Opinion ID: 752925
Heading Depth: 2
Heading Rank: 2

Heading: Sham Defendants

Text: 18 Once we blow away the interpretive miasma and see § 1446(b) clearly, we must still consider whether this action was removable under the first paragraph of § 1446(b), or to put it another way, whether there was diversity jurisdiction based upon the initial pleading, or whether there is diversity jurisdiction at this time for that matter. See 28 U.S.C. § 1332(a). 19 The existence of diversity jurisdiction certainly does not appear on the face of Ritchey's complaint. Moreover, there can be little doubt that non-diverse defendants--Dr. Dement and Stanford--have been joined in the action. Thus, at first blush it must be said that there was no diversity. But, says Upjohn, it is diverse and Dr. Dement and Stanford were fraudulently joined or sham defendants. In the posture of this case, we agree with that conclusion. 20 It is a commonplace that fraudulently joined defendants will not defeat removal on diversity grounds. See Emrich v. Touche Ross & Co., 846 F.2d 1190, 1193 & n. 1 (9th Cir.1988); McCabe v. General Foods Corp., 811 F.2d 1336, 1339 (9th Cir.1987). But, [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. McCabe, 811 F.2d at 1339. In deciding whether a cause of action is stated we have declared that we will look only to a plaintiff's pleadings to determine removability. Gould, 790 F.2d at 773. And, we have commented that we will determine the existence of federal jurisdiction ... solely by an examination of the plaintiff's case, without recourse to the defendant's pleadings. Self v. General Motors Corp., 588 F.2d 655, 657 (9th Cir.1978). At least that is true when there has not been a fraudulent joinder. Id. at 659. Where fraudulent joinder is an issue, we will go somewhat further. The defendant seeking removal to the federal court is entitled to present the facts showing the joinder to be fraudulent. McCabe, 811 F.2d at 1339; see also Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 97-99, 42 S.Ct. 35, 37-38, 66 L.Ed. 144 (1921); Chesapeake & Ohio Ry. Co. v. Cockrell, 232 U.S. 146, 153-54, 34 S.Ct. 278, 280-81, 58 L.Ed. 544 (1914); Alabama Great S. Ry. Co. v. Thompson, 200 U.S. 206, 218-19, 26 S.Ct. 161, 165, 50 L.Ed. 441 (1906); cf. Smith v. Southern Pac. Co., 187 F.2d 397, 400-01 (9th Cir.1951). 21 That approach is reasonable and necessary. For example, a defendant must have the opportunity to show that the individuals joined in the action cannot be liable on any theory. Thus, in McCabe we looked to the complaint alone to determine that no wrongful discharge cause of action could be stated against the managers of a company for firing an employee of that company. See 811 F.2d at 1339. If we had been required to look at facts outside of the complaint to decide that issue, we would have done so. Similarly, the Supreme Court has pointed out that a removing defendant could submit facts showing that a resident defendant had no real connection with the controversy. Wilson, 257 U.S. at 97, 42 S.Ct. at 37. But it is noteworthy that these cases looked to whether the plaintiff truly had a cause of action against the alleged sham defendants. The cases did not key on an inquiry as to whether those defendants could propound defenses to an otherwise valid cause of action. There is a distinction between those two concepts. The Supreme Court touched on the distinction in Chesapeake & Ohio Ry., 232 U.S. at 153, 34 S.Ct. at 280, where it declared that the assertion made by the removing defendant went to the merits of the action as an entirety, and not to the joinder; that is to say, it indicated that the plaintiff's case was ill founded as to all the defendants. Similarly, in Alabama Great S. Ry., 200 U.S. at 218-19, 26 S.Ct. at 165, the Court refused to find fraudulent joinder where a misjoinder of parties was claimed by the defendant that was trying to remove the action. The Court commented that, ultimately, the state court might decide the joinder was not proper. In fact, if it had jurisdiction the Court might have done so itself. But, it said, this does not change the character of the action which the plaintiff has seen fit to bring, nor change an alleged joint cause of action into a separable controversy for the purpose of removal. Id.; see also McCabe, 811 F.2d at 1339 (failure to state a cause of action); Kruso v. International Tel. & Tel. Corp., 872 F.2d 1416, 1426-27 (9th Cir.1989) (joinder fraudulent where no cause of action could be stated); Gasnik v. State Farm Ins. Co., 825 F.Supp. 245, 247 (E.D.Cal.1992) (joinder fraudulent where no cause of action could be stated); cf. Sessions v. Chrysler Corp., 517 F.2d 759, 760-61 (9th Cir.1975) (joinder not fraudulent if case can withstand a 12(b)(6) motion directed to sufficiency of the cause of action, however labeled). 22 Similar distinctions have been drawn in the rules governing federal question removal. Even when the area involved is one where complete preemption is the norm, if the complaint relies on claims outside of the preempted area and does not present a federal claim on its face, the defendant must raise its preemption defense in state court. See Caterpillar Inc. v. Williams, 482 U.S. 386, 392-96, 107 S.Ct. 2425, 2430-31 96 L.Ed.2d 318 (1987). The fact that preemption might ultimately be proved does not allow removal. Id. at 397-98, 107 S.Ct. at 2432; see also Rivet v. Regions Bank, --- U.S. ----, 118 S.Ct. 921, 926, 139 L.Ed.2d 912 (1998); Westinghouse Elec. Corp. v. Newman & Holtzinger, P.C., 992 F.2d 932, 934-36 (9th Cir.1993). In other words, when the defense is exogenous to the cause of action itself, it will not turn a state action into a federal one. 23 While the above would tend to suggest that an exogenous defense could not turn a true defendant into a sham defendant, we need not resolve that issue. No doubt the statute of limitations is a defense, and a rather unique one at that. It is one that does not truly go to the merits of the plaintiff's claim in any sense. It does not assert some excuse or justification for what the defendant is alleged to have done, nor does it assert any release or waiver of any right of action against the defendant. It does not even deny the wrong or claim contributory fault or set off. Rather, it virtually admits the validity of the cause of action and the plaintiff's right to collect upon it, but asserts that the plaintiff waited too long to pursue the cause of action. California has emphasized the fact that the statute of limitations is a kind of procedural bar, and not one which relates to the merits of the case. See Hopkins v. Andaya, 958 F.2d 881, 888 (9th Cir.1992); Piazza Properties v. State Dept. of Motor Vehicles, 71 Cal.App.3d 622, 628, 138 Cal.Rptr. 357, 360 (1977); O'Neil v. Spillane, 45 Cal.App.3d 147, 156, 119 Cal.Rptr. 245, 252 (1975). In fact, California has pointed out that a judgment based on the statute of limitations regarding a cause of action in one suit is not necessarily res judicata in a second suit, which pleads a different cause of action based on the same core of underlying facts. See Koch v. Rodlin Enters., Inc., 223 Cal.App.3d 1591, 1596-97, 273 Cal.Rptr. 438, 441-42 (1990). 24 However, even though California takes that position, it also takes the position that a defendant may file a demurrer to a complaint on the theory that the complaint does not state facts sufficient to constitute a cause of action. Cal.Civ.Proc.Code § 430.10(f). It has long been the law that this principle applies to statute of limitations defenses, even though, technically, a defense is not part of the cause of action itself. See Bank of America Nat'l Trust & Sav. Ass'n v. Ames, 18 Cal.App.2d 311, 314-15, 63 P.2d 1208, 1209-10 (1936). The defendant may file the demurrer when the defect appears on the face of the complaint or in any material of which the court is required to or may take judicial notice. Cal.Civ.Proc.Code § 430.30(a). Moreover, it is clear that [i]n ruling on a demurrer essentially founded on res judicata, a court may take judicial notice of a prior judgment in a different case even though such judgment or its content is not pleaded in the complaint.... Flores v. Arroyo, 56 Cal.2d 492, 496, 364 P.2d 263, 265, 15 Cal.Rptr. 87, 89 (1961). 25 In this case, when the strobe of judicial notice is played upon Ritchey's pleading, it appears perfectly clear that the statute of limitations is a defense, which California would apply through the medium of a demurrer. The action against Dr. Dement and Stanford is barred by the statute of limitations. The harm was well known to Ritchey several years before he brought his action, and he also knew what wrongdoing had caused that harm. See Ritchey I. Ultimately, it was Upjohn's own alleged wrongdoing in concealing information about Halcion which caused the harm, as Ritchey previously alleged. See Ritchey I. Ritchey has now attempted to cobble together a claim that Dr. Dement and Stanford helped Upjohn to perpetrate that harm by helping it misrepresent data. That, however, is outside the point. It is pellucid that by the time the complaint in question was filed, January 3, 1994, the statute of limitations had long since run, regardless of whether Ritchey's new cause of action is characterized as a personal injury cause of action or a fraud cause of action. Our decision in Ritchey I makes it clear that the statute of limitations started to run in March of 1989 at the latest. Thus, as we held in Ritchey I, the one year statute of limitations had clearly run. Moreover, in California the statute of limitations for fraud is three years. See Cal.Civ.Proc.Code § 338. Again, that three year period had clearly run long before the current complaint was filed. 26 We recognize that if Dr. Dement and Stanford had not asserted the statute of limitations, Ritchey's cause of action against them might well be viable. That, again, is the slight anomaly in speaking of the statute of limitations as a ground for dismissing a complaint on the theory that it does not state of cause of action. At any rate, the statute of limitations was asserted in this case. Therefore, under California law no cause of action was stated. We recognize that it is, perhaps, slightly peculiar to speak of Dr. Dement and Stanford as sham defendants because the statute of limitations bars a claim against them, when that would seem to lead to an argument that Upjohn itself is a sham defendant because the statute of limitations has also run against it. Nevertheless, the fact is that Ritchey did not state a cause of action against anyone, and his failure to state that cause of action against Dr. Dement and Stanford demonstrates beyond peradventure that they were sham defendants for purposes of removal. Id.