Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_06-cv-00920/USCOURTS-casd-3_06-cv-00920-2/pdf.json

Nature of Suit Code: 380
Nature of Suit: Other Personal Property Damage
Cause of Action: 28:1332 Diversity-Property Damage

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

PHILLIP NEUMAN, an individual, as

assignee of the claims of the Potomac

Group West, Inc.,

Plaintiff,

CASE NO. 06-CV-0920-H

(NLS)

ORDER:

(1) GRANTING PACIFIC

GROUP WEST, INC.’S

MOTION TO INTERVENE;

and

(2) REMANDING CASE TO

STATE COURT

vs.

RICHARD BAKER, an individual and

DOES 1 through 50, inclusive,

Defendant.

Plaintiff Phillip Neuman originally filed his complaint in state court on April 18,

2006. Defendant Richard Baker removed the case to this Court on April 21, 2006,

asserting jurisdiction based on diversity of citizenship. (Doc. No. 1.) Pacific Group

West, Inc. (“PGW”) filed a motion to intervene on October 23, 2006. (Doc. No. 17.)

No party has filed a response to the motion to intervene. The Court held a hearing on

November 27, 2006. James Crosby appeared by telephone for Plaintiff. James Garrett

appeared in person for Defendant, and Christopher Dryden appeared in person on behalf

of PGW. For the reasons stated below, PGW is entitled to intervene as of right, but

should be aligned as a Plaintiff. Joinder of PGW as a Plaintiff, however, destroys

diversity. Because the Court finds that PGW is an indispensable party, the Court

GRANTS PGW’s motion to intervene, but REMANDS the case back to state court.

Case 3:06-cv-00920-H-NLS Document 21 Filed 11/27/06 Page 1 of 7
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Background

In Neuman’s First Amended Complaint (“FAC”), he asserts that Baker was an

employee of PGW and involved in PGW’s business of brokering insurance policies.

(Doc. No. 10, ¶ 9.) Neuman alleges that PGW assigned to him its rights against Baker

on or about November 2, 2005. (Id. ¶ 4.) Accordingly, as assignee of PGW, Neuman

brings claims against Baker for conversion, breach of employment contract, breach of

duty of loyalty, and unjust enrichment. (Id. ¶¶ 10-47.)

In its motion, PGW asserts that it rescinded its assignment of rights to Neuman

on March 1, 2006, before Neuman brought this suit against Baker. Further, PGW states

that it has resolved its underlying dispute with Baker, its former employee.

Accordingly, PGW seeks to intervene to rescind its assignment to Neuman and seeks

declaratory relief. Additionally, PGW has an action pending in state court against

Baker seeking rescission of the assignment.

Discussion

Rule 24 of the Federal Rules of Civil Procedure governs intervention, a procedure

through which a person who is not a party to a lawsuit can gain party status without the

consent of the original parties. Rule 24 sets forth two categories of intervention,

intervention of right and permissive intervention. Where the right to intervene is not

based upon a federal statute, intervention of right is governed by Rule 24(a)(2):

Upon timely application anyone shall be permitted to intervene in an action . . . when the applicant claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest, unless the

applicant's interest is adequately represented by existing parties.

Permissive intervention, in the absence of a federal statute providing a conditional right

to intervention, is governed by Rule 24(b)(2): “Upon timely application anyone may

be permitted to intervene in an action . . . when an applicant's claim or defense and the

main action have a question of law or fact in common.”

Case 3:06-cv-00920-H-NLS Document 21 Filed 11/27/06 Page 2 of 7
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1. Intervention of right

To intervene as of right, a party must meet these four requirements: (1) submit

a timely application; (2) hold a significantly protectable interest relating to the property

or transaction involved in the pending lawsuit; (3) show that disposition of the lawsuit

may impair or impede the applicant’s ability to protect its interest; and (4) show that the

existing parties do not adequately represent the applicant’s interests. Arakaki v.

Cayetano, 324 F.3d 1078, 1083 (9th Cir. 2003). Courts interpret Rule 24 liberally in

favor of applicants for intervention. Id. 

Here, PGW has demonstrated a right to intervene. First, its application is timely.

PGW states that it moved to intervene as soon as it had the chance to evaluate its stake

in the current litigation. Further, the current parties have not yet participated in the case

management conference required by Rule 16(b) of the Federal Rules of Civil Procedure,

and the litigation is not so advanced as to make intervention untimely. Additionally,

the current parties have not opposed PGW’s motion. In its discretion, the Court

determines that PGW’s application is timely. See, e.g., Yniguez v. State of Arizona,

939 F.2d 727, 730-31 (9th Cir. 1991) (determination of timeliness left to discretion of

trial court).

Second, PGW has a significantly protectable interest relating to the property or

transaction in the pending lawsuit. According to PGW, the present lawsuit is based

upon Neuman asserting PGW’s claim for money that Baker owes to PGW. Thus, PGW

has an interest in the subject matter of the litigation.

Third, a disposition of this suit without PGW’s participation may impair or

impede PGW’s interest. PGW contends that this suit is hindering its efforts to resolve

its underlying dispute with Baker. PGW asserts that it is prepared to settle its dispute

with Baker. Accordingly, allowing the action to proceed with the current parties may

impair PGW’s interests.

Fourth, PGW has demonstrated that the present parties do not adequately

represent its interests. Because the underlying claim is on behalf of PGW against

Case 3:06-cv-00920-H-NLS Document 21 Filed 11/27/06 Page 3 of 7
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- 4 - 06cv0920

Baker, Baker’s interests obviously do not coincide with those of PGW. As to Neuman,

PGW asserts that it has rescinded its assignment to him. Accordingly, his interests are

adverse to PGW.

In sum, PGW meets all of the requirements for intervention as of right.

Accordingly, the Court need not examine whether permissive intervention is

appropriate in this case.

2. Alignment of PGW

While PGW attempts to intervene as a Defendant, “diversity jurisdiction cannot

be conferred upon the federal courts by the parties’ own determination of who are

plaintiffs and who defendants. It is [the duty of] the lower federal courts, to ‘look

beyond the pleadings, and arrange the parties according to their sides in the dispute.’”

Indianapolis v. Chase Nat'l Bank, 314 U.S. 63, 69 (1941) (quoting Dawson v. Columbia

Trust Co., 197 U.S. 178, 180 (1905)). Thus, where a party seeks to intervene, a court

must determine whether the potential intervenor should be aligned as a plaintiff or

defendant. See, e.g., Dev. Fin. Corp. v. Alpha Housing & Health Care, Inc., 54 F.3d

156, 159 (3rd Cir. 1995); see also California Practice Guide, Federal Civil Procedure

Before Trial, § 7-263 (Rutter Group 2006) (hereinafter “Rutter Group”). In conducting

this inquiry, courts must look to “the ‘principal purpose of the suit,’ or the ‘primary and

controlling matter in dispute.’” Continental Airlines, Inc. v. Goodyear Tire & Rubber

Co., 819 F.2d 1519, 1523 n.2 (9th Cir. 1987) (quoting Indianapolis, 314 U.S. at 69)).

Then, the court must align “those parties whose interests coincide respecting the

‘primary matter in dispute.’” Prudential Real Estate Affiliates, Inc. v. PPR Realty, Inc.,

204 F.3d 867, 873 (9th Cir. 2000) (quoting Indianapolis, 314 U.S. at 69)).

Looking at the claims asserted by the parties in the present case, PGW should be

aligned as a Plaintiff. Neuman initially brought this suit against Baker as assignee of

the rights of PGW. Thus, both Neuman and PGW purport to hold claims against Baker

arising out of Baker’s past employment relationship with PGW. Accordingly, the

primary matter in dispute is whether Baker is liable to PGW. Indeed, as PGW explains

Case 3:06-cv-00920-H-NLS Document 21 Filed 11/27/06 Page 4 of 7
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in its papers, its primary motive in seeking to intervene is to protect its interests in

resolving its underlying dispute with Baker. Although PGW seeks to intervene as a

Defendant to rescind its assignment of rights to Neuman, the assignment/rescission

issue is secondary to the underlying dispute about whether Baker is liable to PGW, or

to Neuman as assignee of PGW. Indeed, PGW implicitly acknowledges that it should

be aligned as a Plaintiff by submitting a proposed cross-complaint against Neuman. A

cross complaint is a pleading in which a plaintiff or defendant asserts a claim against

a coparty. See, e.g., Fed. R. Civ. P. 13(g). Finally, PGW and Baker share no common

interest in the litigation, and joining them as coparties would be contrary to the actual

posture of the case. Accordingly, because the interests of PGW and Neuman “coincide

respecting the ‘primary matter in dispute,’” PGW must join this case as a Plaintiff. See

PPR Realty, Inc., 204 F.3d at 873 (quoting Indianapolis, 314 U.S. at 69). 

3. Subject Matter Jurisdiction

Where a non party intervenes as a plaintiff, the court cannot exercise

supplemental jurisdiction over the intervenor’s claims if the intervenor is a citizen of

the same state as any defendant. 28 U.S.C. 1367(b); see also Dev. Fin. Corp., 54 F.3d

at 159; Rutter Group at § 7-262.5. Here, PGW is a citizen of California, as is Defendant

Baker, and aligning PGW as a Plaintiff destroys complete diversity and deprives this

Court of subject matter jurisdiction. See, e.g., Strawbridge v. Curtiss, 3 Cranch 267

(U.S. 1806). Accordingly, the Court must deny PGW’s motion to intervene unless

PGW is an indispensable party, in which case the Court no longer has jurisdiction over

the case. See, e.g., Fed. R. Civ. P. 19; Rutter Group at §§ 7-59 to 7-60 (analysis with

regard to intervention similar to that for joinder under Fed. R. Civ. P. 19).

4. Indispensable Party

To determine whether a party is indispensable, courts look to the following

factors: (1) the extent to which a judgment may prejudice the absent party; (2) the

extent to which such prejudice may be lessened or avoided; (3) whether a judgment

between the current parties will be adequate to the parties before the court; and (4)

Case 3:06-cv-00920-H-NLS Document 21 Filed 11/27/06 Page 5 of 7
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whether the plaintiff will have an adequate remedy if the action is dismissed. Fed. R.

Civ. P. 19(b); Pit River Home and Agr. Co-op. Ass’n v. United States, 30 F.3d 1088,

1101 (9th Cir. 1994).

a. Prejudice

PGW will suffer prejudice if it is not allowed to intervene in this suit. Allowing

the suit to proceed without PGW will hinder PGW’s attempts to settle its underlying

dispute with Baker, as Baker likely will not engage in serious settlement discussions

with PGW while a suit on the identical claims is prosecuted by a different person.

Further, PGW will suffer prejudice if Baker is successful in defending the suit against

Neuman. 

b. Avoiding Prejudice

Looking at the respective positions of the parties, the Court finds that no relief

or remedy would lessen the prejudice if the Court proceeded with this action without

PGW. Because he is bringing the claims as an assignee, the claims Neuman asserts

against Baker are identical to the claims PGW would have against Baker. Accordingly,

any decision adverse to Neuman would prejudice PGW in its underlying dispute with

Baker. 

c. Adequacy of Judgment in Absence of PGW

Similarly, looking at the positions of the parties, the Court cannot provide a

judgment adequate to the parties presently before the Court in the absence of PGW.

Without PGW, a judgment for Neuman will not resolve the dispute, as PGW asserts that

Neuman no longer has the right to prosecute the claims against Baker. Likewise, a

judgment for Baker may leave him subject to a subsequent suit by PGW. Accordingly,

the Court cannot fashion an adequate judgment in the absence of PGW.

d. Whether Plaintiff Will Have an Adequate Remedy Elsewhere

Neuman may bring his claims in state court. Indeed, he initially brought this suit

in state court before removal by Baker. All of Neuman’s claims are based upon state

law causes of action, and adjudication in state court will not prejudice him. Finally,

Case 3:06-cv-00920-H-NLS Document 21 Filed 11/27/06 Page 6 of 7
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given that PGW has a related rescission action pending in state court, adjudication in

state court will allow all of the parties and disputes to proceed in a single forum.

For these reasons, the Court finds that PGW is an indispensable party and

GRANTS PGW’s motion to intervene. Because PGW is properly aligned as a Plaintiff,

however, the Court no longer has jurisdiction based on diversity of citizenship.

Accordingly, the Court REMANDS this case to state court.

Conclusion

For the reasons stated above, the Court GRANTS PGW’s motion to intervene,

but aligns PGW as a Plaintiff. Accordingly, because the parties are no longer diverse,

the Court REMANDS this case to state court.

IT IS SO ORDERED. 

DATED: November 27, 2006

MARILYN L. HUFF, District Judge

UNITED STATES DISTRICT COURT

Copies To:

Ronald H. Blumberg

Blumberg Dagan LLP

137 N. Acacia Ave.

Solana Beach, CA 92075

James D Crosby 

Law Office of James D Crosby 

13400 Sabre Springs Pkwy, Suite 200 

San Diego, CA 92128 

Stefan Erik Teichert 

Pillsbury Winthrop Shaw Pittman 

501 West Broadway, Suite 1100 

San Diego, CA 92101 

Case 3:06-cv-00920-H-NLS Document 21 Filed 11/27/06 Page 7 of 7