Northern California Courts rule in Corporate Wrongdoing Cases

Image Courtesy of Beverly & Pack

The U.S. District Court for the Northern District of California recently released rulings in four corporate wrongdoing cases.

In Graunstadt v. USS-POSCO, Mr. Graundstadt owns Delta Scrap and Salvage (DS&S) which purchased some scrap electrical equipment from USS-POSCO Industries (UPI).  After removing the equipment from UPI's facility, DS&S's employees began to dismantle it when they realized it was leaking oil which contaminated the plaintiff's land.  Upon trying to salvage the oil to have a waste oil recycler take the oil away, the recycler told DS&S that the oil was contaminated with Polychlorinated biphenyl (PCB), a dangerous toxin.  The plaintiff sued UPI and its parent companies who removed the case to federal court on diversity of citizenship.  Now Mr. Graundstadt wants to add his point of contact at UPI in the action which would eliminate diversity and remand the complaint to  Contra Costa County Superior Court.  Plaintiff argued that Rule 19 governs adding defendants which would eliminate diversity.  UPI, correctly argued that 28 U.S.C. 1447(e) contains the factors involved in this situation.  As Judge Conti explained in IBC Aviation Ser., INC. v. Compania Mexicana de Aviacion,

Courts generally consider the following factors when deciding whether to allow amendment to add non-diverse defendants: (1) whether the party sought to be joined is needed for just adjudication and would be joined under Federal Rule of Civil Procedure 19(a); (2) whether the statute of limitations would preclude an original action against the new defendants in state court; (3) whether there has been unexplained delay in requesting joinder; (4) whether joinder is intended solely to defeat federal jurisdiction; (5) whether the claims against the new defendant appear valid; and (6) whether denial of joinder will prejudice the plaintiff.

Judge Susan Illston explained that there was a substantial nexus between the employee's fraud and UPI's liability, making joinder necessary for adjudication under Rule 19(a).  There is no problem with the statute of limitations and this is the first motion filed in the case, on balance, these facts all favored joinder.  She granted the motion and remanded the case to the Superior Court.

In re Charles Schwab Securities Litigation is a securities fraud case which is "on the eve of a settlement approval" when the parties wondered if the settlement agreement would allow the non-California resident plaintiffs to pursue California state Unfair Competition Law (UCL) claims after the settlement agreement.  Judge William Alsup's opinion contains some great one-liners:

As an initial matter, plaintiffs caution against rendering an advisory opinion. This caution is too cautious. []

Defendants cite an order by the undersigned in a separate action to support the proposition that final approval of the settlement agreements cannot occur without resolution of this dispute.[] Just so. But defendants also imply that final approval cannot occur without adoption of their reading of the agreement. Not so. []

Defendants’ argument leads to the following problematic hypothetical: Let’s say a federal securities class member who lived outside of California decided — immediately after the refusal to certify a nationwide Section 17200 class — to sue defendants under Section 17200. That individual action would have been moving along until — whammo! — along comes our settlement and without further opportunity to opt out, the hypothetical plaintiff, according to defendants, would have to dismiss his Section 17200 case.  Would this make sense?  No, it wouldn’t. Yet this would be the necessary result of the defense view of matters.

Judge Alsup ruled that the non-California plaintiffs were free to pursue their UCL claims after the settlement because these claims were not part of those claims certified to the class.

The property at the center of the dispute.
Courtesy Google Maps

FDIC v. JSA Appraisal Service is a professional negligence claim arising out of an allegedly negligent appraisal of a property leading to a bad IndyMac loan.  The FDIC is the receiver for IndyMac. As a result of the bad appraisal the FDIC claims it suffered $554,502.02 in damages. In the present motion the FDIC moved to strike two of JSA's defenses.  JSA asserted defenses of comparative negligence and comparative indemnification to the claim of negligent misrepresentation claiming that the plaintiff and "others" were partially liable for damages.  Judge Lucy Koh ruled that the facts presented were insufficient to support the defense granted the motion to strike.

In J&J Sports Productions v. Ho, a sports promoter who owned the rights to "The Battle of East and West: Manny Pacquiao v. Ricky Helton, IBO Light Welterweight Championship Fight Program" claims that Kim Thuy Ho and his Thoa Cafe unlawfully intercepted the program and showed it to his patrons without paying the $1600 site fee.  Mr. Ho did not answer the complaint and Judge Lucy Koh entered a $13,200 judgment against him and the cafe.