Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-02692/USCOURTS-cand-3_06-cv-02692-3/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition for Removal- Contract Dispute

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United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

IMAGINE, INC., a Nevada 

corporation,

Plaintiff,

 v.

SPI/SEMICON, INC., a California

corporation; SPI/SEMICON PHILS.

INC., a Philippines corporation;

SPI/SEMICON EUROPE GmbH, INC., 

an Austrian corporation; DML, INC.,

a Nevada corporation; 

DAVID KIETZKE, an individual; 

LARRY KIETZKE, an individual;

MICHAEL KIETZKE, an individual; 

and DOES 1-50, inclusive, 

Defendants. 

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No. C-06-2692 SC

ORDER REMANDING

ACTION TO STATE COURT

I. INTRODUCTION

Imagine Inc. ("Plaintiff") brought this action against

SPI/Semicon, Inc., et al. ("Defendants") in the Superior Court for

the County of Alameda, California, alleging causes of action for,

inter alia, breach of contract and fraud. Defendant DML, Inc. is

incorporated in Nevada, as is Plaintiff. 

Defendants timely removed the action to this Court based on

diversity of the parties, alleging that the non-diverse defendant,

DML, Inc., is a "sham defendant who must be disregarded in

Case 3:06-cv-02692-SC Document 48 Filed 09/05/06 Page 1 of 6
United States District Court

For the Northern District of California

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1 Suits filed in state court may be removed to federal court

where the federal court would have had original jurisdiction over

the action in the first instance. See 28 U.S.C. § 1441(a). The

federal courts have "original jurisdiction over all civil

actions arising under the Constitution, laws or treaties of the

United States." 28 U.S.C. § 1331. The federal courts have

original jurisdiction over all civil actions where the matter is

between citizens of different states and where the amount in

controversy exceeds the sum or value of $75,000.00, exclusive of

interests and costs. See 28 U.S.C. § 1332.

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determining diversity."1 Defendants have also filed a motion to

dismiss certain defendants for lack of personal jurisdiction and

to dismiss certain causes of action for failure to state a claim

upon which relief can be granted.

The Court ordered Defendants to show cause why this action

should not be remanded to state court. The Court has received

responses from both parties on this issue. 

The Court, for the reasons contained herein, REMANDS this

action to state court. Defendants' motions are DISMISSED as moot. 

II. BACKGROUND

The following facts are taken from the Complaint and will be

assumed as true for purposes of this Order.

Plaintiff is a corporation organized under the laws of

Nevada. See Complaint ¶ 1 ("Compl."); Notice of Removal ¶ 7

("NR"). Defendant DML, Inc. is also a Nevada corporation. 

See Compl. ¶ 5; NR ¶ 8. Defendant David Kietzke is an officer and

agent of Defendants SPI Domestic, SPI Philippines, and SPI Europe. 

See Compl. ¶ 5. Defendants David Kietzke, Larry Kietzke, and

Michael Kietzke are sole owners of 100% of the shares of stock in

Defendant DML, Inc. See id. at ¶ 10. 

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For the Northern District of California

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In 1996, Plaintiff started providing a "variety of consulting

services to SPI Domestic." Id. ¶ 19. In 1997, SPI Domestic and

Plaintiff "reduced their consulting agreement to writing" by

executing the Consulting Agreement. Id. Plaintiff alleges that

Defendants refused to pay the compensation mandated by the

Consulting Agreement. See id. ¶¶ 41,47, 56. 

As a result, Plaintiff filed suit in the Superior Court of

California for the County of Alameda, alleging causes of action

for breach of an oral contract, fraud, quantum meruit, and others. 

See Compl. Defendants timely removed this action to the U.S.

District Court for the Northern District of California. 

Plaintiff asserts that "a unity of interest and ownership

[exists] between" the corporate and individual defendants such

that "any separateness between them has ceased to exist," and that

the Kietzke Defendants "intermingled or failed to segregate the

assets of" the SPI corporations and DML, Inc. Id. 12-13. This

"unity of interest and ownership" has resulted in the SPI

Defendants and DML, Inc. to be "the alter egos" of the Kietzke

Defendants. Id. Plaintiff alleges that the intermingling of the

corporations' assets with those of DML, Inc. was done to "evade

payment of obligations owed to Imagine as a creditor of SPI

Philippines and SPI Europe." Id. ¶ 12. 

III. DISCUSSION

On the face of the Complaint, it appears that complete

diversity is lacking.

Yet, Defendants removed to this Court alleging that diversity

jurisdiction exists. To this end, Defendants contend that "DML is

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For the Northern District of California

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a sham defendant who must be disregarded in determining diversity"

because "DML is not alleged to be the alter ego of SPI Asia or of

SPI Europe, the only Defendants with whom Plaintiff alleges it

contracted. As DML is not alleged to be the alter ego of SPI Asia

or SPI Europe, and is further not alleged to be the agent of

either, as a matter of law, it cannot be liable for their

actions." NR ¶ 17. In their present papers, Defendants assert

that "DML is but a sham defendant, in that nowhere does Plaintiff

allege that any of the other Defendants are the alter egos of

Defendant DML." Defendants' Response to Court's Order to Show

Cause at 2. 

The Court needed further briefing on the issue of subject

matter jurisdiction, an issue Plaintiff had not raised. 

Consequently, the Court ordered Defendants to provide such

briefing. 

A federal court may examine the question of subject matter

jurisdiction sua sponte. See Steel Company v. Citizens for a

Better Environment, 523 U.S. 83, 94 (1998). When a court lacks

jurisdiction, the "only function remaining to the court is that of

announcing the fact and dismissing the cause." Id., quoting Ex

parte McCardle, 7 Wall. 506, 514 (1868). 

Defendants face a steep upward climb. Not only is the

removal statute strictly construed against removal, see Boggs v.

Lewis, 863 F.2d 662, 663 (9th Cir. 1988), but defendants alleging

that a plaintiff is fraudulently joined must "show that

individuals joined in the action cannot be liable on any theory." 

Ritchey v. Upjohn Drug Company, 139 F.3d 1313, 1319 (9th Cir.

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1998). Making such a showing is all the more difficult because

"all questions of fact and all ambiguities in the controlling

state law are [to be] resolved in plaintiff's favor." Calero v.

Unisys Coporation, 271 F. Supp. 2d 1172, 1176-1177 (N.D. Cal.

2003) (citation and quotation marks removed). 

The Court finds that Defendants have not demonstrated that

there is no possibility that Plaintiff could allege a claim

against DML, Inc. Taking the allegations as true, if Defendants

used DML, Inc. as a way of avoiding paying the contractual

compensation, then it is possible that Plaintiff has a claim

against DML, Inc. Contrary to Defendants assertions, Plaintiff

has not merely stated that simply because a parent owns

subsidiaries, it is liable for the actions of the subsidiaries. 

Rather, Plaintiff also alleges that DML, Inc. was actually used by

Defendants to evade their contractual obligations. Even if

Plaintiff's alter ego allegation is baseless, Defendants have not

shown that Plaintiff cannot bring a claim against DML, Inc. as a

participant or conspirator in the alleged wrongdoing. 

The Court finds that DML, Inc., is at present a proper, not a

sham, defendant. Its presence in this action destroys diversity. 

Therefore, the Court lacks jurisdiction over this matter. 

Accordingly, the Court REMANDS this action to the state court from

whence it came and DISMISSES Defendants' motions as moot. 

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United States District Court

For the Northern District of California

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IV. CONCLUSION

 Because it lacks jurisdiction, the Court REMANDS this action to

the Superior Court of California for the County of Alameda. 

Defendants' motions are DISMISSED as moot. 

 

IT IS SO ORDERED.

Dated: September 5, 2006

 

UNITED STATES DISTRICT JUDGE

Case 3:06-cv-02692-SC Document 48 Filed 09/05/06 Page 6 of 6