion to dismiss pursuant to Fed. R. Civ. P. 12(b) (3) is thereby DENIED as moot.


DATED: 4/29/98



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