Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-00839/USCOURTS-cand-3_06-cv-00839-3/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

---

United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

RCMC, INC., also known as RAINBOW

CONSTRUCTION, 

Plaintiff,

 v.

WESTCHESTER SURPLUS LINES

INSURANCE COMPANY, and DOES 1

through 20, inclusive, 

Defendants. /

No. C 06-00839 JSW

ORDER GRANTING MOTION

FOR LEAVE TO FILE THIRD

AMENDED COMPLAINT AND

REMANDING CASE

Now before the Court is Plaintiff RCMC, Inc.’s motion for leave to amend their

complaint in this insurance dispute. The Court finds the present motion suitable for resolution

without oral argument and hereby VACATES the proposed hearing date of July 28, 2006. See

Civil Local Rule 7-1(b). Having carefully considered the parties’ arguments as presented in

their papers and the relevant legal authority, the Court HEREBY GRANTS Plaintiff’s motion.

Among other, unopposed revisions, Plaintiff seeks leave to amend to add bad faith

claims against its insurance broker, Keenan & Associates (“Keenan”). Because, as a California

corporation, the addition of Keenan will destroy diversity and divest this Court of jurisdiction,

Defendant Westchester Insurance Company (“Westchester”) opposes the motion. 

If after removal the plaintiff seeks to join additional defendants whose joinder would

destroy subject matter jurisdiction, the Court may deny joinder, or permit joinder and remand

the action to state court. See 28 U.S.C. § 1447(e). Courts generally consider the following 

Case 3:06-cv-00839-JSW Document 45 Filed 07/18/06 Page 1 of 4
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

factors when deciding whether to allow amendment to add non-diverse defendants: (1) whether

the party sought to be joined is needed for just adjudication and would be joined under Federal

Rule of Civil procedure 19(a); (2) whether the statute of limitations would preclude an original

action against the new defendants in state court; (3) whether there has been unexplained delay

in requesting joinder; (4) whether joinder is intended solely to defeat federal jurisdiction; (5)

whether the claims against the new defendant appear valid; and (6) whether denial of joinder

will prejudice the plaintiff. IBC Aviation Services, Inc. v. Compania Mexicana de Aviacion,

125 F. Supp. 2d 1008, 1011 (N.D. Cal. 2000). Because courts scrutinize amendment more

closely when the amendment will defeat diversity, Plaintiff’s straight-forward analysis for

general amendment under Federal Rule of Civil Procedure 15(a) is incomplete. See id.

First, under Federal Rule of Civil Procedure 19(a), joinder of a party is required where

its absence would preclude grant of complete relief, or where its absence would subject any of

the parties to the danger of inconsistent obligations. Necessary parties have been described

generally, however, as those “[p]ersons having an interest in the controversy, and who ought to

be made parties, in order that the court may act on that rule which requires it to decide on, and

finally determine the entire controversy, and do complete justice, by adjusting all the rights

involved in it.” CP Nat’l Corp. v. Bonneville Power Admin., 928 F.2d 905, 912 (9th Cir. 1991)

(citing Shields v. Barrow, 58 U.S. 130, 139 (1855)). This standard is met when failure to join

will lead to separate and redundant actions. See id. at 910. Although courts consider whether a

party would meet the standard for a necessary party, amendment under 28 U.S.C. § 1447(a) is a

less restrictive standard than for joinder under Federal Rule of Civil Procedure 19. See IBC

Aviation, 125 F. Supp. 2d at 1011-12 (citing Trotman v. United Parcel Service, 1996 WL

428333, *1 (N.D. Cal. 1996)). Here, the Court finds that the addition of Keenan, whose alleged

conduct was essential to the acquisition of the subject insurance policies and whose liability is

associated with the respective liability of the two defendant insurance companies, will allow the

Court to determine finally the entire controversy. 

Second, although a state court action against Keenan might be possible, the parties do

not brief whether such an action might be barred by the applicable statute of limitations, and

Case 3:06-cv-00839-JSW Document 45 Filed 07/18/06 Page 2 of 4
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3

requiring Plaintiff to litigate the same issues in two forums would be a waste of judicial

resources and would create an unnecessary risk of obtaining inconsistent results. 

Third, although the Court has considered the delay in filing the motion for leave to

amend, Plaintiff contends that it is only within the past 30 days that it was made aware of the

potential liability of Keenan by taking part in a mediation in the related state court actions. 

Plaintiff promptly filed the current motion, on an expedited basis, and the Court finds that

Plaintiff therefore acted in a timely fashion and did not unreasonably delay seeking amendment.

Fourth, the Court considers the motive for seeking joinder of an additional defendant

and the suggestion by Westchester that Plaintiff seeks to add Keenan for the sole purpose of

destroying diversity. The Court declines to impute an improper motive to Plaintiff simply

because Plaintiff seeks to add a non-diverse defendant post-removal. The Court finds that

Plaintiff’s request to add Keenan as a defendant is reasonable and justifiable. 

Fifth, the Court considers whether the claim sought to be added appears to be

meritorious. See, e.g., Clinco v. Roberts, 41 F. Supp. 2d 1080, 1083 (C.D. Cal. 1999). The

Court recognizes, and Westchester does not contest, that Plaintiff may have valid claims against

Keenan. See, e.g., Fitzpatrick v. Hayes, 57 Cal. App. 4th 916, 927 (1997) (holding that client

may have claim against insurance agent for failure to volunteer information about obtaining

additional coverage under certain circumstances). 

Finally, denial of the amendment would likely prejudice Plaintiff because it would

require the filing of multiple and redundant litigation in two separate forums for claims arising

out of the same legal issues and nucleus of facts. Allowing the amendment would not prejudice

Westchester. The matter is still in the early stages of litigation, discovery has not formally

begun, and Westchester does not contend that it will be unduly prejudiced by the amendment.

Based on the totality of all the relevant factors, and in its discretion, the Court finds

Plaintiff’s amendment is warranted as the claims against Keenan are directly related to the

remainder of Plaintiff’s claims, amendment would conserve judicial resources and reduce the

risk of inconsistent results, the request was not unreasonably delayed, the claims against

Keenan appear to be viable, and the amendment will not prejudice the parties. Therefore,

Case 3:06-cv-00839-JSW Document 45 Filed 07/18/06 Page 3 of 4
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4

Plaintiff’s motion for leave to file an amended complaint is GRANTED. The proposed Third

Amended Complaint, attached to the Declaration of Adam R. Bernstein as Exhibit 1, is hereby

deemed filed.

Under 28 U.S.C. § 1447(e), because the Court has permitted the joinder of the nondiverse defendant and finds itself without jurisdiction, it must remand to state court. See

Yniques v. Cabral, 985 F.2d 1031, 1036 (9th Cir. 1993). 

CONCLUSION

The Court GRANTS Plaintiff’s motion for leave to amend the complaint and remands

the case back to state court. The case is remanded to the Superior Court for the County of

Mendocina, Ukiah Branch. The Clerk shall close this Court’s file.

IT IS SO ORDERED.

Dated: July 18, 2006 

JEFFREY S. WHITE

UNITED STATES DISTRICT JUDGE

Case 3:06-cv-00839-JSW Document 45 Filed 07/18/06 Page 4 of 4