Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-00617/USCOURTS-caed-2_05-cv-00617-2/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Contract Dispute

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1

 IN THE UNITED STATES DISTRICT COURT

 FOR THE EASTERN DISTRICT OF CALIFORNIA 

SACRAMENTO MUNICIPAL UTILITY

DISTRICT, a municipal utility

district,

Plaintiff,

v. CIV. NO. S-05-617 LKK/GGH

FRU-CON CONSTRUCTION CORPORATION, O R D E R

a corporation; A. TEICHERT & SON, 

INC., aka TEICHERT CONSTRUCTION,

a California corporation,

Defendants.

 /

On February 28, 2005, the Sacramento Municipal Utility 

District (“the District”) filed this action in the Superior Court

of the State of California naming as defendants Fru-Con

Construction Corp. (“Fru-Con”), a foreign corporation, and A.

Teichert & Son, Inc. (“Teichert”), a California corporation. On

March 29, 2005, defendant Fru-Con removed the action asserting that

the District fraudulently joined Teichert as a defendant in order

to deprive this court of jurisdiction. The District now seeks to

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have this action remanded. I decide the motion based on the papers

and pleadings filed herein and after oral argument. 

I.

BACKGROUND

Plaintiff is a municipal utility district that generates,

transmits, and distributes electric power. The District owns

and/or operates various power generation facilities. In order to

meet its projected power needs, the District initiated the

construction of the Cosumnes Power Plant Project (the “Project”).

The overall Project involves construction of a nominal 1,000 MW gas

fired, combined cycle power plant complex at the District’s Rancho

Seco site in Herald, California. The Project consists of two

phases, with Phase I generating 500 MW of power through

construction of two combustion turbine generators, two heat

recovery steam generators and a steam turbine generator.

Fru-Con is a general and mechanical construction contractor

incorporated in the State of Missouri with its principal place of

business in Ballwin, Missouri. The District and Fru-Con entered

into a contract for the construction of Phase I of the Project for

the sum of $106,843,527.

Teichert is a Fru-Con subcontractor which performed grading

associated with the project. The District alleges that Teichert

damaged its property while performing the subcontracting work.

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II.

STANDARD

Civil actions not involving a federal question are removable

to a federal district court only if there is diversity of

citizenship between the parties. 28 U.S.C. § 1332(a)(1). Section

1332 requires that there be complete diversity, that is, each

plaintiff's citizenship must be diverse as to each defendant's

citizenship. Id. A defendant may remove a civil action that

alleges claims against a non-diverse defendant when the plaintiff

has no basis for suing that defendant, or in other words, when that

defendant has been fraudulently joined. McCabe v. General Foods

Corp., 811 F.2d 1336, 1339 (9th Cir.1987). 

“‘[F]raudulent joinder is a term of art. 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 defendant is fraudulent.’” Ritchey v.

Upjohn Drug Co., 139 F.3d 1313, 1318 (9th Cir.1998) (quoting

McCabe, 811 F.2d at 1339). Where a non-diverse defendant has been

"fraudulently joined" to an otherwise completely diverse case, that

defendant is disregarded for diversity jurisdiction purposes. See,

e.g., Calero v. Unisys Corp., 271 F Supp 2d 1172, 1176 (N.D. Cal.

2003). 

On a motion to remand, the removing defendant faces a strong

presumption against removal, and bears the burden of establishing

that removal was proper by a preponderance of evidence. Sanchez

v. Monumental Life Ins. Co., 102 F.3d 398, 403-404 (9th Cir. 1996).

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Thus, the defendant carries a high burden of establishing that the

non-diverse party was fraudulently joined. See Gaus v. Miles,

Inc., 980 F.2d 564 (9th Cir. 1992). 28 U.S.C. § 1447(c) provides

that a case removed from state court should be remanded if it

appears that the case was removed improvidently or without

jurisdiction. Federal jurisdiction must be rejected if there is

any doubt as to the right of removal. Id. at 566. 

In determining whether a non-diverse defendant has been

improperly joined, courts may look beyond the pleadings and examine

the factual record. McCabe, 811 F.2d at 1339.

IV.

ANALYSIS

Fru-Con premises its assertion of fraudulent joinder on a

contention that, despite appearances, plaintiff’s suit presents

no cognizable claim against Teichert. Below, I examine

plaintiff’s claim that there are viable causes of action lying

in negligence and equitable indemnity. 

A. NEGLIGENCE 

The District concedes that there is no privity of contract

between it and Teichert. It also concedes that under California

law, a construction contractor with whom there is no privity of

contract is not liable in negligence unless the plaintiff has

suffered personal injury or property damage. See Stewart v. Cox,

55 Cal.2d 857, 861 863 (1961); Aas v. Super. Ct., 24 Cal.4th

627, 652-53 (2000). Fru-Con asserts that the District claims

only economic damages and thus fails to allege that it suffered

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property damage as a result of Teichert’s actions.

The District’s complaint alleges that Teichert “exceeded

the boundaries for grading the south laydown area,” thereby

potentially causing damage to endangered or threatened species.

Complaint at 13. The complaint then states that Teichert

“damage[d] the District’s property” and that the District has

“suffered damages as a result.” Id. at 14. Although the

allegations as stated in the complaint are general in nature and

do not specify what damages it seeks to recover for, the

District has filed declarations in support of its motion to

remand which present additional facts purporting to show that

its cause of action against Teichert is viable. 

The District asserts that Teichert was to perform grading

work on the District's property for a "laydown area" where the

District and Fru-Con would store equipment and other materials

to be used during construction. According to Wayne Lundstrum,

Supervisor-Property Administrator in the District’s Real Estate

Services, the District owns both the real property designated

for the laydown area and the property adjacent to it. Decl. of

Wayne Lundstrum at 2. Further, and as conceded by Fru-Con, the

District’s property encompasses federally-protected wetlands,

including a protected habitat for an endangered species of

shrimp. Before commencing construction on Phase I of the Plant,

the District obtained a permit for the construction around the

wetlands under § 404 of the Clean Water Act (CWA), 33 U.S.C. 

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1 The Federal Government has imposed restrictions on

commercial construction activities near vernal pools based on the

Endangered Species Act (the "ESA"). That statute, 16 U.S.C. § 1531

et seq., was enacted in 1973 to "provide a means whereby the

ecosystems upon which endangered species and threatened species

depend may be conserved to provide a program for the conservation

of such endangered species...." 16 U.S.C. § 1531(b). 

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§ 1344(a).1 The District asserts that the laydown area is an

integral part of the overall project plan and was specifically

addressed and provided for in various permits obtained for the

Phase I Plant. Decl. of Colin Taylor ¶ 7. 

The District asserts that Teichert damaged its property in

the course of its subcontracting work in two ways. One,

Teichert ignored the specified property boundaries for the

laydown area and entered upon adjacent property owned by the

District without its permission, Decl. of Wayne Lundstrum, and

graded and spread dirt across that property. Second, Teichert

filled a portion of a vernal pool on the District's adjacent

property that is a habitat for two federally-listed vernal pool

crustacean species. This second action allegedly altered its

property in a manner not permitted by the Section 404 permit. 

As a consequence, the District has been required by the U.S.

Army Corps of Engineers to perform certain remedial work on the

property adjacent to the laydown area and by the U.S. Fish and

Wildlife Services to undertake mitigation actions. Decl. of

Colin Taylor ¶ 8. The District maintains that these allegations

suffice to state a cause of action against Teichert for

negligence. 

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2 Defendant’s characterization of the quantity of dirt as

“small” is undermined by its own admission that the Army Corps of

Engineers notified the District that “[s]oil had been laid

approximately ten feet over the laydown boundary line for a length

of 50 feet along the western boundary.” Def’s Oppo. Br. at 8. 

3 Even if, assuming arguendo, there were an ambiguity in

state law on this question, "the court must resolve [the]

ambiguit[y] . . in plaintiff's favor." Macey v. Allstate Property

and Cas., 220 F.Supp.2d 1116, 1117 (N.D.Cal. 2002); Diaz v.

Allstate Ins. Group, 185 F.R.D. 581 (C.D.Cal. 1998), because there

is a presumption against fraudulent joinder and federal

jurisdiction must be rejected if there is any doubt as to the

defendant’s right of removal, Gaus, 980 F.2d at 566.

4 For yet another reason, Fru-Con’s contention that

plaintiff’s failure to present evidence concerning additional

damage defeats its claim must fail. Under notice pleading,

7

In response, Fru-Con contends that neither of Teichert’s

actions resulted in damage to the District’s property. Fru-Con

first asserts that the spreading of excavated dirt on the

District’s adjacent property cannot be said to have damaged that

property because “the small amount of dirt spread” has not

“negatively impacted in any way, shape or form the District’s

ability to use its property.”2 The argument is unconvincing.

Fru-Con essentially concedes that Teichert graded and altered

the District’s land, but argues that such actions were harmless. 

It offers no evidence, however, to support its contention. 

Further, it does not cite to any legal authority to challenge

plaintiff’s contention that the unauthorized alteration of its

property amounts to property damage.3 Further, whether

additional injury, such as restricted use of its property, flows

from the alleged alteration addresses the question of damages,

not liability.4

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detailed allegations of injury are not required. Again, given the

strong presumptions against a finding of fraudulent joinder and

Fru-Con burden of persuasion, plaintiff’s allegedly deficient

pleading is irrelevant. Emrich v. Touch Ross & Co., 846 F.2d 1190,

1193, 1195 (9th Cir. 1988).

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Fru-Con, apparently concerned that the court might reject

its argument based upon the violation of the § 404 permit, 

claims that the District may not bring a negligence claim

against Teichert based upon the alleged damage to the vernal

pool. Fru-Con asserts that this claim concerns physical injury

to the federally-protected habitat and therefore cannot

constitute damage to the District’s property, because it has no

proprietary interest in the habitat or the species. According

to Fru-Con, the District can complain only of economic injuries

as a result of the fines imposed and measures required by the

federal government. Once again, I cannot agree. 

While it is true that the District incurred economic

injuries as a result of the damage to the vernal pools, the

filling of the vernal pool was itself an unauthorized alteration

of its property, and thus sufficient to support its claim. The

District does not assert a proprietary interest in the species

or habitat qua habitat, and does not ground its negligence claim

based on any damage to them. Rather, the District alleges that

the vernal pool located on its property was altered by Teichert. 

Further, because the alteration was in violation of the

property’s use restrictions, the District was required to

restore its property to the condition it was in before Teichert

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5 The court need not resolve whether the District may also

seek recovery for economic injuries resulting from payment of

fines.

6 Fru-Con also attempts to defeat the District’s allegations

by asserting that the District’s personnel directed Teichert to go

beyond the lay-down boundary, suggesting that it not only had

permission but was ordered to act in the manner now complained of.

The District, of course, asserts that Teichert went onto the

property in question without its permission. While the defendant

may certainly raise the defense of consent in litigating the merits

of plaintiff’s cause of action, the factual dispute does not

demonstrate that plaintiff has not stated a proper cause of action.

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went onto the land. Whether the District may ultimately prevail

on this claim or not, it has sufficiently stated a cause of

action against Teichert.5 Continental Ins. Co. v. Foss Maritime

Co., 2002 WL 31414315 (N.D. Cal. 2002)("The standard is not

whether plaintiffs will actually or even probably prevail on the

merits, but whether there is any possibility that they may do

so.")6

B. EQUITABLE INDEMNITY

The District also maintains that it may properly state a

cause of action against Teichert for equitable indemnity based

on the alleged negligent grading activity. Defendant disagrees,

citing to BFCG Architects Planners, Inc. v. Forcum/Mackey

Construction, Inc., 119 Cal.App.4th 848, 852 (2004). BFCG

stands for the proposition that for equitable indemnity to

apply, there must first be some basis for tort liability against

the proposed indemnitor. Because, as explained above, I have

concluded that the District may bring a negligence cause of

action against Teichert, BFCG supports the District’s contention

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26 7 Defendant Fru-Con's motion to drop a party and defendant

Teichert's motion to dismiss are therefore rendered moot.

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that it may also bring a claim based on equitable indemnity. 

C. INDISPENSABLE PARTIES

Lastly, Fru-Con asserts that the court should disregard

Teichert in determining subject matter jurisdiction because it

is not an indispensable party. That contention also does not

lie. It is well established that the citizenship of a nondiverse defendant who is a proper party, though not an

indispensable party, must be considered when determining the

existence of diversity jurisdiction. Matthew v. Coppin, 32 F.2d

100, 102 (9th Cir. 1929). Here, as the master of its complaint,

the District properly seeks to hold Teichert liable for

negligence jointly with Fru-Con. 

For the reasons explained above, Fru-Con has not met its

burden of establishing that Teichert was fraudulently joined.7

D. ATTORNEYS' FEES AND COSTS ARE NOT WARRANTED

The District requests an award of costs and attorneys’ fees

incurred in bringing its motion to remand. Section 1447(c) of

Title 28 of the United States Code provides that "an order

remanding the case may require payment of just costs and any

actual expenses, including attorney fees, incurred as a result

of the removal." Id. The award of fees is within the discretion

of the district court. Moore v. Permanente Med. Group. Inc., 981

F.2d 443, 446 (9th Cir. 1992).

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An award of attorneys' fees and costs is not warranted in

the instant matter. Although ultimately unconvincing,

defendant's contentions were hardly frivolous, and there is

nothing showing that removal was motivated by bad faith. 

Moreover, defendant’s removal does not appear to have resulted

in unreasonable delay or prejudice.

V.

CONCLUSION

For all the foregoing reasons, the court hereby ORDERS as

follows:

1. Plaintiff’s motion to remand is GRANTED, and this

action is REMANDED to the Superior Court from which it was

removed.

2. Plaintiff's request for attorneys' fees and costs is

DENIED. 

3. The District's motion to stay in the related case,

Fru-Con v. Sacramento Municipal Utility Dist., No. Civ. S-05-583

LKK, is now RE-SET, to be heard on this court's law and motion

calendar on June 13, 2005 at 10:00 a.m. in Courtroom No. 4.

IT IS SO ORDERED.

DATED: May 26, 2005.

/s/Lawrence K. Karlton 

LAWRENCE K. KARLTON

SENIOR JUDGE

UNITED STATES DISTRICT COURT

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