Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_07-cv-00365/USCOURTS-caed-2_07-cv-00365-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1442 Petition for Removal- Breach of Contract

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28 * This matter was determined to be suitable for decision without

oral argument. L.R. 78-230(h).

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

NORBERT R. HOHLBEIN d/b/a )

BUILDERS & TRADESMEN’S INSURANCE )

SERVICES, an individual; LAE )

INSURANCE SERVICES, INC., a )

California corporation; and ARLAN )

KNUTSON INSURANCE AGENCY, a )

California corporation, )

) 2:07-cv-365-GEB-KJM

Plaintiffs, )

)

v. ) ORDER*

)

QUANTA U.S. HOLDINGS, INC., a )

Delaware corporation; QUANTA )

INDEMNITY COMPANY, a Colorado )

corporation; QUANTA SPECIALTY LINES)

INSURANCE COMPANY, an Indiana )

corporation; and DOES 1 through )

100, inclusive, )

)

Defendants. )

)

Plaintiffs move to remand this action to the state court

from which it was removed. Defendants oppose this motion.

BACKGROUND

Plaintiffs filed the present action against Defendants on

January 30, 2007 in the Superior Court of California for the County of

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Sacramento, in which all claims are alleged under California law. 

(Not. of Removal, Ex. A at 1.) Defendants removed this action on

February 22, 2007 alleging diversity jurisdiction under 28 U.S.C. 

§ 1332. (Id. at 1.)

Plaintiffs are all citizens of California. (Compl. ¶¶ 1-3.) 

Plaintiffs do not allege that Defendants Quanta U.S. Holdings and

Quanta Indemnity Company are California citizens. (Id. ¶¶ 4,5.) The

parties dispute whether Quanta Specialty Lines Insurance Company

(“Quanta Specialty”), a surplus lines carrier licensed and

incorporated in Indiana, is a citizen of California. (Defs.’ Opp’n at

1:22-25.) 

On May 25, 2006, Quanta Specialty’s parent company, Quanta

Capital Holdings Limited, announced it had decided to cease

underwriting or seeking new business and that it was placing most of

its insurance and reinsurance lines into orderly run-off. (Gerstein

Decl. ¶ 4.) As a result, Quanta Specialty’s placement on California’s

List of Eligible Surplus Lines Insurers (“LESLI”) was terminated on

October 2, 2006. (Id.)

DISCUSSION

I. Standard

An action filed in state court may be removed to federal

court only if it could have been brought there originally. 28 U.S.C.

§ 1441(a). The removal statute is strictly construed, and federal

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

of removal in the first instance.” Duncan v. Stuetzle, 76 F.3d 1480,

1485 (9th Cir. 1996). “The ‘strong presumption’ against removal

jurisdiction means that the defendant always has the burden of

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1 Plaintiff waited until its Reply brief to argue that Quanta

Specialty was required to post a bond pursuant to California Insurance

Code section 1616 before filing its Opposition. (Pl.’s Reply at 2:1-

12.) Defendants counter that Plaintiff cannot raise this new argument

in its Reply. (Defs.’ Objections at 5.) Since a new argument should

not be raised for the first time in a Reply, this issue is not reached.

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establishing that removal is proper.” Gaus v. Miles, Inc., 980 F.2d

564, 566 (9th Cir. 1992). 

II. Remand

Plaintiffs move to remand this action to state court arguing

that removal was improper because complete diversity among the parties

does not exist since Quanta Specialty has its principal place of

business in California. (Pls.’ Mot. at 1:4-9.) Defendants oppose the

motion, arguing that Quanta Specialty is an Indiana corporation with

its principal place of business in New York and therefore, removal was

proper.1 (Defs.’ Opp’n at 1:16-18.)

“The district courts shall have original jurisdiction of all

civil actions where the matter in controversy exceeds the sum or value

of $75,000, exclusive of interest and costs, and is between-- . . .

[c]itizens of different States.” 28 U.S.C. § 1332(a). “[A]

corporation shall be deemed to be a citizen of any State by which it

has been incorporated and of the State where it has its principal

place of business.” Id. § 1332(c)(1).

Two tests are applicable to the determination of a

corporation’s citizenship for purposes of removal. Tosco Corp. v.

Cmtys. for a Better Env’t, 236 F.3d 495, 500 (9th Cir. 2001). 

First, the “place of operations test” locates a

corporation’s principal place of business in the

state which contains a substantial predominance of

corporate operations. Second, the “nerve center

test” locates a corporation’s principal place of

business in the state where the majority of its

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executive and administrative functions are

performed. 

Id. (internal citations and quotation marks omitted). “The Ninth

Circuit has held that the ‘place of operations’ test should apply

unless the corporation demonstrates that its activities do not

substantially predominate in any one state.” Arellano v. Home Depot

U.S.A., Inc., 245 F. Supp. 2d 1102, 1105-06 (S.D. Cal. 2003) (citing

Tosco, 236 F.3d at 500). “The Ninth Circuit employs a number of

factors to determine if a given state contains a substantial

predominance of corporate activity, including the location of

employees, tangible property, production activities, sources of

income, and where sales take place.” Tosco, 236 F.3d at 500.

All of Quanta Specialty’s employees work from its New York

office and therefore, it has no employees in California. (Gerstein

Decl. ¶¶ 3, 8.) In addition, Quanta Specialty maintains

“substantially all” of its tangible property in New York and maintains

no tangible property in California. (Id. ¶¶ 2,3.) 

However, Plaintiffs contend California is Quanta Specialty’s

principal place of business since “52.8% of Quanta Specialty’s direct

premiums in 2006 were earned on California risks” and therefore,

California is responsible for the majority of Quanta Specialty’s

income, and the location of the majority of Quanta Specialty’s sales. 

(Pls.’ Reply at 3:26-28.) Defendants declare that Plaintiff has not

produced any new business in any state since May 2006 and that all of

Quanta Specialty’s remaining run-off activities are conducted

primarily from its home office in New York rather than California. 

(Gerstein Decl. ¶¶ 4, 5.) Defendants do not present any evidence,

however, showing Quanta Specialty is no longer receiving income from

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California risks. Further, Defendants admit Quanta Specialty

continues to offer renewals on existing polices, including those in

California, when “required to do so by law.” (Id. ¶ 4.) 

“[S]ubstantial predominance [under the place of operations

test] does not require the majority of a corporation’s total business

activity to be located in one state, but instead, requires only that

the amount of [the] corporation’s business activity in one state be

significantly larger than any other state in which the corporation

conducts business.” Ho v. Ikon Office Solutions, Inc., 143 F. Supp.

2d 1163, 1164 (N.D. Cal. 2001). Although Defendants have shown Quanta

Specialty’s employees and tangible property are in New York, Quanta

Specialty’s income and sales are predominantly centered in California. 

Defendants further assert Quanta Specialty cannot be deemed

a California citizen because it is a surplus lines carrier and the

California Insurance Code prohibits Quanta Specialty from directly

transacting business in California. (Defs.’ Opp’n at 4:7-9.) 

Defendants argue that since California law requires Quanta Specialty

to transact business through another company which is authorized to

write insurance policies in California, Quanta Specialty cannot be

considered a California citizen. (Id.) However, Defendants cite no

authority for its argument that this is a factor to consider in

determining a corporation’s principal place of business for diversity

jurisdiction purposes.

Quanta Specialty has failed to show that California is not

the state where a substantial predominance of its business activities

are conducted and therefore, Plaintiffs’ motion to remand will be

granted.

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III. Request for Attorney Fees

Plaintiffs request $5325 in attorney fees and costs incurred

as a result of improper removal arguing Defendants failed to disclose

facts necessary to determine jurisdiction. (Pls.’ Mot. at 10:20-24.) 

Defendants rejoin that the “decision to remove this action to federal

court was reasonable, proper and justified.” (Defs.’ Opp’n at 17.)

“An order remanding [a] case may require payment of just

costs and any actual expenses, including attorney fees, incurred as

the result of removal.” 28 U.S.C. § 1448(c). “Such fee awards are

within the sound discretion of the court.” Rawson v. Tosco Ref. Co.,

1996 WL 33991, at *4 (N.D. Cal. Jan. 24, 1996). “The appropriate test

for awarding fees under § 1447(c) should recognize the desire to deter

removals sought for the purpose of prolonging litigation and imposing

costs on the opposing party, while not undermining Congress’ basic

decision to afford defendants a right to remove as a general matter,

when the statutory criteria are satisfied.” Martin v. Franklin

Capital Corp., 546 U.S. 132, 140 (2005). There is no evidence

Defendants removed this action for the purpose of prolonging the

litigation or to impose costs on Plaintiffs. Therefore, Plaintiffs’

request for attorney fees and costs is denied. 

REMAND

This action is remanded to the Superior Court of California

for the County of Sacramento. 

IT IS SO ORDERED.

Dated: May 23, 2007

 

GARLAND E. BURRELL, JR.

United States District Judge

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