Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_06-cv-05644/USCOURTS-cand-4_06-cv-05644-1/pdf.json

Parties Involved:
Bill Eagan
Plaintiff
Wendi Eckardt
Defendant
Dan Golesh
Plaintiff
Morgan Stanley DW Inc.
Defendant

Document Text:

United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

DAN GOLESH and BILL EAGAN,

Plaintiffs, No. C 06-5644 PJH

v. ORDER DENYING MOTION

TO REMAND

MORGAN STANLEY DW INC., WENDI 

ECKARDT, and DOES 1 through 50, 

inclusive,

Defendants.

_______________________________/

Plaintiffs’ motion to remand the complaint came on for hearing before this court on

November 22, 2006. Plaintiffs, Dan Golesh (“Golesh”) and Bill Eagan (“Eagan”)

(collectively “plaintiffs”), appeared through their counsel, Phil Horowitz. Defendants,

Morgan Stanley DW, Inc. (“Morgan Stanley”) and Wendi Eckardt (“Eckardt”)(collectively

“defendants”), appeared through their counsel, Trish M. Higgins. Having read the parties’

papers and carefully considered their arguments and the relevant legal authority, and good

cause appearing, the court hereby DENIES plaintiffs’ motion to remand the complaint, for

the reasons stated at the hearing and as follows.

BACKGROUND

This case stems from the purportedly wrongful discharge of plaintiffs Dan Golesh

and Bill Eagan. Golesh and Eagan were employed as Financial Advisors for Morgan

Stanley from 1993 and 1992, respectively, until August 2005. See Notice of Removal,

Complaint at ¶¶ 1, 3. As Financial Advisors, plaintiffs were tasked with helping to generate

sales revenues for Morgan Stanley, pursuant to which they received commission revenues

and credit. See id. at ¶ 5. 

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Golesh and Eagan allege that Morgan Stanley wrongfully failed to pay plaintiffs

certain commissions (amounting to tens of thousands of dollars) that they were owed

pursuant to their respective employment and partnership agreements with Morgan Stanley. 

See id. at ¶¶ 29-30, 33, 40. Plaintiffs allege that, as a result of their insistence in getting

paid the back commissions owed them when they discovered that Morgan Stanley had not

been paying as agreed, Morgan Stanley decided to terminate them in retaliation for their

complaints. Id. at ¶¶ 89-90. Plaintiffs also allege that Morgan Stanley and one of Morgan

Stanley’s branch managers, defendant Wendi Eckardt, misrepresented to plaintiffs that as

long as plaintiffs performed a certain number of monthly sales for Morgan Stanley (at least

$38,000 per month), plaintiffs would have continued employment with Morgan Stanley – a

promise, allege plaintiffs, that was not kept. Id. at ¶¶117, 121-22, 127.

Plaintiffs’ complaint alleges that all parties to the action are citizens of California, and

sets forth eight causes of action against defendants: (1) breach of contract; (2) violation of

Cal. Labor Code §§ 204 et seq. (failure to pay timely commissions); (3) violation of Cal.

Labor Code § 201 (failure to pay commissions upon discharge); (4) wrongful discharge in

violation of public policy; (5) age discrimination in violation of FEHA; (6) fraud; (7)

defamation; and (8) misrepresentation in violation of Cal. Labor Code § 1050. Of these

claims, however, all but one are against defendant Morgan Stanley alone. Only plaintiffs’

sixth cause of action for fraud proceeds against defendant Eckardt in addition to Morgan

Stanley. See Complaint, ¶¶ 1, 3, 6-7. 

Plaintiffs’ complaint was originally filed in state court, in Alameda County, on August

7, 2006. Defendants removed the case to federal court on September 14, 2006, alleging

diversity jurisdiction. Defendants’ notice of removal states that the court has jurisdiction

based on diversity grounds, as Morgan Stanley is not a California citizen, and Eckardt is a

sham defendant whose California citizenship may be disregarded for diversity purposes. 

Plaintiffs have now filed a motion to remand the case to state court. 

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DISCUSSION

A. Legal Standard

Federal subject matter jurisdiction under 28 U.S.C. § 1332(a)(1) requires complete

diversity of citizenship and an amount in controversy in excess of $75,000. Generally

speaking, if a defendant has improperly removed a case over which the federal court lacks

diversity jurisdiction, the federal court shall remand the case to state court. 28 U.S.C. §

1447(c); see also Sanchez v. Monumental Life Ins. Co., 102 F.3d 398, 403-04 (9th Cir.

1996) (strong presumption in favor of remand).

Notwithstanding the requirement of complete diversity, however, an otherwise nondiverse party’s citizenship may be disregarded if a defendant can demonstrate that the nondiverse party was “fraudulently joined.” Morris v. Princess Cruises, Inc., 236 F.3d 1061,

1067 (9th Cir. 2001). Joinder of a non-diverse defendant is deemed fraudulent "[i]f 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." Id. (citing McCabe v. General Foods

Corp., 811 F.2d 1336, 1339 (9th Cir.1987). This is a lenient standard, which does not even

rise to the level of a motion to dismiss. See e.g., Plute v. Roadway Package Sys., Inc., 141

F. Supp. 2d 1005, 1008 (N.D. Cal. 2001) (fraudulent joinder claim must be denied “when

there is any possibility that a plaintiff may prevail on the cause of action against the in-state

defendant”) (citations omitted). 

There is a presumption against a finding of fraudulent joinder, and the defendant

bears a heavy burden of proof. Plute, 141 F. Supp. 2d at 1008 (citing Nishimoto v.

Federman-Bachrach & Assoc., 903 F.2d 709, 712 n. 3 (9th Cir. 1990) and Emrich v.

Touche Ross & Co., 846 F.2d 1190, 1195 (9th Cir. 1988)). The court must resolve all

disputed questions of fact, ambiguous questions of state law, and ambiguous pleadings in

the plaintiff’s favor. Plute, 141 F. Supp. 2d at 1008 (citations omitted). 

B. Fraudulent Joinder

It is undisputed that plaintiffs’ fraud claim is alleged against a fellow California

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1 Plaintiffs’ complaint actually implies that defendant Morgan Stanley is also a

California resident, as it alleges that Morgan Stanley is a corporation doing business in the

state of California. See Complaint, ¶6. However, in their notice of removal, defendants cite

to Ninth Circuit authority supporting the argument that Delaware is Morgan Stanley’s

headquarters and therefore principal place of business and state of citizenship. Defendants

also submitted a declaration to this effect. Plaintiffs do not dispute this, thereby conceding this

fact for purposes of this motion. 

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resident, defendant Eckardt. See Complaint, ¶¶ 7, 117. The issue raised by the parties is

whether, under the standard enunciated above, plaintiffs have asserted a viable cause of

action for fraud against Eckardt, thereby destroying diversity and requiring remand.1

 

A properly stated fraud claim must allege: (1) a misrepresentation (false

representation or promise); (2) knowledge of falsity (or 'scienter'); (3) intent to defraud, i.e.,

to induce reliance; (4) justifiable reliance; and (5) resulting damage.” See Lazar v. Superior

Court, 12 Cal. 4th 631, 638 (1996). Defendants assert that plaintiffs cannot, as a matter of

law, prove the second, third, or fourth of the required elements, although defendants’

primary focus is on the justifiable reliance element. 

Preliminarily, the court notes that plaintiffs make much of the fact that, while they

have alleged a single cause of action for fraud against defendant Eckardt, that cause of

action actually includes two claims: one for promissory fraud, based on the representation

that if plaintiffs sold at least $38,000/month, they would have continued employment; and

one for intentional misrepresentation, based on the representation that the minimum sales

quota that defendants considered satisfactory, was $38,000/month. The court finds,

however, that this is a distinction without a difference, as both types of fraud claims require

proof of the same five elements noted above. 

Turning to the parties’ substantive arguments, the first issue for the court is whether

plaintiffs can successfully prove justifiable reliance on the basis of the allegations contained

in their complaint. Defendants contend that California case law holds that at-will

employees such as plaintiffs cannot justifiably rely on an oral promise of continued

employment as the basis for a fraud claim. 

Defendants are correct. California courts have held that misrepresentations that

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2 Plaintiffs’ opening brief objects to the first iteration of the Scott Declaration –

which was submitted with defendants’ notice of removal – on grounds that it lacks foundation

for the fact that plaintiffs are at-will employees. The court need not rule on this challenge,

however, as defendants at any rate remedied any objection by filing a renewed Scott

Declaration (cited above) in connection with their opposition. Notably, plaintiffs do not object

to this second iteration in their reply. 

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amount to no more than promises of continued employment, where an employee is at-will,

cannot serve as a basis for a fraud claim. See, e.g., Dore v. Arnold Worldwide, Inc., 39

Cal. 4th 384, 393 (2006)(rejecting at-will employee’s fraud claim where premised on

representations that employment would continue indefinitely so long as employee

performed in proper and competent manner and that discharge would be for good cause

only); Slivinsky v. Watkins-Johnson Co., 221 Cal. App. 3d 799, 807 (1990)(reliance on oral

promises of continuing employment “simply not justifiable because the representations

contradict the parties’ integrated employment agreement which provided that the

employment was at will”); Camp v. Jeffer, Mangels, Butler & Marmaro, 35 Cal. App. 4th

620, 639-40 (1995)(no justifiable reliance based on representations that employer would

find employee another position within employer firm and that no other positions were

available). 

Each of these cases takes as its central premise the fact that an at-will employee

relationship necessarily means that an employee’s termination may happen for any reason,

at any time. See Dore, 39 Cal. 4th at 392 (“An at-will employment may be ended by either

party ‘at any time without cause,’ for any or no reason, and subject to no procedure except

the statutory requirement of notice.”); see also Guz v. Bechtel National, Inc., 24 Cal. 4th

317, 335 (2000). To that end, no affirmative representations to the contrary may justifiably

be relied upon, in the face of an express at-will contract. 

This rationale makes sense, and is applicable here. First, plaintiffs do not dispute

that they are at-will employees. See Declaration of Seana Scott in Support of Defendants’

Opposition to Remand Motion (“Scott Decl.”), Exs. A-B at 4.2

 Second, plaintiffs’ own

allegations make explicitly clear the fact that – whether labeled a misrepresentation or a

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promise fraudulently made – plaintiffs are claiming reliance on a promise of “continued

employment”. See Complaint, ¶ 117. These facts specifically put this action into the same

category as the cases cited by defendants and noted above, and the court is compelled to

arrive at the same conclusion as that reached in those cases: plaintiffs cannot have

justifiably relied on defendant Eckardt’s representations to the effect that, if they began

producing at least $38,000 in sales per month, “their continued employment with defendant

Morgan Stanley” would be assured. See id. As such, and since justifiable reliance is an

essential element to plaintiffs’ fraud claim, no such claim may be stated against defendant

Eckardt. 

Plaintiffs attempt to avoid this conclusion with two arguments that they claim

distinguish this case from the above cases: (1) that the misrepresentations here belong to

a narrow category that stops short of a blanket promise of continued employment; and (2)

that the misrepresentations here caused damages unrelated to the employee’s discharge. 

Plaintiffs principally rely on Agosta v. Astor, 120 Cal. App. 4th 596 (2004) for their

reasoning. 

Plaintiffs’ arguments are to no avail. First, plaintiffs’ own allegation that the

misrepresentation at issue is one fundamentally relating to “continued employment” belies

plaintiffs’ claim that the present facts somehow belong to a narrow category of

misrepresentations that have nothing to do with promises of continued employment. 

Second, plaintiffs fail to persuasively argue that their alleged damages are sufficiently

unrelated to their discharge, such that a fraud claim is plausible. To be sure, plaintiffs are

generally correct that “a misrepresentation not aimed at effecting termination of

employment, but instead designed to induce the employee to alter detrimentally his or her

position in some other respect, might form a basis for a valid fraud claim...”. See Hunter v.

Up-Right, Inc., 6 Cal. 4th 1174, 1185 (1994); see also Miller v. Fairchild Indus., 885 F.2d

498, 509-10 (9th Cir. 1989). However, the salient fact is that here, there are no allegations

that would support a scenario in which plaintiffs were induced to alter their position

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detrimentally in any respect that is independent and unrelated to their at-will employment

status. And contrary to plaintiffs’ contention, Agosta does not provide a basis for

concluding differently. While Agosta did ultimately allow an employee’s fraud claim against

a defendant employer to go forward, it did so where the employee, who was at-will, had

relied on fraudulent misrepresentations pre-employment, meaning that the plaintiff had

relied on the employer’s misrepresentations in order to give up his old position and enter

into a new employment relationship with the employer. Moreover, the court held plaintiff’s

fraud claim actionable with respect to plaintiff’s reliance on express promises regarding

compensation, as distinct from at-will employment. See 120 Cal. App. 4th at 606. Indeed,

Agosta specifically reiterated that plaintiff there could not “rely on a collateral promise of

long-term employment because the ‘at-will’ provision superseded any prior or

contemporaneous agreement at variance with that term.” 

So here. Plaintiffs are at-will employees who were not entitled, as a matter of law, to

rely on promises of long-term or continued employment, as such promises were inherently

at variance with plaintiffs’ at-will status. Accordingly, plaintiffs have no possibility of

succeeding on the justifiable reliance element of their fraud claim against defendant

Eckardt. 

Although the court need not look past the justifiable reliance element in view of this

holding, plaintiffs have additionally failed to rebut defendants’ evidence of an absence of

intent to defraud or knowledge of falsity – the two other requisite elements of fraud. 

As such, plaintiffs’ fraud claim cannot succeed. Defendant Eckardt’s citizenship

should therefore be disregarded for purposes of diversity jurisdiction. Removal is therefore

proper, since defendant Eckardt is the only non-diverse defendant named in the complaint,

and plaintiffs’ motion to remand fails.

/ / /

/ / /

/ / /

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C. Conclusion

For the above reasons, plaintiffs’ motion to remand the instant complaint is DENIED.

IT IS SO ORDERED.

Dated: November 29, 2006 ______________________________

PHYLLIS J. HAMILTON

United States District Judge

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