Tajran v. Estate of Irene McDonald

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8 UNITED STATES DISTRICT COURT

9 SOUTHERN DISTRICT OF CALIFORNIA

10 MIKE TAJRAN; DEENA TAJRAN, Case No. 19-cv-1290-BAS-KSC

11 Plaintiffs, ORDER GRANTING IN PART

AND DENYING IN PART

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PLAINTIFFS’ MOTION TO

13 v. REMAND (ECF No. 2)

14 ESTATE OF IRENE MCDONALD,

Deceased; KEITH JOHNSON,

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Defendants.

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17 Presently before the Court is Plaintiffs Mike Tajran and Deena Tajran’s motion

18 to remand this action to state court. (ECF No. 2.) Defendants removed this matter

19 based on diversity jurisdiction under 28 U.S.C. §§ 1332 and 1441(b). (ECF No. 1.)

20 Plaintiffs argue remand is appropriate because removal was untimely and Defendants

21 failed to demonstrate complete diversity of citizenship. (ECF No. 2.) Plaintiffs also

22 seek an award of attorney’s fees because they believe Defendants lacked an objective

23 basis for removal. (Id.) Defendants oppose. (ECF No. 4.)

24 The Court finds this motion suitable for determination on the papers submitted

25 and without oral argument. See Fed. R. Civ. P. 78(b); Civ. L.R. 7.1(d)(1). The Court

26 concludes remand is appropriate but declines to award attorney’s fees. Hence, for

27 the following reasons, the Court GRANTS IN PART and DENIES IN PART

1 I. BACKGROUND

2 Plaintiffs allege that on January 17, 2017, Mike Tajran and Irene McDonald

3 were involved in a car accident in San Diego, California. (First Am. Compl. 4.1)

4 Mike Tajran allegedly suffered significant injuries, including a loss of mental

5 competency. (Id. at 3–6.)

6 On December 18, 2018, Plaintiffs commenced this action in the San Diego

7 County Superior Court. (Compl. 1.) Plaintiffs used a form personal injury complaint

8 from the Judicial Council of California for their pleading. (Id.) This Complaint

9 names Irene McDonald as the defendant and pleads standardized claims on behalf of

10 Mike Tajran for general negligence and injury by a motor vehicle. (Id. at 1, 4–5.)

11 The Complaint also includes a loss of consortium claim by Deena Tajran. (Id. at 6.)

12 Plaintiffs’ counsel submits a declaration stating that, unbeknownst to

13 Plaintiffs, Irene McDonald passed away several days before Plaintiffs filed their

14 Complaint. (Nuñez Decl. ¶ 2, ECF No. 2-2.) Plaintiffs’ counsel later received a

15 courtesy copy of a notice to creditors of a probate action in Washington state court

16 naming Keith Johnson as the personal representative of McDonald’s estate. (Id.)

17 On April 18, 2019, Plaintiffs filed a First Amended Complaint to substitute the

18 “Estate of Irene McDonald, Deceased” (“Estate Defendant”) in place of McDonald.

19 (First Am. Compl. 1.) Plaintiffs used the same form complaint for this amended

20 pleading. The form includes a statement alleging that “[e]ach defendant named

21 above is a natural person” unless one of several boxes is checked to provide

22 otherwise. (Id. at 2.) Plaintiffs checked a box to identify the Estate Defendant as

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24 1 The Court cites to the background documents’ original page numbers. These documents

25 are found in a single docket entry that contains repetitive pages. For ease of reference, the Court

identifies the location of each item by its imprinted electronic case filing page numbers below:

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Complaint ECF No. 1, at 4–9

27 First Amended Complaint ECF No. 1, at 25–30

Order on Ex Parte Application to Add Personal Representative ECF No. 1, at 33

1 “other (specify).” (Id.) In the form’s accompanying blank box, Plaintiffs typed,

2 “Pursuant to Probate Code § 550 et seq.” (Id.) In addition, following common

3 practice in California, Plaintiffs included unknown doe defendants in the First

4 Amended Complaint. (Id. at 2–3.)

5 On May 21, 2019, Plaintiffs filed an ex parte application to add Keith

6 Johnson—McDonald’s estate’s representative—to the First Amended Complaint

7 pursuant to California Code of Civil Procedure § 377.41.2 (See Order on Ex Parte

8 Application to Add Personal Representative.) Shortly thereafter, the state court

9 issued an order adding Johnson to the pleading “as Doe 6.” (Id.; see also Nuñez

10 Decl. ¶ 3.)

11 On May 31, 2019, Plaintiffs attempted to serve the Estate Defendant by serving

12 McDonald’s liability insurer, the Automobile Club of Southern California (“AAA”).

13 (See Proof of Service of Summons on AAA.) On July 10, 2019, the Estate Defendant

14 and Johnson filed a joint Notice of Removal. (Notice of Removal, ECF No. 1.)

15 Although the Notice alleges May 31, 2019, is the service date for the Estate

16 Defendant, the Notice does not allege whether—or when—Johnson was served. (See

17 id. ¶ 4.) Nor does the Notice include any other allegations regarding the timeliness

18 of removal. (See id. ¶¶ 1–6.)

19 The Notice alleges diversity jurisdiction is proper because the amount in

20 controversy exceeds $75,000 and complete diversity of citizenship exists. (Notice of

21 Removal ¶ 5.) Defendants allege Plaintiffs are citizens of California; the Estate

22 Defendant “is a citizen of the State of Washington, as the place of domicile when

23 Irene McDonald passed away”; and Johnson “likewise is a citizen of Washington as

24 the legal representative of decedent’s estate.” (Id. ¶ 6.)

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2 See Grappo v. McMills, 11 Cal. App. 5th 996, 1004 (2017) (“When a defendant in a

27 pending action dies, the action may be prosecuted against the decedent’s personal representative.

Pursuant to Code of Civil Procedure section 377.41, the court shall allow a pending action that does

1 Plaintiffs filed their motion to remand on August 9, 2019. (Mot., ECF No. 2.)

2 Then, without leave of court, Defendants filed an Amended Notice of Removal on

3 August 19, 2019. (Am. Notice of Removal, ECF No. 4.) The Amended Notice

4 alleges that “Johnson was personally served with the First Amended Complaint” on

5 June 19, 2019—less than thirty days before the original Notice was filed. (Id. ¶ 5.)

6 Defendants’ counsel explains that the original Notice “was mistakenly filed without

7 attaching the summons to Defendant Keith Johnson” due to a “clerical error by

8 [counsel’s] office.”3 (Holnagel Decl. ¶ 1, ECF No. 4-3.) The Amended Notice

9 includes the same allegations regarding diversity jurisdiction. (See Am. Notice of

10 Removal ¶¶ 6–7.) Defendants also filed an opposition to Plaintiffs’ motion to

11 remand. (Opp’n, ECF No. 4-2.)

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13 II. LEGAL STANDARD

14 “Federal courts are courts of limited jurisdiction.” Kokkonen v. Guardian Life

15 Ins. Co. of Am., 511 U.S. 375, 377 (1994). “They possess only that power authorized

16 by Constitution or a statute, which is not to be expanded by judicial decree.” Id.

17 (internal citations omitted). “It is to be presumed that a cause lies outside this limited

18 jurisdiction and the burden of establishing the contrary rests upon the party asserting

19 jurisdiction.” Id. (internal citations omitted); see also Abrego Abrego v. Dow Chem.

20 Co., 443 F.3d 676, 684 (9th Cir. 2006).

21 Consistent with the limited jurisdiction of federal courts, the removal statute is

22 strictly construed against removal jurisdiction. Gaus v. Miles, Inc., 980 F.2d 564,

23 566 (9th Cir. 1992); see also Sygenta Crop Prot. v. Henson, 537 U.S. 28, 32 (2002);

24 O’Halloran v. Univ. of Wash., 856 F.2d 1375, 1380 (9th Cir. 1988). “The ‘strong

25 presumption’ against removal jurisdiction means that the defendant always has the

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27 3 This explanation does not address why the Notice itself lacked any allegations regarding

timeliness of removal or service on Johnson. Further, although the Amended Notice alleges the

1 burden of establishing that removal is proper.” Gaus, 980 F.2d at 566; see also

2 Nishimoto v. Federman-Bachrach & Assocs., 903 F.2d 709, 712 n.3 (9th Cir. 1990);

3 O’Halloran, 856 F.2d at 1380.

4 “A motion to remand is the proper procedure for challenging removal.”

5 Moore-Thomas v. Alaska Airlines, Inc., 553 F.3d 1241, 1244 (9th Cir. 2009) (citing

6 28 U.S.C. § 1447(c)). The propriety of removal turns on whether the case could have

7 originally been filed in federal court, Chicago v. Int’l Coll. of Surgeons, 522 U.S.

8 156, 163 (1997), and the court’s analysis focuses on the pleadings “as of the time the

9 complaint is filed and removal is effected,” Strotek Corp. v. Air Transp. Ass’n of

10 Am., 300 F.3d 1129, 1131 (9th Cir. 2002).

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12 III. ANALYSIS

13 Plaintiffs raise two arguments to justify remanding this action to state court.

14 First, Plaintiffs argue removal was untimely because Defendants filed their Notice of

15 Removal more than thirty days after the Estate Defendant was served. (See Mot.

16 1:25–28; Pl.’s Mem. 3:13–22.) Second, Plaintiffs argue Defendants failed to

17 demonstrate in their Notice that complete diversity of citizenship exists. (Pl.’s Mem.

18 3:23–4:28.) The Court focuses on the diversity issue because it is dispositive.4

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4 As for the timeliness issue, the thirty-day deadline to remove a case begins to run on the

21 date formal service is effected. 28 U.S.C. § 1446(b)(1); Murphy Bros. v. Michetti Pipe Stringing,

Inc., 526 U.S. 344, 347–48 (1999). In addition, in a multi-party suit where the parties are served at

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different times, “each defendant shall have 30 days after . . . service on that defendant . . . to file

23 the notice of removal.” 28 U.S.C. § 1446 (b)(2)(B). In other words, the deadline to remove a multi-

party suit can be as late as thirty days after the latest date of service on a defendant. Assuming

24 Plaintiffs served Johnson on June 19, 2019, see infra note 3, Johnson had the right to remove the

case for thirty days from that date. Therefore, although the Estate Defendant’s time to remove the

25 case had since expired, the joint Notice of Removal filed on July 10, 2019, is timely.

That said, a notice of removal must “contain[ ] a short and plain statement of the grounds

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for removal.” 28 U.S.C. § 1446(a). Defendants’ Notice does not demonstrate removal was timely.

27 And although they filed an Amended Notice to add the missing allegation regarding service on

Johnson, Defendants did so without leave of court and outside Johnson’s thirty-day removal period.

1 Diversity jurisdiction exists where an action is between “citizens of different

2 States” and “the matter in controversy exceeds the sum or value of $75,000, exclusive

3 of interest and costs.” 28 U.S.C. § 1332(a). “When an action is removed based on

4 diversity, complete diversity must exist at removal.” Gould v. Mut. Life Ins. Co. of

5 New York, 790 F.2d 769, 773 (9th Cir. 1986) (citing Miller v. Grgurich, 763 F.2d

6 372, 373 (9th Cir. 1985)). Complete diversity exists where “the citizenship of each

7 plaintiff is diverse from the citizenship of each defendant.” Caterpillar Inc. v. Lewis,

8 519 U.S. 61, 68 (1996). When removing a case, defendants are “merely required to

9 allege (not to prove)” the citizenship of the parties. See Kanter v. Warner-Lambert

10 Co., 265 F.3d 853, 857 (9th Cir. 2001).

11 To recap, there are four parties named in the First Amended Complaint:

12 Plaintiff Mike Tajran, Plaintiff Deena Tajran, Defendant Keith Johnson, and

13 Defendant Estate of Irene McDonald, Deceased. The Notice of Removal alleges

14 Mike Tajran and Deena Tajran are “citizen[s] of the State of California.” (Notice of

15 Removal ¶ 6.) This allegation adequately establishes their citizenship. See Ehrman

16 v. Cox Commc’ns, Inc., 932 F.3d 1223, 1228 (9th Cir. 2019).

17 Further, the Notice alleges Defendant Keith Johnson is the legal representative

18 of Irene McDonald’s estate. (Notice of Removal ¶ 6.) Under 28 U.S.C. § 1332(c)(2),

19 “the legal representative of the estate of a decedent shall be deemed to be a citizen

20 only of the same State as the decedent.” The Notice alleges McDonald was domiciled

21 in Washington when she passed away, (Notice of Removal ¶ 6), making her a citizen

22 of Washington, see Ehrman, 932 F.3d at 1227. Hence, Johnson is likewise a citizen

23 of Washington. See 28 U.S.C. § 1332(c)(2).

24 Defendants allege the remaining party, the Estate Defendant, is also a citizen

25 of Washington, which—if true—would establish complete diversity. (See Notice of

26 Removal ¶ 6.) Plaintiffs, however, attack the sufficiency of this allegation. They

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1 argue the Estate Defendant is not the real party defendant because they are suing it

2 under California Probate Code § 550. (See Pl.’s Mem. 3:12–4:28 (identifying AAA

3 as the “real party in interest”); see also First Am. Compl. 2 (suing the Estate

4 Defendant under “Probate Code § 550 et seq.”).) As explained below, this statute

5 allows a plaintiff to sue a decedent’s estate as a nominal defendant to pursue only the

6 benefits of the decedent’s liability insurance policy. Thus, Plaintiffs argue

7 McDonald’s insurer is the real party defendant, and Defendants therefore should have

8 alleged the citizenship of this insurer in their Notice of Removal. (See Pl.’s Mem.

9 4:13–28.)

10 To resolve this argument, the Court first reviews diversity jurisdiction

11 principles concerning real parties and direct actions against liability insurers. The

12 Court then turns to the framework established in California Probate Code §§ 550–55.

13 Finally, the Court determines whether McDonald’s insurer’s citizenship should be

14 examined for assessing complete diversity of citizenship.

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16 A. Real Parties and Direct Actions

17 “In assessing diversity jurisdiction, courts look to the real parties to the

18 controversy.” Lewis v. Clarke, 137 S. Ct. 1285, 1295 (2017) (citing Navarro Sav.

19 Ass’n v. Lee, 446 U.S. 458, 460 (1980)). “Thus, a federal court must disregard

20 nominal or formal parties and rest jurisdiction only upon the citizenship of real parties

21 to the controversy.” Navarro, 446 U.S. at 460; see also Carden v. Arkoma Assocs.,

22 494 U.S. 185, 191–92 (1990) (explaining the “real party to the controversy” approach

23 has been used to determine whose citizenship should be considered for diversity

24 jurisdiction—not to determine whether a specific party is a citizen).5

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27 5 For the sake of clarity, the Court is not referring to the “real party in interest concept”

used in the context of Federal Rule of Civil Procedure 17(a), which “is correctly applied only to

1 To illustrate, the Supreme Court held an insurance company was the real party

2 to a controversy when sued under a state’s “direct action” statute. Lumbermen’s Mut.

3 Cas. Co. v. Elbert, 348 U.S. 48 (1954). In Elbert, the plaintiff was allegedly injured

4 in a car accident due to another person’s negligence. Id. at 49. Both the plaintiff and

5 the alleged wrongdoer were citizens of Louisiana, but the wrongdoer’s insurer was a

6 citizen of Illinois. Id. Louisiana’s “direct action” statute allowed the plaintiff to

7 bring an action against the insurer for benefits under the wrongdoer’s insurance

8 policy—without joining the wrongdoer as a defendant. Id. at 49–50. Using this

9 statute, the plaintiff sued the insurance company in federal court based on diversity

10 jurisdiction. Id. at 50.

11 To defeat diversity jurisdiction, the insurance company argued the “matter in

12 controversy” was “the underlying tort liability of the alleged wrongdoer.” Elbert,

13 348 U.S. at 50. Hence, the insurer argued the wrongdoer—not the insurer—was the

14 real party defendant, and therefore the wrongdoer’s citizenship should be considered

15 to assess diversity jurisdiction. See id. at 50–51.

16 The Supreme Court rejected the insurer’s argument. Elbert, 348 U.S. at 51.

17 Looking to state law, the Court noted Louisiana courts had “differentiated between

18 actions brought by an injured party against the insurer alone and those brought

19 against either the tortfeasor alone or together with the insurer.” Id. Among other

20 differences, the Supreme Court noted that although “either type of action

21 encompasses proof of the tortfeasor’s negligence, in the separate suit against the

22 insurer a plaintiff must also establish liability under the policy.” Id. And Louisiana

23 courts had characterized the direct action statute “as creating a separate and distinct

24 cause of action against the insurer which an injured party may elect in lieu of his

25 action against the tortfeasor.” Id. The insurer also had “a direct financial interest in

26 the outcome of [the] litigation.” Id. Consequently, the Supreme Court determined

27 the insurer is “not merely a nominal defendant but is the real party in interest.”

1 Hence, it was proper to consider only the insurer’s citizenship to determine diversity

2 jurisdiction. See id. at 53.

3 Congress has since changed the diversity jurisdiction statute to address the

4 exact situation in Elbert. See 13F Wright & Miller, Federal Practice and Procedure

5 § 3629 (3d ed., Aug. 2019 update) (discussing the 1964 amendment to address

6 corporate citizenship in direct actions). The diversity statute now provides:

7 [A] corporation shall be deemed to be a citizen of every State and foreign

8 state by which it has been incorporated and of the State or foreign state

where it has its principal place of business, except that in any direct action

9 against the insurer of a policy or contract of liability insurance, whether

10 incorporated or unincorporated, to which action the insured is not joined

as a party-defendant, such insurer shall be deemed a citizen of—

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(A) every State and foreign state of which the insured is a citizen;

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13 (B) every State and foreign state by which the insurer has been

incorporated; and

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(C) the State or foreign state where the insurer has its principal

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place of business[.]

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17 28 U.S.C. § 1332(c)(1) (emphasis added). The purpose of this amendment was to

18 prevent the outcome reached in Elbert; that is, “to keep the federal courts from being

19 inundated by run-of-the-mill tort suits between citizens of the same state that could

20 be filed or removed to federal court due to the state ‘direct action’ statutes and the

21 diverse citizenship of the insurance company.” Burgoyne v. Frank B. Hall & Co. of

22 Hawaii, 781 F.2d 1418, 1420 (9th Cir. 1986). The term “direct action” used in the

23 amendment means “those cases in which a party suffering injuries or damage for

24 which another is legally responsible is entitled to bring suit against the other’s

25 liability insurer without joining the insured or first obtaining a judgment against

26 him.” Beckham v. Safeco Ins. Co. of Am., 691 F.2d 898, 901–02 (9th Cir. 1982).

27 This case is comparable to Elbert, but the tables are turned. Whereas in Elbert

1 Defendants are arguing an insurer is not the real party defendant to create diversity.

2 And although the diversity statute now resolves the circumstances presented in

3 Elbert, the statute does not fit this case for two reasons. First, this lawsuit names the

4 Estate Defendant—not directly an “insurer”—as a defendant. See 28 U.S.C. §

5 1332(c)(1); see also Beckham, 691 F.2d at 901–02. Second, Plaintiffs added

6 Johnson, the personal representative of McDonald’s estate, to the lawsuit. See 28

7 U.S.C. § 1332(c)(1) (providing an additional citizenship rule for direct actions only

8 when “the insured is not joined as a party-defendant”).

9 Given that this case is comparable to Elbert but the diversity statute’s direct

10 action provision does not control, the Court finds the Supreme Court’s “real party”

11 approach in Elbert and other cases to be helpful. See Elbert, 348 U.S. at 51; see also

12 Navarro, 446 U.S. at 465. Hence, the Court will look to state law to help it gauge

13 whether the Estate Defendant is a nominal party and an insurer “is the real party”

14 here as a matter of federal diversity jurisdiction. Cf. Elbert, 348 U.S. at 51; see also

15 Navarro, 446 U.S. at 460.

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17 B. California Probate Code § 550

18 Plaintiffs invoke California Probate Code § 550 to sue the Estate Defendant

19 for an accident that occurred in California.6 But even though the Estate Defendant is

20 a “named defendant in the action,” the Estate Defendant is “not really a party because

21 it is not a legal entity.” See Meleski v. Estate of Albert Hotlen, 29 Cal. App. 5th 616,

22 624 (2018).7 “The ‘estate’ of a decedent is not an entity known to the law. It is

23 neither a natural nor an artificial person. It is merely a name to indicate the sum total

24 of the assets and liabilities of a decedent.” Id. (quoting Tanner v. Estate of Best, 40

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6 Although McDonald was a citizen of Washington, neither side suggests there is a choice-

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of-law issue or that Washington law applies to Plaintiffs’ claims against the Estate Defendant.

27 Indeed, as the Court explains below, the only reason Plaintiffs can proceed against both the Estate

Defendant and Johnson is because of California’s Probate Code.

1 Cal. App. 2d 442, 445 (1940)). Because an estate is not a legal entity, it “can neither

2 sue nor be sued.” Bright’s Estate v. W. Air Lines, 104 Cal. App. 2d 827, 829 (1951);

3 see also Hill v. Westbrook’s Estate, 95 Cal. App. 2d 599, 604 (1950) (explaining the

4 action “should have been dismissed as to the estate” because it “is not a person or

5 entity and cannot be sued”). Rather, an action must be brought against the estate’s

6 executor or administrator in the person’s representative capacity. E.g., Golden Gate

7 Undertaking Co. v. Taylor, 168 Cal. 94, 97 (1914).

8 That said, California Probate Code § 550 allows a party to bring a cause of

9 action against a nominal estate to recover under a decedent’s insurance policy.

10 Section 550(a) provides that “an action to establish the decedent’s liability for which

11 the decedent was protected by insurance may be commenced or continued against

12 the decedent’s estate without the need to join as a party the decedent’s personal

13 representative or successor in interest.” Cal. Probate Code § 550(a). The action

14 “shall name as the defendant, ‘Estate of (name of decedent), Deceased.’” Id. §

15 552(a). However, the “[s]ummons shall be served on a person designated in writing

16 by the insurer or, if none, on the insurer.” Id. And the decedent’s insurer “may deny

17 or otherwise contest its liability in” the action. Id. § 553.

18 By default, the damages in an action under § 550 must be within the limits of

19 the insurance policy or “recovery of damages outside the limits . . . shall be waived.”

20 Cal. Probate Code § 554(a). Similarly, a judgment under § 550 typically “is

21 enforceable only from the insurance coverage and not against property in the estate.”

22 Id. If, however, the plaintiff joins the personal representative of the decedent’s estate

23 and also files a creditor’s claim in probate, the judgment may exceed the policy’s

24 limits. Id. § 554(b); see also id. § 553 (“Unless the personal representative is joined

25 as a party, a judgment in the action under this chapter or in the independent action

26 does not adjudicate rights by or against the estate.”). Finally, the remedy created

27 under § 550 “is cumulative and may be pursued concurrently with other remedies.”

1 Plaintiffs sued the “Estate of Irene McDonald, deceased.” (First Am. Compl.

2 3.) Therefore, they sued the Estate Defendant in the format specified by Probate

3 Code § 552(a). Plaintiffs also noted the Estate Defendant is not a natural person and

4 is being sued “[p]ursuant to Probate Code § 550 et. seq.” (Id. 2.) Thus, it is apparent

5 from the face of the First Amended Complaint that Plaintiffs are seeking to recover

6 directly against an insurance policy under the rules prescribed by Probate Code §§

7 550–55.8

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9 C. Impact on Diversity Jurisdiction

10 Defendants agree that Plaintiffs are proceeding against the Estate Defendant

11 under Probate Code § 550, but they dispute this conclusion’s impact on diversity

12 jurisdiction. (Opp’n 4:2–5:16.) Defendants argue the Probate Code “statutes make

13 clear that the action must be prosecuted against the estate,” and state law thus

14 demonstrates Plaintiffs’ action is “at most, indirectly against the insurer.” (Id. 4:8–

15 12.) Consequently, Defendants contend “this litigation is not a direct action against

16 the insurer,” and therefore the insurer’s citizenship should not be considered when

17 assessing complete diversity of citizenship. (Id. 4:13–5:16.)

18 Although there is some support for Defendants’ position, the Court is

19 unconvinced. On balance, the California Probate Code and case law demonstrate an

20 insurer is the real party defendant for Plaintiffs’ § 550 action, and therefore any

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8 There is no dispute that such a policy is at issue. The parties’ counsel were in contact

24 regarding a liability policy issued by AAA before Plaintiffs moved to substitute the Estate

Defendant under Probate Code § 550. (See Am. Notice of Removal Ex. A.) Thus, Plaintiffs served

25 the First Amended Complaint on the Estate Defendant by serving AAA, which is consistent with

Probate Code § 552(a)’s service requirement. (See Proof of Service of Summons on AAA.) And

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while this motion was pending, Defendants disclosed under Federal Rule of Civil Procedure

27 26(a)(1)(iv) the existence of “[a]utomobile liability insurance from the Interinsurance Exchange of

the Automobile Club of Southern California effective 10/20/16 with policy limits of $1,500,000

1 insurer’s citizenship should be considered when “assessing diversity jurisdiction.”

2 See Lewis, 137 S. Ct. at 1295.

3 The California Probate Code supports this conclusion because the provisions

4 summarized above create a cause of action that is akin to a direct action against an

5 insurer. Like a direct action, an action under Probate Code § 550 seeks insurance

6 benefits, and there is no requirement that the insured—the decedent’s estate’s

7 representative—be joined or that a judgment first be obtained against the insured.

8 See Beckham, 691 F.2d at 901–02. And although the action proceeds against a

9 nominal estate defendant, the nominal defendant must be served via the insurer, the

10 insurer has the right to contest its liability in the action, and a judgment up to the

11 policy limits may be enforced against the insurer itself. Cal. Probate Code §§ 550,

12 52–54; see also Meleski, 29 Cal. App. 5th at 554; 24 Cal. Jur. 3d Decedents’ Estates

13 § 10 (“The action is, in effect, brought against the insurer, although the action must

14 name the decedent’s estate as defendant.”). Hence, although the form of an action

15 under Probate Code § 550 is not the same as a typical direct action, the substance of

16 Probate Code §§ 550–55 reveals an insurer is similarly the real party to the

17 controversy, and its citizenship should therefore count when a court is assessing

18 diversity jurisdiction.

19 The California Court of Appeal’s decision in Meleski v. Estate of Albert

20 Hotlen, 29 Cal. App. 5th 616 (2018), also supports this outcome. There, the court

21 addressed whether an insurance company is liable under California Code of Civil

22 Procedure § 998 for costs after it rejects a settlement offer in an action brought under

23 Probate Code § 550.9 Id. at 620. The insurance company argued it could not “be

24 forced by section 998 to pay costs because it was not a party to the action,” but the

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9 Section 998 is California’s offer-of-judgment statute. It “establishes a procedure for

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shifting the costs upon a party’s refusal to settle. If the party who prevailed at trial obtained a

27 judgment less favorable than a pretrial settlement offer submitted by the other party, then the

prevailing party may not recover its own postoffer costs and, moreover, must pay its opponent’s

1 court rejected this claim. Id. at 623, 626. After reviewing Probate Code §§ 550–55,

2 the court reasoned the insurer was a party for purposes of Code of Civil Procedure §

3 998 because the insurer was the entity controlling the litigation and bearing the risk

4 of loss. Id. at 625; see also id. at 620 (describing an insurance company as a “de

5 facto party under Probate Code sections 550 through 555”). Indeed, the court noted

6 the insurance company was “undeniably” the litigant, even though the “named

7 defendant” was the estate.10 Id.

8 This case differs from Meleski because Plaintiffs added McDonald’s estate’s

9 representative—Johnson—to the action. Hence, an insurer behind the nominal Estate

10 Defendant would not be “the only litigant for the defense” or necessarily be “in

11 complete control of the litigation.” See Meleski, 29 Cal. App. 5th at 625. But

12 Plaintiffs had the option to substitute Johnson in lieu of the Estate Defendant, and

13 they did not. See Cal. Prob. Code § 552(b). Further, Plaintiffs’ statutory remedy

14 against the Estate Defendant “is cumulative and may be pursued concurrently with”

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10 Other cases similarly view the insurer as the real defendant to an action brought under

17 Probate Code § 550. See, e.g., Miller v. Zurich Am. Ins. Co., 41 Cal. App. 5th 247, 251 (2019)

(“While named as a defendant, the Miller Estate “is a legal fiction – the defendant[s] [are] actually

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the insurers, Zurich and Allianz [Insurance Company]. Because . . . an ‘estate’ may not be sued . . .,

19 [u]nder Probate Code § 550 . . . a plaintiff may directly sue an insurance company by naming [as

defendant] . . . ‘Estate of [Insured]’ and then serving the insurer directly.” (citation omitted)

20 (alterations in original)); Estate of Betty Goldberg v. Goss-Jewett Co., No. EDCV 14-1872 DSF

(AFMx), 2016 WL 7479340, at *1 (C.D. Cal. Mar. 10, 2016) (“California Probate Code §§ 550, et

21 seq. provides a mechanism for a quasi-direct action against an insurer up to the limits of the policy

where the insured has died. . . . This creates a situation where the named defendant is technically

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the estate of the deceased insured, but the actual litigant is the insurer.”); Wright v. Estate of

23 Johnson, No. ED CV15-00005 JAK, 2015 WL 2412102, at *4 (C.D. Cal. May 19, 2015)

(interpreting the California Probate Code to provide “a specific avenue to institute a quasi-direct

24 action against an insurer”); see also Brown v. Superior Court, 19 Cal. App. 5th 1208, 1220 (2018)

(listing the framework in Probate Code §§ 550–55 as an example of where a statute “permit[s]

25 prosecution in the same of a person other than the real party in interest”); Stewart v. Special Adm’r

of Estate of Mesrobian, 559 F. App’x 543, 549 (7th Cir. 2014) (“Under California law if Dr.

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Mesrobian’s estate is covered by insurance, Stewart could proceed directly against the insurer

27 without naming any estate representative.” (citing Cal. Probate Code § 550(a))); Great Am. Ins. Co.

v. Berl, No. CV 17-03767 SJO, 2017 WL 7667603, at *5 (C.D. Cal. Oct. 23, 2017) (noting

1 their remedy against Johnson. See id. § 550(b); see also Estate of Prindle, 173 Cal.

2 App. 4th 119, 134 (2009). Plaintiffs also can enforce a judgment up to the policy

3 limits directly against the insurer. Therefore, Plaintiffs still have claims against the

4 Estate Defendant that seek to recover directly under an insurance policy, and the

5 Court remains convinced that an insurer is the de facto defendant for these claims.

6 See Meleski, 29 Cal. App. 5th at 620.

7 In addition, the Court finds helpful the district court’s consideration of Probate

8 Code § 550 in the removal context in Wright v. Estate of Johnson, No. ED CV15-

9 00005 JAK, 2015 WL 2412102 (C.D. Cal. May 19, 2015). There, the situation was

10 different, but the court’s diversity jurisdiction analysis is helpful because it shows the

11 court believed a nominal estate defendant shares the citizenship of a corporate

12 insurer. To explain, a California citizen sued a nominal estate under Probate Code §

13 550, and an insurer removed the action based on diversity jurisdiction. Id. at *1. The

14 decedent was a citizen of California, but the insurer was a citizen of Michigan. Id. at

15 *2. In opposing a motion to remand, the insurer argued the district court should

16 consider only the insurer’s citizenship and not that of the decedent because the insurer

17 was “the real party in interest in the action.” Id. at *4. The plaintiff, in turn, argued

18 the insurer’s citizenship was irrelevant and only the decedent’s California citizenship

19 should be considered, which would have destroyed complete diversity. Id.

20 The district court reviewed Probate Code §§ 550–55 and recognized that

21 California does not permit direct actions against insurers. Wright, 2015 WL

22 2412102, at *3–5; see also Hon. Virginia Phillips et al., California Practice Guide:

23 Federal Civil Procedure Before Trial, Cal. & Ninth Circuit Eds. § 2:1305 (noting

24 direct actions “are not permitted in California or most other states”). The court

25 reasoned, however, that even though “California does not, in general, permit direct

26 actions, the California Probate Code provides a specific avenue to institute a quasi-

27 direct action against an insurer.” Id. at *5. Therefore, the court applied the direct

1 the court considered the estate defendant not only a citizen of Michigan—the state

2 where the insurer was incorporated and had its principal place of business—but also

3 a citizen of California—the state where the decedent was domiciled. See id. at *4,

4 6–7. Consequently, there was no complete diversity, and the court remanded the case

5 because the insurer failed to meet its burden to show diversity jurisdiction. Id. at *7.

6 This case similarly differs from Wright because Plaintiffs added Johnson to the

7 lawsuit. Thus, as mentioned, the direct action clause of the diversity statute is

8 inapplicable. See 28 U.S.C. § 1332(c)(1). Wright still bolsters this Court’s

9 conclusion because the Wright court accepted that the insurer’s citizenship plays a

10 role in the diversity jurisdiction analysis for an action under Probate Code § 550. If

11 the Wright court believed, as Defendants argue here, that a nominal estate defendant

12 under § 550 has only the same citizenship as the decedent, then there would have

13 been no reason for the court to reach the issue of whether the direct action clause

14 applies to make the insurer in Wright a citizen of both Michigan and California. See

15 2015 WL 2412102, at *3–7.

16 Finally, the Court is unpersuaded by Defendants’ reliance on Smith v.

17 Interinsurance Exchange, 167 Cal. App. 3d 301 (1985), to support their argument

18 that the Court should limit its consideration to the citizenship of the decedent. There,

19 the California Court of Appeal held that the predecessor to Probate Code §§ 550–55

20 did not make the insurer a responsible party to the action, despite that the law required

21 the insurer to accept service of the complaint and defend on behalf of the estate

22 defendant. Id. at 304–05. As the Court of Appeal later recognized in Meleski,

23 however, “the particular question [in Smith] was whether the plaintiff could sue the

24 insurer for unfair claims practices and the estate to establish the decedent’s liability

25 in the same action.” Meleski, 29 Cal. App. 5th at 625. Plaintiffs are not bringing

26 unfair claims practices here; they are bringing claims that are only based on the

27 decedent’s alleged negligence. And the Court is regardless presented with a different

1 diversity jurisdiction, the Court should look past the nominal Estate Defendant for

2 the reasons explained above.

3 In sum, the California Probate Code and other authority demonstrate the Estate

4 Defendant is a nominal defendant. An insurer is the real party defendant for

5 Plaintiffs’ action against the Estate Defendant under Probate Code § 550, but

6 Defendants’ Notice of Removal alleges the Estate Defendant simply shares the

7 citizenship of the decedent. Given that the Court must “look to the real parties to the

8 controversy” when “assessing diversity jurisdiction,” the Notice is insufficient. See

9 Lewis, 137 S. Ct. at 1295. There is also no suggestion from Defendants that complete

10 diversity would exist if the Court were to consider the corporate citizenship of

11 McDonald’s insurer. Defendants bear the burden of establishing removal was proper

12 in light of the strong presumption against removal jurisdiction. See Gaus, 980 F.2d

13 at 566. They have not met this burden. The Court thus finds removal was improper

14 and grants Plaintiffs’ request to remand this case.

15

16 D. Attorney’s Fees

17 Plaintiffs also request an award of attorney’s fees in their motion to remand.

18 (Pl.’s Mem. 5:1–17.) “An order remanding the case may require payment of just

19 costs and any actual expenses, including attorney fees, incurred as a result of the

20 removal.” 28 U.S.C. § 1447(c). “[A]n award of fees under § 1447(c) is left to the

21 district court's discretion.” Martin v. Franklin Capital Corp., 546 U.S. 132, 139

22 (2005). “Absent unusual circumstances, courts may award attorney’s fees under §

23 1447(c) only where the removing party lacked an objectively reasonable basis for

24 seeking removal.” Id. at 139. Although the Court concludes remand is appropriate,

25 the Court does not find that an award of fees under § 1447(c) is warranted. Some

26 authority supports Defendants’ position, and Plaintiffs’ remand motion raises issues

27 that are not clear-cut. The Court thus denies Plaintiffs’ request for attorney’s fees.

1 |}IV. CONCLUSION

2 For the foregoing reasons, the Court concludes remand is appropriate, but the

3 ||Court declines to award attorney’s fees. Consequently, the Court GRANTS IN

4 ||PART and DENIES IN PART Plaintiffs’ motion to remand. (ECF No. 2.) The

5 |{Court REMANDS this action to the San Diego County Superior Court for lack of

6 ||subject matter jurisdiction.'' See 28 U.S.C. § 1447(c) (“If at any time before final

7 ||judgment it appears that the district court lacks subject matter jurisdiction, the case

8 shall be remanded.”).

9 IT IS SO ORDERED.

10 é

fl

11 || DATED: January 17, 2020 (Yin 4 (Hyoha AU 6

12 United States District Judge

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'l The Court also GRANTS Plaintiffs’ motion for substitution of counsel (ECF No. 12).

28 |/The Court substitutes John H. Gomez, Ben J. Coughlan, and Kacie B. Vinel of Gomez Trial

Attorneys as counsel of record for Plaintiffs in place of Steven M. Nunez of SMN Law Group APC.