EDWARD M. CHEN, District Judge.
Plaintiffs Nam Nguyen and Tan Nguyen have filed suit against two defendants: Ford Motor Company ("Ford") and Paso Robles Ford. Their claims are related to the purchase of a Ford car. The case was initiated in state court but Defendants removed the case to federal court on the basis of diversity jurisdiction. Defendants argued that the citizenship of Paso Robles Ford can be ignored because the Nguyens fraudulently joined it to the case. Currently pending before the Court is the Nguyens' motion to remand back to state court.
In their complaint, the Nguyens allege as follows. Ford designs, manufactures, markets, and sells cars. See Compl. ¶ 4. Paso Robles Ford sells cars and services and repairs cars. See Compl. ¶ 5.
On April 21, 2013, the Nguyens purchased a 2013 Ford Escape from Paso Robles Ford.
Based on, inter alia, the above allegations, the Nguyens have asserted the following causes of action:
(7) Negligent repair.
All of the causes of action are asserted against Ford only, except for the seventh which is asserted against Paso Robles Ford only. According to the Nguyens, Paso Robles Ford is liable for negligent repair because it "breached its duty to Plaintiffs to use ordinary care and skill by failing to properly store, prepare and repair the Subject Vehicle in accordance with industry standards." Compl. ¶ 54.
As noted above, Ford and Paso Robles Ford removed the case from state to federal court, asserting diversity jurisdiction. According to Defendants, the California citizenship of Paso Robles Ford should be disregarded because the Nguyens fraudulently joined the company to this action.
GranCare, LLC v. Thrower, 889 F.3d 543, 548 (9th Cir. 2018).
"A defendant invoking federal court diversity jurisdiction on the basis of fraudulent joinder bears a `heavy burden' since there is a `general presumption against [finding] fraudulent joinder.'" Id. "There are two ways [for a defendant] to establish fraudulent joinder: `(1) actual fraud in the pleading of jurisdictional facts, or (2) inability of the plaintiff to establish a cause of action against the non-diverse party in state court.'" Id. The second way is satisfied "[i]f 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." Hunter v. Philip Morris USA, 582 F.3d 1039, 1043 (9th Cir. 2009) (internal quotation marks omitted). "But `if there is a possibility that a state court would find that the complaint states a cause of action against any of the resident defendants, the federal court must find that the joinder was proper and remand the case to the state court.'" GranCare, 889 F.3d at 548 (emphasis added). As a practical matter, this means that a "district court must consider . . . whether a deficiency in the complaint can possibly be cured by granting the plaintiff leave to amend." Id. at 550.
The Ninth Circuit has
Id. at 548-49.
In the instant case, Defendants argue that Paso Robles Ford was fraudulently joined because the only claim asserted against it is one for negligent repair and that claim is barred by (1) the statute of limitations and (2) the economic loss rule.
As noted above, Defendants argue first that there is no valid claim against Paso Robles Ford because it is time barred. As an initial matter, the Court notes that Defendants did not articulate this specific theory of fraudulent joinder in their notice of removal. See Not. of Removal ¶¶ 30, 33 (asserting that the negligent repair claim is invalid based on the economic loss rule; also asserting that the negligent repair claim is vaguely alleged, with Plaintiffs failing to specify "how, if at all, Paso Robles Ford failed to properly store, prepare or repair the vehicle"). Accordingly, the Nguyens argue that the Court should not even entertain it.
The Nguyens' position has merit. The Ninth Circuit has held that
ARCO Envtl. Remediation, L.L.C. v. Dep't of Health & Envtl. Quality, 213 F.3d 1108, 1117 (9th Cir. 2000). See, e.g., N. Ill. Gas Co. v. Airco Indus. Gases, Div. of Airco, Inc., 676 F.2d 270, 274 (7th Cir. 1982) ("Where the state court record reveals a jurisdictional fact, albeit imperfectly stated, which is essential to removal and which has been omitted from the four corners of the removal petition, an amendment of the petition is permissible to correct the defect.").
Even if the Court were to consider the merits of Defendants' time bar argument, Defendants would fare no better. Admittedly, as noted above, the Ninth Circuit has "upheld rulings of fraudulent joinder where a defendant demonstrates that a plaintiff is barred by the statute of limitations from bringing claims against that defendant." Id. at 548 (citing Ritchey v. Upjohn Drug Co., 139 F.3d 1313 (9th Cir. 1998). But notably, in Ritchey, the Ninth Circuit essentially found it obvious — or rather, as it stated, "perfectly clear" — that there was a time bar based on evidence of which it could take judicial notice. See Ritchey, 139 F.3d at 1319-20 ("In this case, when the strobe of judicial notice is placed upon Ritchey's pleading, it appears perfectly clear that the statute of limitations is a defense . . . .").
In the instant case, Defendants are not asking the Court to find a time bar based on judicially noticeable evidence. Rather, Defendants have submitted evidence outside the four corners of the complaint — more specifically, evidence indicating that repairs were made by Paso Robles Ford in November 2013, June 2014, November 2015, and April 2019. See Harlow Decl., Ex. 4 (document titled "Standard Claims List"). Furthermore, such evidence is not "extraordinarily strong evidence" of a time bar such that it is clear or obvious that the negligent repair claim is invalid. GranCare, 889 F.3d at 548. Most notably, one repair — from April 2019 — did take place within the statute of limitations. The Nguyens filed their lawsuit in July 2019. Even assuming that there is a two-year statute of limitations for the Nguyens' negligent repair claim,
Finally, as the Nguyens point out in their reply brief, the negligent repair claims may be timely even if based on the earlier repairs (from 2013 to 2015) if the Nguyens did not discover, nor could they have reasonably discovered, that the repairs were negligently performed until later. See Sabicer v. Ford Motor Co., 362 F.Supp.3d 837, 842 (C.D. Cal. 2019) (noting that, "[u]nder the delayed discovery rule, courts postpone commencement of the limitation period until the plaintiff discovers or should have discovered all facts essential to his cause of action[;] Defendants have failed to prove that there is no possibility that Plaintiffs could invoke the delayed discovery rule to assert a negligent repair claim against Santa Margarita Ford"). Plaintiffs specifically note the delayed discovery rule and argue that "[t]he fact that Plaintiffs presented the Vehicle to Paso Robles Ford for repairs does not show when Plaintiffs discovered that Paso Robles Ford had failed to repair the Vehicle in accordance with industry standards." Reply at 8 (emphasis in original). It cannot be said the Nguyens have no possible claim against Paso Robles Ford.
Defendants argue that, even if the statute of limitations is not a clear bar to the negligent repair claim asserted against Paso Robles Ford, there is an independent ground to find the claim obviously invalid — i.e., based on the economic loss doctrine.
Hammond Enters. v. ZPS Am. LLC, No. C-12-03600(EDL), 2013 U.S. Dist. LEXIS 155135, at *15-16 (N.D. Cal. Oct. 29, 2013).
As a preliminary matter, it is not obvious that the Nguyens have failed to state a claim for negligent repair because some
McKeown v. Ford Motor Co., No. CV 19-00281-CJC(PLAx), 2019 U.S. Dist. LEXIS 41870, at *8 (C.D. Cal. Mar. 13, 2019) (emphasis added).
Admittedly, North American Chemical, which held that the economic loss rule does not apply to claims for negligent performance of services, has been subject to some criticism. See, e.g., Gayou v. Ford Motor Co., No. CV 18-10407-DMG (JEMx), 2019 U.S. Dist. LEXIS 49599, at *7-8 (C.D. Cal. Mar. 25, 2019) (noting that "[t]he extent to which North American Chemical remains good law is not entirely clear to the Court" and that one federal court has "predicted that the California Supreme Court would hold that entering into an `arm's-length' service contract does not create a `special relationship' that gives rise to tort liability"); Rejects Skate Magazine, Inc. v. Acutrack, Inc., No. C 06-2590 CW, 2006 U.S. Dist. LEXIS 63157, at *14 (N.D. Cal. Aug. 22, 2006) (declining to follow North American Chemical and "apply[ing] the economic loss rule here regardless of whether the parties' contract is defined as one for a product (i.e., duplicated DVDs) or services (duplication of DVDs)"). That being said, given the "lack of clarity in California law regarding the tort duties arising from service contracts," this Court (like the court in Gayou) cannot say "it would be impossible for Plaintiff to bring a tort claim for negligent repair based on the service contract." Gayou, 2019 U.S. Dist. LEXIS 49599, at *8.
Even if the Court were not persuaded by the above, the Nguyens have offered another reason why their claim for negligent repair is not obviously invalid. More specifically, although the economic loss rule bars a plaintiff from bring a tort claim for damage to a defective product, it does not bar a plaintiff from recovering in tort when the product defect causes damage to other property — i.e., property other than the defective product itself. See Jimenez v. Superior Court, 29 Cal.4th 473, 483 (2002). And, notably, in Jimenez, the California Supreme Court recognized that a component part of a larger product can be the defective product that can cause harm to other components of the larger product, thus avoiding the economic loss rule. In Jimenez, the California Supreme Court stated:
Jimenez v. Superior Court, 29 Cal.4th 473, 483 (2002) (emphasis added). "Defendants' argument here that the house is the relevant product for purposes of applying the economic loss rule is inconsistent with these and other decisions recognizing that the duty of a product manufacturer to prevent property damage does not necessarily end when the product is incorporated into a larger product." Id. at 484.
Id. (emphasis added).
Based on Jimenez, the Nguyens could argue that, e.g., a defect in the car engine harmed other parts of the car. Although the Nguyens' complaint as pled does not clearly or expressly make a claim that a defective component part of their car hurt another component part, the Nguyens might amend their complaint to add such allegations. See, e.g., Reply at 4 (asserting that there were engine defects which impacted other components of the car related or connected to the engine — e.g., "the coolant control valve, engine shielding coolant system, [and] cylinder head gasket").
Id. at *4-5.
In addition, the Nguyens fairly note that it is not obvious that the economic loss rule would bar them from claiming that a defective component part to their car hurt the car itself (i.e., as the larger product in which the component part was incorporated). Some courts have found such a theory viable. See, e.g., Nellett v. Ford Motor Co., No. 19-cv-04142-BLF, 2019 U.S. Dist. LEXIS 205495, at *9 (N.D. Cal. Nov. 25, 2019) (noting that plaintiff "alleges defects to various components and subcomponents of the Vehicle" — e.g., "in the engine, cooling system, door actuator(s), under-hood vacuum pump, and electrical system, among others[;] [t]he economic loss rule does not bar recovery in tort for damage that these components and subcomponents cause to the Vehicle in which these components and subcomponents have been incorporated"); McAdams v. Ford Motor Co., No. 18-CV-07485-LHK, 2019 U.S. Dist. LEXIS 95570, at *11-12 (N.D. Cal. June 5, 2019) (noting that, in Sabicer, 362 F. Supp. 3d at 841, the court held that "the economic loss rule `would not bar recovery in tort for damage that these subcomponents cause to the engine as a whole or for damage that the engine caused to the Vehicle in which it has been incorporated'"); Lopez v. Ford Motor Co., No. CV 19-1165-GW(FFMx), 2019 U.S. Dist. LEXIS 77995, at *9 (C.D. Cal. May 8, 2019) (also relying on Sabicer); Stockinger v. Toyota Motor Sales USA, Inc., No. LACV 17-00035-VAP (KLSx), 2017 U.S. Dist. LEXIS 224071, at *62-63 (C.D. Cal. July 7, 2017) (noting that there was an alleged defect in the HVAC system in the motor vehicle at issue; while "the economic loss rule bars Plaintiffs from recovering for damages to the HVAC system itself under their negligent misrepresentation claims," "Plaintiffs can still recover to the extent Plaintiffs can show the odors and mold from the HVAC system damaged the rest of their vehicles"). But see Resnick v. Hyundai Motor Am., Inc., No. CV 16-00593-BRO (PJWg), 2017 U.S. Dist. LEXIS 67525, at *30-31 (C.D. Cal. Apr. 13, 2017) (in the context of a motion to dismiss, noting that "Plaintiffs allege only that the defective paint has cost Plaintiffs `out of pocket losses associated with the paint defect, corrosion repairs and diminished value of [their] vehicle[s]'[;] [a]s the alleged economic damages in this case arise from harm to the product itself (i.e., the vehicle), the Court finds that the economic loss rule bars Plaintiffs' claims").
Accordingly, the Court holds that Defendants have not established fraudulent joinder in the instant case.
Defendants argue still that, even if the Court does not find an obvious statute of limitations bar or obvious economic loss rule application, the Court could exercise jurisdiction over the instant case by severing Paso Robles Ford from the case under Rule 21, thus leaving only the claims against Ford.
The Court acknowledges the Nguyens' contention that this Court would not have diversity jurisdiction even if the case was limited to just the claims against Ford. According to the Nguyens, there is no diversity jurisdiction because Ford has failed to show that (1) the amount in controversy likely exceeds $75,000 and that (2) the Nguyens are likely citizens of California. For purposes of this order, the Court assumes that there would be diversity jurisdiction with respect to the claims against Ford and thus addresses Defendants' Rule 21 argument.
Rule 21 provides as follows: "Misjoinder of parties is not a ground for dismissing an action. On motion or on its own, the court may at any time, on just terms, add or drop a party. The court may also sever any claim against a party." Fed. R. Civ. P. 21. The Ninth Circuit has held that "Rule 21 grants a federal district or appellate court the discretionary power to perfect its diversity jurisdiction by dropping a nondiverse party provided the nondiverse party is not indispensable to the action under Rule 19." Sams v. Beech Aircraft Corp., 625 F.2d 273, 277 (9th Cir. 1980); see also Szymczyk v. Shiff (In re Incretin Mimetics Prods. Liab. Litig.), No. 15cv1283 AJB (MDD), 2015 U.S. Dist. LEXIS 192588, at *253 (S.D. Cal. July 28, 2015) (stating that, "[e]ven absent a finding of improper joinder, Rule 21 of the Federal Rules of Civil Procedure authorizes a court, in an exercise of its discretion, to sever non-diverse parties to establish federal jurisdiction"); 4 Moore's Fed. Prac. — Civ. § 21.05 (noting that "the courts agree that Rule 21 may apply even in the absence of misjoinder or nonjoinder").
Paso Robles Ford is arguably a dispensable party in the sense that the claim against it for negligent repair is different from the "lemon law" claims asserted against Ford. But even assuming Paso Robles Ford were dispensable, that would simply mean that this Court has discretion as to whether or not to sever. The totality of the circumstances in the instant case weighs against severance. The analysis of the district court in Madison is applicable here:
Madison, 2019 U.S. Dist. LEXIS 131921, at *8; see also McAdams, 2019 U.S. Dist. LEXIS
95570, at *16 (noting that "Plaintiffs' claims against Defendant Ford and Defendant Lithia arise from the same series of transactions or occurrences" — e.g., "Plaintiffs' claim against Defendant Lithia involves the same Vehicle and some of the same defects in that Vehicle as Plaintiffs' claims against Defendant Ford, such that judicial efficiency weighs against severing Defendant Lithia"). As in Madison, here, the Court will not exercise its discretion to sever Paso Robles Ford simply to establish diversity jurisdiction at the expense of judicial economy.
For the foregoing reasons, the Court grants the Nguyens' motion to remand. The Clerk of the Court is directed to administratively close the file in this case.
This order disposes of Docket No. 15.
