MEMORANDUM DECISION RE: PLAINTIFFS' MOTION FOR REMAND (Doc. 17.) AND DEFENDANTS' MOTION TO STRIKE PLAINTIFFS' REPLY (Doc. 29.)

OLIVER W. WANGER, District Judge.

I. INTRODUCTION.

Before the court for decision is Plaintiffs' motion to remand the case to the Stanislaus County Superior Court, pursuant to 28 U.S.C. § 1447(c). Plaintiffs contend that the court lacks subject matter jurisdiction over this action because inclusion as a defendant of a California resident, Harold Loeb, prevents complete diversity of citizenship between the parties under 28 U.S.C. § 1332. Defendants oppose the motion on grounds that Plaintiffs cannot recover against Mr. Loeb based on a negligence theory, and that his presence in this action does not destroy diversity.

II. BACKGROUND.

This is a negligence action filed by three beneficiaries of a public retirement trust against a provider of actuarial services, Buck Consultants, LLC, ("Buck") and one of its employees, Harold Loeb ("Loeb"). Defendant Buck, a Delaware limited liability company,1 provided actuarial services to StanCERA, a public employee retirement system covering employees of the County of Stanislaus, City of Ceres, the Stanislaus Superior Court, and five special districts located within Stanislaus County. (Compl. ¶ 2.) Loeb, a California resident, is employed by Buck Consultants as an actuary. (Compl. ¶ 4, 7.) Buck is wholly owned by ACS Human Resources Solutions, a Pennsylvania Corporation with its principal place of business in New Jersey.

On October 8, 2009 Plaintiffs Dennis Nasrawi, Michael O'Neal, and Rhonda Biesemeir, California residents and beneficiaries of StanCERA, filed a complaint against Defendants Buck Consultants and Loeb in Stanislaus Superior Court.2 The substance of the complaint is that "Buck and Loeb breached their duty of care in preparing StanCERA's January 9, 2007 actuarial valuations by using inappropriate actuarial assumptions." (Compl. ¶ 14.) In particular, Plaintiffs allege that the "9.22% employer contribution rate adopted by StanCERA, in reliance upon the actuarial valuation negligently prepared by Buck and Loeb, was insufficient to actuarially fund the benefits promised by the County." (Compl. ¶ 15.) As a result of Defendants' actuarial negligence, Plaintiffs allege that StanCERA suffered harm in the form of: (1) lost County employer contributions; (2) lost earnings on those contributions; and (3) costs paid to other actuarial firms to discover Defendants' negligence. The report is issued on Buck's letterhead as Consulting Actuary for StanCERA.

As to Defendant Loeb, Plaintiffs allege that he "owed a duty to exercise due care in performing actuarial services for StanCERA," and breached that duty. (Compl. ¶ 13.) They also allege that he "actively participated with, aided, and abetted in StanCERA's breach of fiduciary duty by concealing their negligence for almost two years." (Compl. ¶ 18.) According to Plaintiffs, Loeb covered up the effects of his actuarial negligence—and that of Buck and StanCERA—for his "own financial gain." (Compl. ¶ 19.)

On November 22, 2009, this case was removed on the basis of diversity jurisdiction.3 (Doc. 1.) The notice of removal provides that the presence of Loeb as a defendant in the action does not defeat diversity jurisdiction because Loeb is a fraudulently joined "sham defendant." (Id.)

On December 15, 2009, Plaintiffs moved to remand this action based on their assertion of a negligence claim against a resident of California, Mr. Loeb. (Doc. 17.) According to Plaintiffs, "[b]ecause well-established California law provides [that] Loeb is liable for his own negligence, complete diversity of citizenship is lacking and the case should be remanded to state court." (Id.)

In support of their opposition, Defendants submitted: (1) the declaration of Michael Conger; (2) StanCERA's Board Minutes from January 13 and February 24, 2007; (3) various actuary reports allegedly submitted by Buck to StanCERA in 2006, 2007, and 2008; (4) an annual Certification letter dated January 15, 2007; and (5) a "Notice of Lodgement."4 (Docs. 17-3 through 17-5.)

Defendants opposed the motion on March 8, 2010. (Doc. 23.) While Defendants acknowledge that both Plaintiffs and Loeb are California citizens, they argue that federal diversity jurisdiction is proper in this case because: (1) Loeb is a fraudulently joined defendant, and should not be considered in establishing diversity; (2) Buck Consultants are not California citizens; and (3) the amount in controversy exceeds $75,000.

In support of their opposition, Defendants submitted: (1) the declaration of Harold Loeb; and (2) the declaration of Karl Lohwater, general counsel for Buck Consultants.5 (Docs. 24 & 25.) The declarations describe Buck's nationwide operations and Mr. Loeb's specific job responsibilities and employment status at Buck. Specifically, Mr. Loeb declares that he is not an "owner/member of Buck, nor an officer/director of Buck," and that his work for StanCERA "did not include any tasks that are outside the usual scope of what I do for other Buck clients [preparing actuarial valuation reports and experience studies]." (Doc. 24, ¶ 2.) According to Mr. Lohwater, "nearly all of Buck's top executives are located [at] Buck's headquarters in [New York]" and "all strategic corporate decision-making occurs in New York." (Doc. 25, ¶ 4.) Daily operations, as well as payroll, accounting, marketing, and human resources are also based in New York. (Id.)

III. LEGAL STANDARD.

Federal courts have original jurisdiction over civil actions where the amount in controversy exceeds $75,000, exclusive of interest and costs, and the case is between citizens of different states. 28 U.S.C. § 1332. Diversity jurisdiction under § 1332 requires that each plaintiff be diverse from each defendant. Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 553, 125 S.Ct. 2611, 162 L.Ed.2d 502 (2005) (citing Owen Equipment & Erection Co. v. Kroger, 437 U.S. 365, 375, 98 S.Ct. 2396, 57 L.Ed.2d 274 (1978)). To protect the jurisdiction of state courts, removal jurisdiction is strictly construed in favor of remand. Harris v. Bankers Life and Cas. Co., 425 F.3d 689, 698 (9th Cir. 2005) (citing Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09, 61 S.Ct. 868, 85 L.Ed. 1214 (1941)). Any doubt as to the right of removal must be resolved in favor of remand. Gaus v. Miles, 980 F.2d 564, 566 (9th Cir.1992). "Th[is] `strong presumption' against removal jurisdiction means that the defendant always has the burden of establishing that removal is proper." Id. (internal citations omitted).

But removal is proper despite the presence of a non-diverse defendant if that defendant is a "fraudulently joined" or "sham" defendant. See Caterpillar, Inc. v. Lewis, 519 U.S. 61, 68, 117 S.Ct. 467, 136 L.Ed.2d 437 (1996). A defendant has been fraudulently joined if the plaintiff fails to state a claim against a resident defendant, and the failure is "obvious according to the well-settled rules of the state." United Computer Sys. v. AT & T Corp., 298 F.3d 756, 761 (9th Cir.2002). In the Ninth Circuit, a non-diverse defendant is deemed a sham defendant if, after all disputed questions of fact and all ambiguities in the controlling state law are resolved in the plaintiff's favor, the plaintiff could not possibly recover against the party whose joinder is questioned. Kruso v. Int'l Tel. & Tel. Corp., 872 F.2d 1416, 1426 (9th Cir. 1989). A court may look beyond the pleadings to determine if a defendant is fraudulently joined, but "a plaintiff need only have one potentially valid claim against a non-diverse defendant" to survive a fraudulent joinder challenge. See Knutson v. Allis-Chalmers Corp., 358 F.Supp.2d 983, 993-95 (D.Nev.2005) (summarizing cases); Ritchey v. Upjohn Drug Co., 139 F.3d 1313, 1318 (9th Cir.1998). Accordingly, a defendant seeking removal based on an alleged fraudulent joinder must do more than show that the complaint at the time of removal fails to state a claim against the non-diverse defendant. See Burris v. AT & T Wireless, Inc., 2006 WL 2038040, at *2 (N.D.Cal.2006). Remand must be granted unless the defendant shows that the plaintiff "would not be afforded leave to amend his complaint to cure [the] purported deficiency." Id. at *2.

IV. DISCUSSION.

A. Preliminary Issues

1. Defendants' Motion to Strike

Defendants move to strike Plaintiff's April 26, 2010 reply on the grounds that it was filed five weeks after Plaintiffs were required to file a reply. According to Defendants, "Plaintiffs knowingly filed an untimely reply brief without leave of Court in bad faith and in violation of this Court's order, and should be sanctioned accordingly." The gravamen of Defendants' motion is that although the court continued the hearing dates for the motion for remand, the court did not continue the filing deadlines and, in fact, all briefing on the motion for remand was due on March 8, 2010. Defendants explain:

(Doc. 29 at 2:14-2:24.)

The untimeliness issue was resolved during oral argument on May 10, 2010. Defendants' motion is DENIED.

B. Merits

Plaintiffs move the court to remand the case for lack of complete diversity. Plaintiffs argue that they have at least the possibility of recovering against Loeb because: (1) United States Liability Ins. Co. v. Haidinger-Hayes, Inc., 1 Cal.3d 586, 83 Cal.Rptr. 418, 463 P.2d 770 (1970), is distinguishable because Loeb personally breached professional duties he owed to the trust and beneficiaries, not just duties he owed to his employer; (2) he committed an intentional tort because he breached fiduciary duties he owed to the trust and its beneficiaries; and (3) he is liable to Plaintiffs as a principal under California Civil Code § 2343(3).

Defendants rejoin that Loeb's presence in this action does not destroy diversity as Plaintiffs cannot recover against Mr. Loeb based on a negligence theory. According to Defendants, this is an easy case: Under well-established California law, Loeb cannot be held liable individually for alleged negligence in performing duties in the course and scope of his employment that allegedly caused economic loss to a third party. Because the alleged negligent actions were taken by Buck Consultants—Loeb was acting in his "official capacity" at all times as an agent for a disclosed principal-his conduct cannot be considered/interpreted as "active participation."

The analysis of Loeb's liability begins with United States Liability Ins. Co. v. Haidinger-Hayes, Inc., 1 Cal.3d 586, 83 Cal.Rptr. 418, 463 P.2d 770 (1970), the seminal case in this context. Defendants cite Haidinger-Hayes for the proposition that an "employee cannot be held individually liable for negligence because his duty of care is owed to his employer, not the third party [...] therefore the essential element of a negligence cause of action (duty) is absent." (Doc. 23 at 7:18-7:21.) According to Defendants, Haidinger-Hayes is "squarely on point" and forecloses Plaintiffs' negligence claim against Loeb.

Haidinger-Hayes stands for the proposition that directors and/or officers of a corporation do not incur personal liability for torts of the corporation merely by reason of their official position, unless they personally participate in the wrong. 1 Cal.3d at 594-95, 83 Cal.Rptr. 418, 463 P.2d 770. In Haidinger-Hayes, Plaintiff insurance company filed a negligence action against two defendants-a corporate insurance agent and its president and CEO (Mr. Haidinger)-for negotiating and issuing an insurance policy with insufficient premiums to cover anticipated losses. Id. at 591-93, 83 Cal.Rptr. 418, 463 P.2d 770. Plaintiff insurance company sought to recovery monetary losses caused by Defendants' alleged negligence. The trial court found Mr. Haidinger individually liable based on evidence that he had personally carried on the negotiations with the insured's broker, reviewed and analyzed the underwriting information concerning the insured's risk, issued the policy setting the allegedly low premium rate, and reduced the reserves for open claims without checking to ascertain the validity of the prior reserves. Id. On appeal, Mr. Haidinger contended that he was not a fiduciary to Plaintiff and owed it no duty of care. Id. at 594, 83 Cal.Rptr. 418, 463 P.2d 770. The Supreme Court agreed with Mr. Haidinger and reversed the judgment against him:

Id. at 594-95, 83 Cal.Rptr. 418, 463 P.2d 770.

The California Supreme Court in Haidinger-Hayes set forth an additional limitation on imposing liability against an "active" agent:

Id. at 595, 83 Cal.Rptr. 418, 463 P.2d 770 (emphasis added).

Plaintiffs distinguish Haidinger-Hayes on grounds that they "are not contending that Loeb has vicarious liability for Buck's breach of contract [...] they are contending that he personally failed to exercise due care as a professional actuary by using inappropriate actuarial assumptions." (Doc. 17 at 7:5-7:9) (emphasis in original). Rather, Plaintiffs argue that Haidinger-Hayes supports the proposition that "officers may be personally liable for the torts of the corporation if they are personally involved in these torts." Plaintiffs contend that Michaelis v. Benavides, 61 Cal.App.4th 681, 71 Cal.Rptr.2d 776 (1998) applies to the facts of this case.6

Michaelis involved a general contractor who subcontracted the cement work on the Michaelis' patio and driveway to a subcontractor, A & J Stamped Concrete, Inc ("A & J"). Mr. Benavides was the president, director and 50 percent stockholder of A & J. He was the only person at A & J who held a state contractor's cement license, personally bid and negotiated for the job, and personally made the construction decisions for the patio and driveway. His brother, however, provided most of the manual labor. The cement job resulted in "severe cracking" and incorrectly placed drains that "posed a hazard to the home's structural integrity and caused a safety hazard to persons entering or leaving the property." Id. at 684, 71 Cal.Rptr.2d 776. Mr. and Mrs. Michaelis sued A & J and Mr. Benavides for damages. The trial court dismissed the negligence action against Mr. Benavides based on Haidinger-Hayes. The appellate court reversed, finding that the case presented a "factual situation wholly unlike" that found in Haidinger-Hayes:7

Id. at 685-87, 71 Cal.Rptr.2d 776.

Michaelis also harmonized its ruling and Frances T. v. Village Green Owners Assn., 42 Cal.3d 490, 229 Cal.Rptr. 456, 723 P.2d 573 (1986), another case cited by Plaintiffs:

Id. at 686-87, 71 Cal.Rptr.2d 776 (citations omitted).

Plaintiffs broadly interpret the "active participation" language of Haidinger-Hayes to argue Loeb is personally liable on a negligence theory, because he signed an "actuarial certification" letter on January 15, 2007 and listed several professional credentials after his name. Moreover, he was part of the actuarial team that formatted the assumptions and, on a few occasions, presented those findings to StanCERA. Plaintiff argues that these facts, taken together, rise to the level of "active participation" recognized by Michaelis and Frances T.

Plaintiffs' characterization of Loeb's conduct is inconsistent with California Supreme Court authority. Here, the proffered evidence is limited to Loeb's "corporate duties" as an actuary/employee at Buck Consultants and was not "directed" toward Plaintiffs in response to their actions and/or requests. Loeb was performing his actuarial duties as part of a larger actuarial firm that had a contract with StanCERA. Loeb was not an owner, director, majority shareholder or a named party to the StanCERA contract. He never personally negotiated the terms, payment schedule, or took any action directed at Plaintiffs. Loeb's actions do not rise to "personal participation," his duty was to Buck Consultants, not Plaintiffs or StanCERA.

The decisions in Michaelis and Frances T. do not dictate a different result. In Michaelis, the defendant was a qualifying licensee, president, director, and 50 percent stockholder of that corporation. The Court found that Defendant was not entitled to nonsuit because he personally participated in the substandard construction work. Michaelis does not support Plaintiffs' contention that an actuary is necessarily personally liable for all negligent actuarial work produced by a corporate entity or one its employees. Rather, Michaelis stands for the proposition that a qualifying licensee, officer, director, or shareholder of a corporate contractor cannot be liable for negligent construction work unless he or she personally breaches a legal duty owed to a plaintiff by personally participating in the negligent work or authorizing or directing that the negligent work be done. The facts here are different. Loeb is a corporate employee who, with other employees, worked on actuary calculations. Loeb did not contract to provide his services nor was the job premised on his personal performance of the work.

Self-Insurers' Security Fund v. ESIS, Inc., 204 Cal.App.3d 1148, 1163, 251 Cal.Rptr. 693 (1988) addresses Frances T. On similar facts, ESIS, Inc. found that although the complaint recited Frances T.'s "magic words," it did not resolve whether the defendant owed a duty of care to third parties:

Id. at 1162-63, 251 Cal.Rptr. 693 (citations omitted).

Here, Loeb's lack of "personal participation" is clear from 15 the documents submitted by the parties in connection with this motion. First, Loeb signed every document on Buck Consultants stationary and introduced the actuarial results with an appropriate plural pronoun. For instance, Loeb's signature appears on a January 9, 2007 letter wherein he states: "We are pleased to report on the actuarial valuation of the [StanCERA] as of June 30, 2006." (Doc. 17-4, pg. 5.) The same is true as to the attached January 4 and January 15, 2007 letters, as well as the Board Minutes. (Docs. 17-4 and 17-5.) Second, there are a number of Buck employees who worked on the actuarial tables and presented actuarial results to the StanCERA board, yet Mr. Loeb is identified as the "active participant." Buck Consultants, not Loeb, had an express contractual duty to StanCERA. Loeb's conduct did make him a party to the contract, nor did it create individual liability when he signed letters on behalf of the corporation, not individually. Compare Slottow v. American Casualty Co., 10 F.3d 1355 (9th Cir.1993) (mere fact that Defendant signed the agreements in the ordinary course of his duties as President did not convert his actions into the type of personal direction or participation in the tort that would expose him to substantial risk of personal liability) with Carolina Cas. Ins. Co. v. RDD, Inc., 685 F.Supp.2d 1052, 1058 (N.D.Cal.2010) ("Here, Lemke alleged that Devincenzi sexually harassed her, and Plaintiff defended and settled Lemke's claims pursuant to a reservation of rights. Moreover, Devincenzi signed the false application himself. Therefore, the present case is distinguishable from one in which corporate officers are not liable solely by reason of their official position."). Loeb did not have a personal duty to StanCERA at the time he signed letters on behalf of Buck and made presentations to the Board. None of this took Loeb outside the scope of his duties as a corporate employee. Here, Plaintiffs' allegations allege nothing more than Loeb performing his "corporate duties" in the course and scope of his corporate employment.

Plaintiffs' conspiracy allegations do not change the remand analysis. According to Plaintiffs, Loeb is liable for StanCERA's breach because he "aided and abetted that breach." The Complaint provides, in relevant part:

(Compl. at ¶'s 18-19.)

Plaintiffs' argument is a nonstarter. First, they cite Fiol v. Doellstedt, 50 Cal.App.4th 1318, 58 Cal.Rptr.2d 308 (1996) for the proposition that "liability for aiding and abetting may be imposed on one who aids and abets the commission of an intentional tort if the person knows the other's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act or gives substantial assistance to the other in accomplishing a tortious result and the person's own conduct, separately considered, constitutes a breach of duty to the third person." Id. at 1325-26, 58 Cal.Rptr.2d 308. Fiol involved a second-tier supervisor's failure to take action when plaintiff reported to him that his immediate supervisor was sexually harassing him—an unlawful employment practice.8 It is distinguishable on that basis alone. Second, Fiol and its progeny emphasize that liability for aiding and abetting may only be imposed for the commission "of an intentional tort." Plaintiffs have not alleged an intentional tort against Loeb; they only allege negligence.

The same reasoning applies to Plaintiffs' reliance on California Civil Code § 2343(3). That section provides that "[o]ne who assumes to act as an agent is responsible to third persons as a principal for his acts in the course of his agency [...] when his acts are wrongful in their nature." Midwest Television, Inc. v. Scott, Lancaster, Mills & Atha, Inc., 205 Cal.App.3d 442, 449, 252 Cal.Rptr. 573 (1988). Plaintiffs contend that "[b]ecause professional negligence and aiding and abetting a breach of fiduciary duty are both `wrongful in their nature,' Loeb has personal liability." In further support, Plaintiffs argue that the "[California] Legislature drew no distinction between negligence and other `wrongful' acts," and it did not distinguish between wrongful acts causing bodily/physical injury and those causing only economic injury.

Plaintiffs' arguments based on § 2343(3) are unpersuasive. Section 2343(3) only makes an agent liable for affirmative misfeasance. Ruiz v. Herman Weissker, Inc., 130 Cal.App.4th 52, 65, 29 Cal.Rptr.3d 641 (2005). It does not render an agent liable to third parties for the failure to perform duties owed to the principal. Id. Disregarding the conclusions of law that Loeb "aided and abetted" his employer, the complaint does not allege any specific acts of affirmative misfeasance with respect to the performance of his actuarial duties. Hoffman v. May, 313 Fed.Appx. 955 (9th Cir. 2009) is instructive:

Id. at 958.

Plaintiffs' dependence on § 2343(3) is flawed for another reason, namely that it is inconsistent with Haidinger-Hayes' holding that "liability imposed upon agents is limited to cases involving physical injury and/or property damage."9 1 Cal.3d at 595, 83 Cal.Rptr. 418, 463 P.2d 770. As currently pled, this is an economic injury case involving alleged actuarial negligence, nothing more. Plaintiffs do not distinguish the relevant case law, including Haidinger-Hayes, Michaelis and Frances T., with § 2343(3). Additionally, while citing § 2343(3) generally, Plaintiffs do not provide a single case citation where § 2343(3) was analyzed and applied to find liability against a corporate employee for duties performed in the course and scope of regular employment.10

Courts have held that a defendant is not a fraudulently joined or a sham defendant simply because the facts and law may further develop in a way that defendant or the defendant is dismissed. See Dickinson v. Allstate Insurance, Co., 09-1374-AG-ANX, 2010 WL 366583 (C.D.Cal. Jan. 25, 2010). On the current record, Loeb owed no duty to Plaintiffs as a matter of well-established California law. It is equally as clear that Loeb was not "personally involved" in the wrongdoing to the same degree as the defendants in Michaelis and Frances T. Plaintiffs' attempts to convert actuarial negligence resulting in economic loss into an affirmative misfeasance case against an individual actuary are without legal or factual support. Slottow v. American Casualty Co., 10 F.3d 1355 (9th Cir. 1993) provides the last word:

Id. at 1359 (citations omitted).

Defendants have met their burden of establishing that Loeb is a "sham defendant" whose presence in this action does not bar removal and exists for the purposes of defeating diversity jurisdiction. His citizenship is disregarded. If discovery reveals different facts, the matter can be revisited. Plaintiffs' motion to remand is DENIED.

V. CONCLUSION.

For the reasons stated:

IT IS SO ORDERED.