Opinion
No C 01-2401 VRW
November 26, 2001
ORDER
Plaintiff originally filed this action in San Francisco superior court. See Notice of Removal (Doc #1), Exh 1. Defendants removed the case to federal court alleging diversity jurisdiction pursuant to 28 U.S.C. § 1332. See Doc #1. Plaintiff moves to remand due to lack of diversity between the parties. See Doc #20. For the reasons set forth below, plaintiff's motion to remand (Doc #20) is GRANTED.
I
The following factual summary derives from plaintiff's complaint and the declarations filed by both parties in this motion. For the purposes of this motion to remand, all factual disputes are resolved in favor of the plaintiff. See Ritchey v Upjohn Drug Co, 139 F.3d 1313, 1318 (9th Cir 1998). Plaintiff's claims arise from the development agreement and memorandum of understanding ("MOU") established by the parties to develop power plants in Mexico and negotiate the sale of generated power as well as from the parties' long standing dealings with each other. See Notice of Removal (Doc # 1), Exh 1 at ¶ 7, 9, 36(f). The development agreement was made between plaintiff and Entergy Power Development Corporation ("EPDC") and contains a provision selecting New York law to apply to disputes arising out of the agreement. See McPeak Decl (Doc # 24), Exh 1 (Development Agreement) at § 10.10. The MOU contains a choice of law provision which requires that the MOU be interpreted applying the laws of the Distrito Federal of the Mexican United States. See McPeak Decl (Doc # 24), Exh 6 (MOU) at ¶ 6. Pursuant to the agreement, PGI agreed to consult and cooperate with EPDC in development of each project. Notice of Removal (Doc # 1), Exh 1 at ¶ 12. EPDC agreed to undertake all management responsibilities and to use its best efforts to carry out its responsibilities. Id at ¶ 11. The agreement contemplated that for each Mexican power plant project, the parties would establish a "Project Entity." See Development Agreement (Doc # 24) at § 2.1. An offshore entity would hold ownership interest of any entity formed to own, operate, or manage power plant projects. See Notice of Removal (Doc # 1), Exh 1 at ¶ 52; McPeak Decl (Doc #24), Exh 1 at §§ 1.1, 2.2, 3.1. For tax purposes, the holding company would be a Netherlands company. See McPeak Decl (Doc #24), Exh I at § 2.2; Nugent Decl (Doc #27) at ¶ 5. PGI and EPDC would be partners in each offshore entity. See McPeak Decl (Doc # 24) at ¶ 8. One such project was the Morelos project, which involved construction of a power plant in the Mexican state of Morelos pursuant to the agreement. See Notice of Removal (Doc # 1), Exh 1 at ¶ 10.
The MOU was an agreement between the Morelos Group, made up of plaintiff and Entergy Netherlands, and the government of the Distrito Federal of Mexico ("GDF") created to facilitate negotiation of power sales from the Morelos Project power plant. See McPeak Decl (Doc #24), Exh 6; Nugent Decl (Doc # 27) at ¶ 9. The MOU stated parties must work exclusively with each other for one year from the date of signing or until replaced by a contract. See McPeak Decl (Doc #24), Exh 6 at ¶ 4. In addition to GDF, both plaintiff and Entergy Netherlands separately initialed each provision and signed the MOU. See McPeak Decl (Doc #24), Exh 6 (spanish version); Nugent Decl at ¶ 9. Plaintiff asserts that Entergy Netherlands assured plaintiff that Entergy Netherlands had experience in financial closing of power plants. See McPeak Decl (Doc # 24) at ¶ 15. Plaintiff contends that Entergy Netherlands and PGI, as the "Morelos Group", negotiated with GDF regarding the Morelos project and the sale of power to GDF. See McPeak Decl (Doc # 24) at ¶ 14. Although conceding that the Grupo Morales consisted of PGI and Entergy Netherlands, defendants assert thatit was EPDC, not Entergy Netherlands, that was "the party responsible for developing the project was [EPDC], not Entergy Netherlands." Nugent Decl (Doc # 27) at ¶ 9 (emphasis in original).
EPDC and Entergy Netherlands subsequently abandoned the Morelos Project. See Notice of Removal (Doc # 1), Exh 1 at ¶¶ 17-18, 53. PGI contends that EPDC "engaged in a series of actions designed to frustrate the development of Mexican projects." Id at ¶ 26. PGI further contends that all Entergy defendants, including Entergy Netherlands, failed to take the steps necessary to implement the MOU. Id at ¶¶ 36(f), 42(f), 53. EPDC did not transfer any title, rights and interests in the project to plaintiff as required by the Agreement in the case of project abandonment. See id at ¶ 32(f). Entergy Netherlands was created specifically to hold joint title, rights and interests. See McPeak Decl (Doc #24), Exh 1 at 1.1, 2.2, 3.1; Nugent Decl (Doc # 27) at ¶ 6. When EPDC abandoned the Morelos Project, Entergy Netherlands discontinued its role in the Morelos Project. See Notice of Removal (Doc # 1), Exh 1 at ¶ 52; McPeak Decl (Doc #24) at ¶ 22. The parties dispute the existence of any joint holding. See Nugent Decl (Doc #27) at ¶¶ 5-6, Ross Decl (Doc #28) at ¶¶ 4-6, McPeak Decl (Doc #24) at ¶ 22. Plaintiff contends that EPDC promised to transfer all of its rights in the Morelos project to PGI, including its rights in Entergy Netherlands, which was created to manage the Morelos project. See McPeak Decl (Doc # 24) at ¶ 22. EDPC has not fulfilled that promise. See id; Nugent Decl (Doc # 27) at ¶ 5.
Plaintiff Power Generation Mexico, Inc ("PGI") is and was at the time this action was filed a Canadian citizen. See id at ¶ 3. Defendant Entergy Power Netherlands Company ("Entergy Netherlands") is and was at the time this action was filed a citizen of the Netherlands. See Nugent Decl (Doc #27) at ¶ 5.
II
Removal to federal court is governed by 28 U.S.C. § 1441. Section 1441(a) allows a defendant to remove to federal court any action that originally could have been filed in federal court. In this case, defendants allege that the case could have been brought in federal court based on diversity jurisdiction. Def Opp B.R. (Doc # 26) at 1. As the action is currently configured, with Power Generation, an alien corporation, as plaintiff and Entergy Netherlands, an alien corporation, as defendant, diversity jurisdiction does not exist. See Faysound, Ltd v United Coconut Chemicals, Inc, 878 F.2d 290, 294 (9th Cir 1989). Defendants concede this, but argue that the defendant Entergy Netherlands was fraudulently joined. Def Opp B.R. (Doc # 26) at 1. Without Entergy Netherlands, complete diversity exists among the remaining parties. In addition, Power Generation has alleged damages in excess of $10,000,000, which satisfies the $75,000 threshold required for diversity jurisdiction. See 28 U.S.C. § 1332(a). If Entergy Netherlands was fraudulently joined, the court would have jurisdiction to hear this matter.
In order to avoid remand, the removing defendants, EPDC and Entergy Corp, bear the burden of establishing that plaintiff fraudulently joined Entergy Netherlands. McCabe v General Foods Corp, 811 F.2d 1336, 1339 (9th Cir 1987). Defendants must show by clear and convincing evidence that plaintiff cannot possibly establish a cause of action against the nondiverse defendant in state court. Id; see also Good v Prudential Ins Co of America, 5 F. Supp.2d 804, 807 (ND Cal 1998). Disputed questions of fact and ambiguities in the controlling law must be resolved in favor of the remanding party. Gaus v Miles, 980 F.2d 564, 566 (9th Cir 1992).
III
Plaintiff alleges ten causes of action against defendants. See Notice of Removal, Exh 1 (Doc # 1). Plaintiff argues that four of these causes of action may be sustained against Entergy Netherlands. Specifically, plaintiff contends that plaintiff's causes of action for breach of fiduciary duty, statutory unfair business practices, common law unfair business practices and accounting are cognizable against Entergy Netherlands.
A
As a preliminary matter, the parties disagree regarding choice of law in this action. Defendants argue that the development agreement contained a valid choice of law provision which requires the application of New York law. Plaintiff counters that the choice of law provision is not valid, but asserts that even if New York law applied, plaintiff has established a cause of action against Entergy Netherlands. Neither party argues that the law of the Distrito Federal governs, although the MOU contains a choice of law provision selecting Distrito Federal law as binding. Because the court agrees that plaintiff can assert a valid claim against Entergy Netherlands under New York law, it declines to rule on whether the choice of law provision is valid. Assuming arguendo that New York law applies, the court turns to the potential merits of plaintiff's claims.
B
The court concludes that plaintiff has alleged sufficient facts to make a colorable claim of breach of fiduciary duty against Entergy Netherlands. Under New York law, in order to prevail on a breach of fiduciary duty claim, plaintiff must prove: (1) breach of a fiduciary duty owed to the plaintiff; (2) defendant's knowing participation in the breach; (3) damages suffered by plaintiff which were proximately caused by the alleged breach. See Scholastic Inc v Harris, 80 F. Supp.2d 139, 152. PGI clearly alleges damages proximately caused by all defendants' breach of duty. See Notice of Removal, Exh 1 (Doc # 1) at ¶ 54. PGI also alleges that defendants' knowing participation in the breach. See id at ¶ 55. The only contested issue is whether Entergy Netherlands owed a fiduciary duty to plaintiff.
A fiduciary relationship exists under New York law "when one [person] is under a duty to act for or to give advice for the benefit of another upon matter within the scope of the relation." Flickinger v Harold C Brown Co, 947 F.2d 595, 599 (2d Cir 1991). The existence of a fiduciary relationship and the breach of a fiduciary duty are questions of fact dependant on the circumstances of the specific case. See Anonymous v CVS Corp, 728 N.Y.S. 2d 333, 337 (NY Sup Ct 2001). Fiduciary relationships may be undertaken by agreement, imposed by law, or imposed by partnerships or joint ventures. See, e g, id; Accent Associates, Inc v Wheatley Construction Corp, 701 N.Y.S. 2d 667, 667 (NY Sup Ct App. 2000).
Plaintiff claims the relationship between PGI and Entergy Netherlands should be considered fiduciary in nature. See Notice of Removal (Doc # 1), Exh 1 at ¶ 52. While defendant argues that plaintiff's allegation of breach of fiduciary duty is based on nothing more than a conventional business relationship, plaintiff has alleged sufficient facts which when construed in the light most favorable to the plaintiff establish that Entergy Netherlands had sufficient control over the projects to create a fiduciary relationship. The parties disagree whether Entergy Netherlands was a part of the negotiation of the Morelos project and, with EDPC, controlled the Morelos project. See McPeak Decl (Doc # 24) at ¶ 14; Nugent Decl (Doc # 27) at ¶ 24. This factual dispute is crucial to whether Entergy Netherlands can be held liable. Furthermore, Entergy Netherlands assured PGI that Entergy Netherlands that it had the experience to close the deal. See McPeak Decl (Doc # 24) at ¶ 15.
In addition, PGI argues that the agreement and the MOU created a joint venture between PGI, EPDC and Entergy Netherlands. Under New York law, to establish a joint venture, a party must demonstrate that the both parties would share profits and losses from the project. See Wiener v Lazard Freres Co, 672 N.Y.S.2d 8, 14 (NY Sup Ct App. 1998). PGI alleges that the agreements and MOU outline that PGI and EPDC would gain an equity interest in the Morelos project. See Notice of Removal (Doc # 1), Exh 1 at ¶ 14. Entergy Netherlands was created to be the holding company for these interests. Nugent Decl (Doc # 27) at ¶ 5. The relationship between plaintiff and Entergy Netherlands has been shaped by the development agreement, the MOU, which requires Entergy Netherlands and PGI to work jointly on the Morelos project. Characterization of this relationship as fiduciary is a question of fact to be decided based on the circumstances of this case, including the interpretation of the written and oral agreements of the parties.
Defendants have not shown by clear and convincing evidence that plaintiff will not be able to establish a cause of action against Entergy Netherlands. The court concludes that plaintiff's joinder of Entergy Netherlands was not fraudulent as plaintiff stated at least one cause of action against Entergy Netherlands on which it could possibly prevail. With Entergy Netherlands joined properly as a defendant, complete diversity of citizenship of the parties is destroyed and removal on the basis of diversity jurisdiction is improper.
III
In sum, because defendants have failed to satisfy the requirements for diversity jurisdiction under 28 U.S.C. § 1332, this case must be remanded to state court. For the foregoing reasons, plaintiff's motion to remand (Doc #20) is GRANTED. Plaintiff waives its rights to fees and costs under Moore v Permanente Medical Group, 981 F.2d 443 (9th Cir 1992).
The clerk is directed to close the file and terminate all pending motions.