ORDER GRANTING PLAINTIFF'S MOTION TO REMAND

SAMUEL CONTI, District Judge.

I. INTRODUCTION

Now before the Court is Plaintiff RCM International, LLC's ("RCM") motion to remand. ECF No. 8 ("Mot."). Defendants Blue Mountain Biogas, LLC ("Blue Mountain") and Alpental Energy Partners, LLC ("Alpental") oppose. ECF No. 18 ("Opp'n"). The motion is full briefed, ECF No. 20 ("Reply") and suitable for decision without oral argument under Civil Local Rule 7-1(b). For the reasons set forth below the motion is GRANTED.

II. BACKGROUND

In this case, RCM, a California limited liability company, alleges various causes of action arising out of the breach of a confidentiality agreement entered into as part of RCM's business relationship with Alpental, a Utah limited liability company.

RCM designs, manufactures, and sells anaerobic digesters, a type of technology used to convert organic wastes like manure into energy and fertilizer. Alpental and RCM entered into a deal whereby Alpental would finance and own anaerobic digester projects designed by RCM, with a third party providing animal waste to be used to produce energy. As a condition of entering into this relationship, which would require the exchange of information RCM considers confidential or otherwise protectable, RCM required Alpental to agree to certain confidentiality protections. After entering into such an agreement, RCM believes that Alpental improperly used confidential information acquired under that agreement to develop and build the Blue Mountain Project, an anaerobic digester project in Utah.

In 2012, RCM filed this action in Alameda County Superior Court (the "Underlying Action"). The action was removable to federal court on the grounds of diversity of citizenship from the outset, although Alpental chose not to exercise its right to remove. At some point during the pendency of the Underlying Action, Alpental transferred its ownership of the Blue Mountain Project to its then-wholly-owned subsidiary, Blue Mountain Biogas LLC, a Delaware limited liability company. While RCM has always been aware of the existence of the Blue Mountain Project, discovery issues were significant in the Underlying Action, and at first, RCM was unaware of the transfer of ownership or the existence of Blue Mountain Biogas LLC. Nonetheless, after learning of the transfer, RCM amended its complaint on October 7, 2014 to substitute Blue Mountain Biogas for one of the Doe entities named in the initial complaint. On October 28, 2014, Blue Mountain Biogas filed notice of removal on the grounds of diversity of citizenship. The Underlying Action is currently set for trial in state court beginning on January 26, 2015.

Now RCM moves for an order remanding the action to state court. Alpental and Blue Mountain Biogas oppose.

III. LEGAL STANDARD

28 U.S.C. Section 1441 provides that civil cases brought in state court over which "the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending." 28 U.S.C. § 1441(a); see also Rodriguez v. AT&T Mobility Servs. LLC, 728 F.3d 975, 977 (9th Cir. 2013). In this instance, the basis for original jurisdiction is 28 U.S.C. Section 1332, which provides federal courts with subject-matter jurisdiction where diversity of citizenship exists among the parties and the amount in controversy exceeds $75,000. 28 U.S.C. § 1332(a).

Notice of removal must generally be filed by a defendant within thirty days of receipt "through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which [the] action or proceeding is based. . . ." 28 U.S.C. § 1446(b)(1). The removal statute should be strictly construed against removal. See Boggs v. Lewis, 863 F.2d 662, 663 (9th Cir. 1988).

IV. DISCUSSION

None of the parties dispute that the Court has subject-matter jurisdiction over this action because diversity of citizenship exists between the parties and the amount in controversy is greater than $75,000. Instead, this motion comes down to one question: does Blue Mountain Biogas have a right to remove this action despite Alpental's earlier failure to do so?

In RCM's view the answer is no. RCM contends that the relationship between Alpental and Blue Mountain Biogas is so close that Blue Mountain Biogas should not have an independent right of removal under 28 U.S.C. Section 1446(b)(2)(B) ("Section 1446(b)(2)(B)"). Furthermore, RCM points to the advanced state of the Underlying Action, the discovery issues in state court, and tensions with the purposes of the removal statute.

Defendants disagree, arguing that since Destfino v. Reiswig, 630 F.3d 952 (9th Cir. 2011) and Congress's adoption of the Federal Courts Jurisdiction and Venue Clarification Act of 2011, Pub. L. No. 112-63, § 103, 125 Stat. 758, 760 (2011) (the "Jurisdiction and Venue Act"), federal courts nationwide have followed the "later-served rule" to find that defendants joined and served during the pendency of a state court action, as Blue Mountain Biogas is here, may file a notice of removal even if the first-served defendants did not do so. In Defendants' view, the adoption of the later-served rule, codified at Section 1446(b)(2)(B), admits no exceptions, and fully resolves the availability of removal in their favor. Nonetheless, Defendants dispute RCM's allegations regarding the close relationship between Blue Mountain Biogas' and Alpental.

The Court agrees with RCM. Because of Alpental's litigation conduct and Blue Mountain Biogas' close affiliation with Alpental, they cannot be properly considered different "defendant[s]" within the meaning of Section 1446(b)(2)(B). As a result, Alpental's failure to remove within thirty days after service renders Blue Mountain Biogas' notice of removal untimely. 28 U.S.C. § 1446(b)(1). Nevertheless, to understand the Court's conclusion, a review of the background of these rules and their underlying purposes is necessary.

A defendant seeking to remove a case from state to federal court must file notice of removal within thirty days of receiving a copy of the initial pleading. 28 U.S.C. § 1446(b)(1). As Judge Posner pointed out,

Wilson v. Intercollegiate (Big Ten) Conference Athletic Ass'n, 668 F.2d 962, 965 (7th Cir. 1982).

Prior to Destfino and the Jurisdiction and Venue Act, a split of authority existed between two potential approaches to determining whether a notice of removal met that thirty-day limitation. The first approach was the so-called "first-served rule," which held that "the thirty-day removal period begins to run for all defendants on the date the first defendant receives the initial complaint. . . ." McAnally Enters., Inc. v. McAnally, 107 F.Supp.2d 1223, 1226 (C.D. Cal. 2000), abrogated by Destfino, 630 F.3d at 956; see also Brown v. Demco, Inc., 792 F.2d 478 (5th Cir. 1986). Courts adopted this approach for two reasons. First, the first-served rule is consistent with the requirement in multiple-defendant cases that all defendants unanimously join a removal petition. See Chicago, Rock Island & Pac. Ry. Co. v. Martin, 178 U.S. 245, 248 (1900); Emrich v. Touche Ross & Co., 846 F.2d 1190, 1193 n.1 (9th Cir. 1988). Second, the first-served rule promotes the prompt determination of the proper forum. Brown, 792 F.2d at 482.

The other approach, the later-served rule, was endorsed by Destfino and Congress out of concern for "[f]airness to later-served defendants." H.R. Rep. No. 112-10, at 14 (2011); see also Destfino, 630 F.3d at 955-56 (noting that courts that adopted the later-served defendant rule did so "for reasons grounded in statutory construction, equity and common sense"). The Destfino Court and Congress' concern with the first-served rule was that it enabled plaintiffs to pursue a strategy of not naming defendants they perceived as likely to remove until the initial thirty-day period for removal had lapsed. After that time ran, under the first-served approach, removal would be barred, even if the later-served defendant wished to remove. While the later-served rule does not "go so far as to give already-served defendants a new thirty-day period to remove whenever a new defendant is served," it does hold that "each defendant is entitled to thirty days to exercise his removal rights after being served." Destfino, 630 F.3d at 956. As a result, the later-served rule has the virtue of treating all defendants equally, and ensures that plaintiffs cannot "engage in unfair manipulation by delaying service on defendants most likely to remove" until after the initial thirty-day period has lapsed. Id. at 955-56.

After Destfino was decided, Congress passed the Jurisdiction and Venue Act, codifying the later-served rule in 28 U.S.C. Section 1446(b). Section 1446(b) now provides that "[e]ach defendant shall have 30 days after receipt by or service on that defendant of the initial pleading or summons" to file notice of removal, and that if "defendants are served at different times, and a later-served defendant files a notice of removal, any earlier-served defendant may consent to the removal even though that earlier-served defendant did not previously initiate or consent to removal." 28 U.S.C. § 1446(b)(2)(B)-(C).

In Defendants' view, the adoption and codification of the later-served rule makes clear that Blue Mountain Biogas has a right of removal without exception. Nevertheless, as others have recognized, the adoption of the later-served rule and its formulation in the Jurisdiction and Venue Act is not so clear-cut. See Paul E. Lund, The Timeliness of Removal and Multiple-Defendant Lawsuits, 64 Baylor L. Rev. 50, 98-111 (2012). Particularly relevant here are two issues related to the potential for substantial delays in removal. First, one of the traditional arguments in favor of the later-served rule is that while it might result in delays in removal, a plaintiff can avoid any delay by simply serving each potential defendant at the same time. See Destfino, 630 F.3d at 956 ("[P]laintiffs can bring about quick determination of the forum by serving all defendants promptly.") This may well be true in most cases, however it assumes that plaintiffs will always have the ability to serve all the defendants at the outset of an action. In some cases even diligent plaintiffs may be unable to serve all the defendants at the commencement of the action because the identity of a defendant is unknown or a defendant is avoiding service.1 See Lund, Timeliness, supra, at 105-06. Second, and relatedly, it is not clear whether the adoption of the later-served rule is compatible with a conception of waiver. Id. at 108.

In this case, remand is appropriate for three reasons. First, because of Alpental's litigation behavior and its close relationship with Blue Mountain Biogas, construing Section 1446(b)(2)(B) to grant Blue Mountain Biogas an independent right of removal would be incompatible with any of the statute's underlying purposes and the Ninth Circuit's directive to construe the removal statutes strictly against removal. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). Second, construing removal as timely despite these connections would also undermine the purpose of Section 1446(b)(1), by granting "the defendant of the undeserved tactical advantage . . . [of] wait[ing] [to] see how he was faring in state court before deciding whether to remove the case to another court. . . ." Wilson, 668 F.2d at 965. Third, denying remand would ignore the advanced state of the Underlying Action, and circumvent, if not fully undermine a pending sanctions motion in state court.

As mentioned before, the concern underlying the adoption of the later-served defendant rule is fairness to later-served defendants. However that rationale does not apply when the failure to join the later-served defendant sooner was the result of a later-served defendant's obfuscation or avoiding service. After all, there is no "manifest unfairness [in] depriving later-served defendants of a federal forum" where the later-served defendant is aware of the case and nonetheless seeks to avoid being joined. Destfino, 630 F.3d at 956. Other courts have recognized this problem, noting that "[t]he rationale for preserving the later-served defendant's removal right [does] not apply . . . in instances when defendants are actually part of the same operating entity rather than separate and distinct entities." Eltman, 151 F.R.D. at 318 n.15; see also Pocono Springs Civic Ass'n Inc. v. Rich One, Inc., No. 00-CV-2034, 2001 WL 114390, at *1 (M.D. Pa. Jan. 29, 2001); Higgins v. Ky. Fried Chicken, 953 F.Supp. 266, 270 (W.D. Wis. 1997).

Here, RCM's failure to serve Blue Mountain Biogas sooner was not an attempt to avoid the possibility of removal; instead it was the result of Alpental's obfuscatory discovery behavior. RCM points to several instances during discovery where Alpental should have revealed the existence of Blue Mountain Biogas, but nonetheless failed to do so. For example, RCM requested information about, among other things, limited liability companies with which Alpental's Managing Partner, Paul Stephan, was affiliated. See ECF No. 21 ("Supp. Duda Decl.") Ex. O ("Special Interrogs.") at ¶ 19. In response, Alpental claimed that "Paul Stephan is an executive director of Geopower Energy, but is affiliated with no other entity . . ." that met the definition set forth by RCM. Id. at Ex. P at 4. Yet, according to the Utah business records, one of the three registered principals of Blue Mountain Biogas, LLC is Paul Stephan. ECF No. 10 ("Duda Decl.") Ex. I. Similarly, RCM requested all documents "relating to Anaerobic Digester Technology that Alpental provided to or shared with any entity" other than those of which RCM was aware. Supp. Duda Decl. Ex. N No. 25. Yet, in response to that request, "Alpental provided no correspondence, contract, or proposals with, from, or to Blue Mountain Biogas, LLC." Id. at ¶ 8. To be sure, it does appear that two2 documents were produced that referred to "Blue Mountain Biogas, LLC." See ECF No. 18-1 ("Dunkelberger Decl.") at ¶¶ 4(a)-(b). Nonetheless, this does not alter the Court's conclusion. To the contrary, only one of the emails was sent by Alpental, and, illustrating the close relationship between the entities, all correspondence involved only individuals purporting to represent Alpental and state regulators. Furthermore, falling back on the production of two emails containing passing references to Blue Mountain Biogas is misleading at best when Alpental should have furnished more directly responsive answers in discovery.

While Defendants suggest, pointing to cases recognizing the applicability of the corporate veil to limited liability companies, that the Court should not impute Alpental's actions to Blue Mountain Biogas, there is good reason to do so here. See Opp'n at 12 (citing d'Elia v. Rice Dev. Inc., 147 P.3d 515, 521 (Utah Ct. App. 2006) and Feeley v. NHAOCG, LLC, 62 A.3d 649, 667 (Del. Ch. 2012) for the proposition that the corporate veil applies to limited liability companies). For example, Alpental is Blue Mountain Biogas' registered agent with the Utah Secretary of State. Duda Decl. Ex. I. Alpental, its managing partner, and its vice president are Blue Mountain Biogas' only principals. Id. They share the same physical address, id., and the same counsel in this matter. Notice of Removal at 1. Defendants stake their argument largely on the current ownership structure of Blue Mountain Biogas, although they do not deny that at relevant times during this litigation Blue Mountain Biogas was a wholly-owned subsidiary of Alpental. Duda Decl. Ex. D ("Manure Supply Agreement") at 1. Nor do they deny any of the other facts regarding Alpental's relationship with Blue Mountain Biogas. Instead, focusing on the Manure Supply Agreement (and ignoring all the other indicia of a close relationship between Alpental and Blue Mountain Biogas), they argue that RCM's reliance on the Manure Supply Agreement represents "an egregious omission" in light of Blue Mountain Biogas' current ownership structure. Opp'n at 13. This is bluster. RCM's argument is that the relationship between Alpental and Blue Mountain Biogas is so close that Alpental's decision not to remove the case to federal court when first filed should be treated as a decision by both Alpental and Blue Mountain Biogas. In assessing that argument, the ownership structure as it existed at the time Alpental declined to remove the case is highly relevant, as it shows it would not be unfair to deny Blue Mountain Biogas the opportunity to remove now. Furthermore, even if the relevant time period was when Blue Mountain Biogas removed the action, the ownership structure of Blue Mountain Biogas does not alter the other undisputed facts demonstrating Alpental's and Blue Mountain Biogas' close relationship and identity of interests.

Accordingly, the Court is convinced that Alpental and Blue Mountain Biogas can properly be considered "part of the same operating entity rather than separate and distinct entities." Eltman, 151 F.R.D. at 318 n.15. As a result, the Court concludes that Blue Mountain Biogas lacks an independent right of removal under Section 1446(b)(2)(B).

Amplifying this conclusion are two other pragmatic considerations. First, permitting removal here would unjustifiably permit forum shopping by allowing first-served defendants to litigate in state court for extended periods of time while hiding subsidiaries or closely affiliated entities, only to reveal them on the eve of trial and start the litigation anew in a different forum. Here, Alpental has been litigating in state court for more than two years. The waste of judicial resources, and potential for substantial delays and expense in resolving this case under these circumstances is enormous. As a result, interpreting Section 1446(b)(2)(B) to grant Blue Mountain Biogas an independent right of removal would undermine the twin purposes of the thirty day limitation in Section 1446(b)(1). See Wilson, 668 F.2d at 965. Second, a motion for sanctions is pending in the Underlying Action related to the discovery abuses cited above. Without more information, the Court cannot be certain of the merits of that motion, but given that the Court likely "lack[s] authority to impose sanctions for pleadings filed in state court prior to removal," this only amplifies the Court's concerns about removal. See Pollard v. City & Cnty. of San Francisco, 261 F. App'x 16, 17 (9th Cir. 2007) (citing Buster v. Greisen, 104 F.3d 1186, 1190 n.4 (9th Cir. 1997)). It is almost inconceivable that a party facing a motion for sanctions for state court misconduct should be able to remove the case, thus divesting the state court of an opportunity to impose sanctions, while simultaneously removing to a court without jurisdiction to impose sanctions for the underlying misconduct.

Defendants view these considerations as improper. In their view, the adoption of the later-served Defendant rule overruled the line of cases applying equitable principles in determining whether removal is timely or appropriate. See, e.g., Yellow Cab Co. v. Gasper, 994 F.Supp. 344, 348 (W.D. Pa. 1998); Samura v. Kaiser, 715 F.Supp. 970, 971 (N.D. Cal. 1989); Transp. Indem. Co. v. Fin. Tr. Co., 339 F.Supp. 405, 409 (C.D. Cal. 1972). The Court disagrees. In fact, one of these cases is almost directly on point, and determined remand was appropriate without reference to either the first-served or later-served defendant approaches. Instead, in Yellow Cab Company of Pittsburgh v. Gasper, the court remanded a case in which "all of the entities joined as defendants in this case . . . are closely held corporations owned and controlled by one man," all the entities involved were represented by the same counsel, substantial proceedings had already taken place in state court, permitting removal would allow for the relitigation of several issues, and a motion to hold defendants in contempt was pending in state court. 994 F. Supp. at 349. While Defendants point to a subsequent case criticizing consideration of "equities, discretionary reasons and/or policy considerations" in determining whether to remand a case, Safway Steel Scaffolds Co. v. Safway Steel Prods., 2:06-cv-312, 2006 U.S. Dist. LEXIS 28373, at *3 (W.D. Pa. May 11, 2006), the Court believes the best approach would allow for the consideration of these weighty practical consequences in determining whether remand is appropriate.

V. CONCLUSION

Because the Court concludes Blue Mountain Biogas lacks an independent right of removal under Section 1446(b)(2)(B), the notice of removal was untimely. 28 U.S.C. § 1446(b)(1). Accordingly, remand is appropriate and the motion is GRANTED. See 28 U.S.C. § 1447(c). The Clerk is hereby directed to mail a certified copy of this order to the clerk of the Alameda County Superior Court, terminate the motion to dismiss, ECF No. 23, and close the case. See id.

IT IS SO ORDERED.