Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_07-cv-01214/USCOURTS-cand-5_07-cv-01214-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1441 Petition for Removal- Insurance Contract

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Case No. C 07-1214 JF (RS)

ORDER GRANTING MOTION TO REMAND

(JFLC2)

**E-Filed 5/14/07**

NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

BRADLEY S. COLLINS,

 Plaintiff,

 v.

LIBERTY LIFE ASSURANCE COMPANY OF

BOSTON, et al.,

 Defendants.

Case Number C 07-1214 JF (RS)

ORDER GRANTING MOTION TO

REMAND

[Doc. No. 12]

Plaintiff moves to remand the instant action to the Santa Cruz Superior Court. The Court

has considered the briefing submitted by the parties as well as the oral arguments presented at the

hearing on May 4, 2007. For the reasons discussed below, the motion will be granted.

I. BACKGROUND

Plaintiff Bradley Collins (“Collins”) filed this action in the Santa Cruz Superior Court

following the denial of disability insurance benefits by his insurer, Liberty Life Assurance

Company of Boston (“Liberty”). Collins alleges that Liberty arranged for an Independent

Medical Examination (“IME”) to be conducted by L. Needa Madireddi, M.D. (“Madireddi”); that

Madireddi conducted a “cursory and bogus examination”; that Madireddi’s subsequent report

falsely claimed that Madireddi spent a “full 60 minutes in face to face time” with Collins when

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Case No. C 07-1214 JF (RS)

ORDER GRANTING MOTION TO REMAND

(JFLC2)

she in fact spent only twenty minutes with him; and that Madireddi’s report falsely stated that

Collins possesses greater physical abilities than he actually possesses. Complt. ¶¶ 10-12. Collins

alleges that Madireddi “deliberately sought and predetermined to render a report that would

support a termination of Plaintiff’s disability benefits.” Id. at ¶ 31. He further alleges that

Madireddi “rendered a false and bogus report following her conclusory and sham examination of

Plaintiff,” id. at ¶ 32, and that Liberty “in fact terminated Plaintiff’s benefits in reliance upon her

report,” id. at ¶ 33. Collins alleges claims against Liberty for breach of insurance contract,

breach of the implied covenant of good faith and fair dealing, fraud and intentional infliction of

emotional distress, and alleges claims against Madireddi for intentional interference with contract

and intentional infliction of emotional distress.

Liberty removed the action to this Court on the basis of diversity of citizenship,

notwithstanding the fact that Madireddi is a California resident. Liberty asserts that Madireddi is

a “sham” defendant whose residency does not defeat diversity jurisdiction. Collins moves for

remand on the ground that Madireddi is not a sham defendant.

II. LEGAL STANDARD

Pursuant to 28 U.S.C. § 1441(a), often referred to as “the removal statute,” a defendant

may remove an action to federal court if the plaintiff could have filed the action in federal court

initially. 28 U.S.C. § 1441(a); see also Ethridge v. Harbor House Restaurant, 861 F.2d 1389,

1393 (9th Cir.1988). A party may file an action in federal court if there is diversity of citizenship

among the parties or if the action raises a substantial federal question. Ethridge at 1393. The

party invoking the removal statute bears the burden of establishing federal jurisdiction. Id. The

removal statute is strictly construed against removal. Id. The matter therefore should be

remanded if there is any doubt as to the existence of federal jurisdiction. Gaus v. Miles, Inc., 980

F.2d 564, 565 (9th Cir. 1992). 

III. DISCUSSION

“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 is fraudulent.” 

McCabe v. General Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987). Liberty argues that it is

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Case No. C 07-1214 JF (RS)

ORDER GRANTING MOTION TO REMAND

(JFLC2)

clear under California law that Collins cannot prevail on his claims against Madireddi for

intentional interference with contract or intentional infliction of emotional distress. Collins

argues that these claims are viable, and additionally argues that he intended to name Madireddi as

a defendant to the fraud claim as well, but failed to do so because of a clerical error. Collins

requests leave to amend the complaint if necessary to make clear that Madireddi is a defendant to

the fraud claim.

The propriety of removal must be considered based upon the complaint at the time of the

removal; it is inappropriate to consider proposed amendments to the complaint when attempting

to determine if a particular defendant is a sham defendant for purposes of diversity jurisdiction. 

Kruso v. International Tel. & Tel. Corp., 872 F.2d 1416, 1426 n.12 (9th Cir. 1989). Accordingly,

the Court must assess whether it is clear that Collins has failed to state a viable claim against

Madireddi based upon the facts alleged in the original complaint, without reference to Collins’

proposed amendments.

Liberty argues that Collins cannot prevail upon any claim against Madireddi based upon

the facts alleged, because Madireddi’s conduct is absolutely protected by the litigation privilege

established by California Civil Procedure Code § 47(b), and the manager’s privilege established

by California common law. As an initial matter, it is not clear that this Court appropriately may

consider the potential application of § 47(b) or the manager’s privilege in determining whether

Madireddi is a sham defendant. The Ninth Circuit has suggested that ordinarily a court assessing

a sham defendant charge must determine whether the plaintiff “truly had a cause of action against

the alleged sham defendants,” and not “whether those defendants could propound defenses to an

otherwise valid cause of action.” Ritchey v. Upjohn Drug Co., 139 F.3d 1313, 1318 (9th Cir.

1998). In Ritchey, the court nonetheless held that the district court properly could consider the

statute of limitations when assessing whether a valid claim had been made out against the alleged

sham defendants, because the statute of limitations defense “is a kind of procedural bar and not

one which relates to the merits of the case,” and because California courts commonly consider a

limitations bar grounds for sustaining a demurrer. Id. at 1319-20. Application of the litigation

privilege and the manager’s privilege do not raise the kind of “procedural bar” discussed in

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Case No. C 07-1214 JF (RS)

ORDER GRANTING MOTION TO REMAND

(JFLC2)

Ritchey.

Even assuming that the Court may consider these privileges, however, it is not clear that

the privileges apply on the facts of this case. In order for § 47(b) to apply, the privileged

statement must be “(1) made in a judicial or quasi-judicial proceeding; (2) by litigants or other

participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some

connection or logical relation to the action.” Silberg v. Anderson, 50 Cal.3d 205, 212 (1990). In

this case, Dr. Madireddi was hired to conduct an IME regarding a disability claim by Collins, a

private party, with respect to insurance issued by Liberty, another private party. Collins and

Liberty were not involved in litigation at the time Collins made his claim for benefits or

underwent the IME. Liberty relies on Harris v. King, 60 Cal. App.4th 1185, 1187 (1998), for the

proposition that § 47(b) applies on these facts. However, in that case the medical report in

question was prepared in connection with the plaintiff’s workers’ compensation claim and was

submitted to the State Compensation Insurance Fund. The court specifically characterized the

workers’ compensation proceeding as a quasi-judicial proceeding in applying § 47(b). 

Liberty appears to be arguing for an extension of the law to render a dispute between a

private person and a private insurance company a “quasi-judicial” or “other official” proceeding

within the meaning of § 47(b) on the grounds that insurer’s “truth seeking proceedings” are

expressly authorized by state insurance codes and regulations. Liberty relies heavily upon an

unreported district court case, Walton v. Mead, 2004 WL 2415037 (N.D. Cal. Oct. 28, 2004), in

arguing for such an extension of the law. However, Walton also arose in the context of a

worker’s compensation claim. In finding § 47(b) applicable, the district court quoted Harris for

the proposition that “[w]orkers’ compensation proceedings are ‘quasi-judicial proceedings.’” 

Walton, 2004 WL 2415037, at *6. This Court does not find persuasive Liberty’s argument that

the rulings of Harris and Walton should be extended to claims asserted by private individuals

against their private insurers.

In arguing application of the common law manager’s privilege, Liberty relies primarily

upon DeHorney v. Bank Of America Nat. Trust and Sav. Ass’n, 879 F.2d 459 (9th Cir. 1989) and

Los Angeles Airways, Inc. v. Davis, 687 F.2d 321 (9th Cir. 1982). DeHorney does not actually

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Case No. C 07-1214 JF (RS)

ORDER GRANTING MOTION TO REMAND

(JFLC2)

use the phrase “manager’s privilege.” In the relevant portion of the decision, the court addressed

the question of whether a bank’s assistant auditor could be held liable for interference with

contract based upon her recommendation that another bank employee be terminated for theft. 

The court held that “[o]ne who is in a confidential relationship with a party to a contract is

privileged to induce the breach of that contract.” DeHorney, 879 F.2d at 464 (internal quotation

marks and citation omitted). The court held further that “[w]here an employee acts within the

scope of his employment, it does not matter whether his conduct in inducing the breach of

contract was motivated by ill-will or malice on his part.” Id. Reasoning that the assistant auditor

was acting within the scope of her employment at all times, and thus had the requisite

confidential relationship with the bank, the court held that the assistant auditor could not be held

liable for interfering with the employment agreement between the bank and the terminated

employee. Id. at 464-65.

Davis involved an action for interference with contract brought against Davis, who acted

as counsel for two corporations that allegedly breached an agreement to purchase the assets of a

third corporation. Davis also was an officer and director of one of the purchaser corporations. In

discussing the potential application of the manager’s privilege, the court stated as follows:

The manager’s privilege has most frequently arisen in the context of employeremployee relations. Thus, a manager is said to be privileged to induce the breach

of an employment contract between his employer and another employee. The

privilege also extends to non-employees who serve as business advisors or agents

and is applicable to advice relating to contracts generally, not just employment

agreements. A business advisor may counsel his principal to breach a contract

that he reasonably believes to be harmful to his principal’s best interests.

Davis, 687 F.2d at 326. The court held that when an advisor is motivated at least in part by a

desire to benefit his principal, his conduct in inducing a breach of contract is privileged. Id. at

328. Accordingly, despite allegations that Davis acted with improper intent, the court held that

the allegedly interfering conduct was privileged.

The facts of the instant case are markedly different from those of DeHorney and Davis. 

While the nature of the relationship between Liberty and Madireddi is not entirely evident, it

appears that Madireddi is an independent contractor who is engaged by Liberty from time to time

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Case No. C 07-1214 JF (RS)

ORDER GRANTING MOTION TO REMAND

(JFLC2)

to perform a neutral medical assessment of a claimant. She does not appear to be an employee,

advisor or agent in the sense discussed by the cited cases. Accordingly, there is at least some

doubt as to whether the manager’s privilege applies to her alleged conduct. Under these

circumstances, the Court declines to conclude as a matter of law that Madireddi is a sham

defendant based upon the manager’s privilege.

In addition to advancing the defense of privilege as a basis for a sham defendant

determination, Liberty argues that the facts alleged cannot support a claim for interference with

contract or intentional infliction of emotional distress. The Court disagrees. The elements a

plaintiff must plead to state the cause of action for intentional interference with contractual

relations are: (1) a valid contract between the plaintiff and a third party; (2) the defendant’s

knowledge of this contract; (3) the defendant’s intentional acts designed to induce a breach or

disruption of the contractual relationship; (4) actual breach or disruption of the contractual

relationship; and (5) resulting damage. Pacific Gas & Electric Co. v. Bear Stearns & Co., 50

Cal.3d 1118, 1126 (1990). Collins alleges the existence of an insurance contract between

himself and Liberty, and Madireddi’s knowledge of that contract. Complt. ¶ 29. Collins alleges

further that Madireddi “deliberately sought and predetermined to render a report that would

support a termination of Plaintiff’s disability benefits,” id. at ¶ 31, and that his benefits in fact

were terminated, id. at ¶ 33. These allegations are sufficient to at least plead a claim for

interference with contract.

Because Collins has not “obviously” failed to plead a viable claim against Madireddi

under California law, Madireddi cannot be characterized as a sham defendant. Accordingly, the

Court will grant Collins’ motion for remand.

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Case No. C 07-1214 JF (RS)

ORDER GRANTING MOTION TO REMAND

(JFLC2)

IV. ORDER

Plaintiff’s motion for remand is GRANTED. The action is hereby remanded to the Santa

Cruz Superior Court on the basis of lack of complete diversity of citizenship. The Clerk of the

Court shall close the file.

DATED: May 14, 2007

__________________________________

JEREMY FOGEL

United States District Judge

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Case No. C 07-1214 JF (RS)

ORDER GRANTING MOTION TO REMAND

(JFLC2)

This Order was served on the following persons:

Pamela E. Cogan pcogan@ropers.com, rlove@ropers.com; mmcpherson@ropers.com

Terrence J. Coleman tcoleman@pillsburylevinson.com, rdelaney@pillsburylevinson.com;

jbehr@pillsburylevinson.com; rdelarosa@pillsburylevinson.com;

rfeliciano@pillsburylevinson.com; jdavid@pillsburylevinson.com

Robert Mario Forni , Jr rforni@ropers.com, pwoolery@ropers.com; mmcpherson@ropers.com

Arnold Ross Levinson alevinson@pillsburylevinson.com, dlilienstein@pillsburylevinson.com;

rdelaney@pillsburylevinson.com; jbehr@pillsburylevinson.com;

rdelarosa@pillsburylevinson.com; rfeliciano@pillsburylevinson.com;

smack@pillsburylevinson.com

Case 5:07-cv-01214-JF Document 20 Filed 05/14/07 Page 8 of 8