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Baclaan v. Combustion Engineering

United States District Court, D. Hawaii

October 31, 2016



          Leslie E. Kobayashi, United States District Judge

         On July 5, 2016, Plaintiffs Lorenzo Baclaan; Naomi Baclaan; Eleanor C. Benedict, individually, and as Special Administrator of the Estate of Francis Benedict, deceased; Peter M.Y. Kim; and Lida Mae Kim (collectively “the Baclaan Plaintiffs”) filed their Motion to Remand and/or Abstain and Motion for Leave to Name New Party Defendant (“Baclaan Motion”). [CV 03-00325, dkt. no. 91.] Plaintiffs George H. Toro; Vivian Toro; Zeke H. Sakurai; Masae Sakurai; Lolita F. Apo, individually and as Special Administrator of the Estate of John K. Apo, deceased; and Violet Maii, individually and as Special Administrator of the Estate of Samuel K. Maii, deceased (collectively “the Toro Plaintiffs”), and Plaintiffs Theodore K. Hopkins and Ruby Hopkins, et al. (collectively “the Hopkins Plaintiffs”) filed similar motions in their respective cases (“Toro Motion” and “Hopkins Motion, ” respectively). [Toro, CV 03-00326, dkt. no. 83; Hopkins, CV 03-00401, dkt. no. 65.[1]

         Defendant Arter & Hadden LLP (“A&H”) filed a joint memorandum in opposition to all three motions (collectively “Motions”) on August 29, 2016. [Dkt. no. 98.] The Baclaan Plaintiffs, the Toro Plaintiffs, and the Hopkins Plaintiffs (all collectively “Plaintiffs”) filed a joint reply on September 5, 2016. [Dkt. no. 102.] These matters came on for hearing on September 19, 2016. After careful consideration of the Motions, supporting and opposing memoranda, the arguments of counsel, and the relevant legal authority, the Motions are HEREBY GRANTED and the cases are HEREBY REMANDED to the state court, for the reasons set forth below.


         The Baclaan Plaintiffs and the Toro Plaintiffs filed their respective complaints (“Baclaan Complaint” and “Toro Complaint”) in state court on December 10, 2002. See Mem. in Opp., Decl. of April A. Otterberg (“Otterberg Decl.”), Exhs. 1, 2. The Baclaan Plaintiffs describe their case as “a class action of asbestos disease personal injury or wrongful death plaintiffs who entered into settlements with Combustion Engineering, Inc. (‘CE') from approximately 1982 to 2000 in the Hawaii Asbestos Litigation.” [Mem. in Supp. of Baclaan Motion at 3-4.] The Baclaan Plaintiffs allege that they entered into the settlements in reliance on false answers to interrogatories in the Hawai`i asbestos cases. According to the Baclaan Plaintiffs, the answers to interrogatories falsely stated that: CE did not sell any products containing asbestos in Hawai`i; and CE had no knowledge that its asbestos products were used in Hawai`i. The Baclaan Plaintiffs assert that they discovered the answers to interrogatories were false in 2001, and they point out that a state court judge ordered ten documents de-privileged under the crime-fraud exception to the attorney-client privilege. Based on those and other non-privileged documents, the Baclaan Plaintiffs determined that Defendants The Travelers Insurance Company and The Travelers Indemnity Company (“Travelers Defendants”) designed a scheme that their attorneys implemented to withhold information to induce the plaintiffs to accept nuisance value settlements. The Travelers Defendants' attorneys were A&H, as national counsel, and Char, Hamilton, Campbell & Thom, Attorneys at Law, a Law Corporation (“Char Hamilton”), as local counsel. The Baclaan Plaintiffs argue that, because they entered into settlements based on fraudulent discovery, they can sue those responsible for that fraud to recover the difference between the settlement amounts and what the fair value of the settlements would have been without the fraud. The Toro Complaint and the Hopkins Complaint are based on the same allegations.

         Baclaan and Toro are class actions, and Hopkins has individual plaintiffs. [Baclaan Complaint at ¶ 1; Toro Complaint at ¶ 1; Hopkins Complaint at ¶¶ 1-21.] Each of the three complaints alleged seven causes of action. Relevant to the instant Motions, the complaints alleged:

Plaintiffs are entitled to damages for depressed settlement values (i.e., the difference between what they would have settled for had they not been deceived by the fraudulent discovery answers of CE and what they did settle for) against all Defendants since all Defendants joined this conspiracy and are liable for the actions of their co-conspirator even if performed before they joined this conspiracy.
. . . .
Peter C.P. Char is liable for this fraud since he negligently failed to ascertain the falsity of CE's interrogatory answers in the Hawaii asbestos litigation and allowed CE and the other conspirator Defendants to use his prestige as a well-respected member of the Hawaii bar to promote the false answers of CE to induce deflated settlements.
Travelers Indemnity Company and Travelers Insurance Company and Arter & Hadden are liable to Plaintiffs for fraud and conspiracy to commit fraud for creating, implementing and fostering this scheme to falsely [sic] answers to interrogatories in Hawaii and throughout the mainland to deny asbestos sales to Hawaii to induce low settlement agreements.

E.g., Baclaan Complaint at pgs. 15-16. The First Amended Complaint alleges the same claims against A&H, and it alleges the claims alleged in the original Complaint against Char against Char Hamilton. E.g., Baclaan First Amended Complaint at pgs. 20-22.

         The Travelers Defendants removed Baclaan to this district court based on: diversity jurisdiction, pursuant to 28 U.S.C. § 1332; “related-to” bankruptcy jurisdiction, pursuant to 28 U.S.C. § 1334; and supplemental jurisdiction, pursuant to 28 U.S.C. § 1367. [Notice of Removal, filed 6/26/03 (dkt. no. 1).] The Baclaan Plaintiffs filed their First Amended Complaint on July 7, 2003.[2] [Dkt. no. 5.] On July 10, 2003, the Baclaan Plaintiffs filed a motion to remand and/or abstain, and for leave to add a new defendant (“Old Motion”). [Dkt. no. 6.] The case was assigned to United States District Judge Robert E. Jones of the District of Oregon. [Order, filed 7/23/03 (dkt. no. 9).] The same events occurred in Toro. See CV 03-00326, dkt. nos. 1, 5, 6, 9. The Complaint in Hopkins (“Hopkins Complaint”) was filed on December 10, 2002 in state court. The Travelers Defendants removed the case to the District of Hawai`i bankruptcy court on June 26, 2003.[3] Because the removal was to the bankruptcy court, the Travelers Defendants did not include diversity jurisdiction as one of the bases for removal. The Old Motion in Hopkins was filed in the bankruptcy court. On July 25, 2003, the Travelers Defendants filed a motion to withdraw the reference to the bankruptcy court, and Judge Jones issued a written order granting the motion on September 15, 2003. [Hopkins, CV 03-00401, dkt. nos. 1, 8.]

         The Travelers Defendants opposed the Old Motion in each case. See, e.g., Baclaan, CV 03-00325, dkt. no. 13. While the Old Motion was pending, A&H filed a notice of bankruptcy. [Dkt. no. 36.] In November 2003, Judge Jones held a hearing on the Old Motion. [Dkt. no. 37.] Judge Jones was apparently asked to defer ruling on the Old Motion because of a purportedly imminent settlement between Plaintiffs and the Travelers Defendants. [Mem. in Supp. of Baclaan Motion at 2.]

         On February 10, 2006, the Baclaan Plaintiffs filed a motion seeking leave to enter into a stipulation with the trustee in A&H's Chapter 7 bankruptcy proceedings which would allow them to proceed against A&H's insurance policy covering punitive damages and “innocent partner” liability for fraud. [Dkt. no. 44.] Judge Jones granted the motion and approved the stipulation on January 16, 2007. [Dkt. nos. 51, 52.]

         Problems with Plaintiffs' settlements with the Travelers Defendants arose. On September 21, 2007, Judge Jones issued a minute order administratively closing Baclaan, “with the understanding that if the settlement in the case became viable again, these cases will be immediately reopened.” [Dkt. no. 54.] ¶ 2014, the Second Circuit Court of Appeals ruled on a case addressing the enforceability of Travelers settlements in various actions nationwide. See In re Johns-Manville, 759 F.3d 206 (2d Cir. 2014). In the instant case, the Travelers Defendants withdrew their opposition to the Old Motion on May 8, 2015. [Dkt. no. 59.]

         On July 8, 2015, the case was reassigned to this Court. [Dkt. no. 66.] Subsequently, the parties agreed to mediation, but it was unsuccessful. See Minutes, filed 10/26/15 (dkt. no. 71); Minutes, filed 4/22/16 (dkt. no. 76). On May 6, 2016, this Court issued an entering order terminating the Old Motion and giving the Baclaan Plaintiffs leave to file a new motion within thirty days. [Dkt. no. 79.] The instant Motions followed.

         The Baclaan Plaintiffs argue that diversity jurisdiction did not exist at the time of removal because Peter C.-P. Char (“Char”) - who was a defendant in the original Complaint - was a Hawai`i resident. They also argue that Char's death after the filing of the Baclaan Complaint did not extinguish their claims against him. However, even if their claims against Char were extinguished, they contend that the addition of Char Hamilton as a defendant is appropriate, breaking complete diversity and requiring remand. The Baclaan Plaintiffs also argue that “related-to” jurisdiction did not exist at the time of removal because there was not enough of a connection between their claims and CE's bankruptcy proceeding. Further, even if this Court would be inclined to conclude that there was related-to jurisdiction, it should decline to exercise jurisdiction on equitable grounds, pursuant to 28 U.S.C. § 1452(b). Finally, the Baclaan Plaintiffs argue that, because neither diversity jurisdiction nor related-to jurisdiction existed, there was no basis for supplemental jurisdiction over the state law claims. The Toro Plaintiffs and the Hopkins Plaintiffs raise the same arguments, except that the Hopkins Plaintiffs do not raise diversity arguments because diversity jurisdiction was not one of the bases for removal in Hopkins. The Hopkins Plaintiffs also seek leave to add Char Hamilton as a defendant.


         As a general rule, the existence of removal jurisdiction is determined at the time the removal petition is filed, irrespective of subsequent events. See, e.g., Allen v. F.D.I.C., 710 F.3d 978, 984 (9th Cir. 2013). This district court has stated:

“Removal and subject matter jurisdiction statutes are ‘strictly construed, ' and a ‘defendant seeking removal has the burden to establish that removal is proper and any doubt is resolved against removability.'” Hawaii ex rel. Louie v. HSBC Bank Nev., N.A., 761 F.3d 1027, 1034 (9th Cir. 2014) (quoting Luther v. Countrywide Home Loans Servicing LP, 533 F.3d 1031, 1034 (9th Cir. 2008)). Thus, “‘[i]t is to be presumed that a cause lies outside [the] limited jurisdiction [of the federal courts] and the burden of establishing the contrary rests upon the party asserting jurisdiction.'” Hunter v. Philip Morris USA, 582 F.3d 1039, 1042 (9th Cir. 2009) (quoting Abrego Abrego v. Dow Chem. Co., 443 F.3d 676, 684 (9th Cir. 2006)) (alterations in original). This “‘strong presumption against removal jurisdiction means that the defendant always has the burden of establishing that removal is proper, ' and that the court resolves all ambiguity in favor of remand to state court.” Id. (quoting Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992) (per curiam)).

U.S. Bank, Nat'l Ass'n v. Mizukami, CIVIL NO. 15-00523 JMS-BMK, 2016 WL 632195, at *2 (D. Hawai`i Feb. 17, 2016) (alterations in U.S. Bank).


         I. Diversity Jurisdiction

         Federal courts may preside over state law claims pursuant to their diversity jurisdiction under 28 U.S.C. § 1332. Under 28 U.S.C. § 1332(a)(1) (2003), the district courts had original jurisdiction over actions between citizens of different states “where the matter in controversy exceeds the sum or value of $75, 000, exclusive of interest and costs.” At the time of removal, “[s]ection 1332 require[d] complete diversity of citizenship; each of the plaintiffs must be a citizen of a different state than each of the defendants.” Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001) (citing Caterpillar Inc. v. Lewis, 519 U.S. 61, 68, 117 S.Ct. 467, 136 L.Ed.2d 437 (1996)).

         In Baclaan and Toro, the amount in controversy requirement is not in dispute. The issues presented in the Baclaan Motion and the Toro Motion are: 1) whether this Court must disregard Char's citizenship because of his death prior to removal; and 2) if Char's citizenship is disregarded, whether this Court should grant Plaintiffs leave to add Char Hamilton as a defendant - which would destroy diversity - pursuant to 28 U.S.C. § 1447(e).

         A. Defendant Char

         Char was originally named as a defendant in all three cases. He died on January 12, 2003. [Otterberg Decl., Exh. 9 (The Honolulu Advertiser article dated 1/14/03).] Plaintiffs served the Travelers Defendants on May 28, 2003. [Mem. in Opp. at 4.] On June 26, 2003, the Travelers Defendants removed Baclaan and Toro to this district court, based in part on diversity jurisdiction because Char was the only non-diverse defendant. The Travelers Defendants took the position that Char's citizenship had to be disregarded in light of his death.

         Based on the state court's docket sheets, no action was taken prior to removal - either by the parties or the state court - regarding Char's death. Haw. Rev. Stat. § 634-61 states:

The death of a plaintiff or defendant . . . shall not cause an action to abate, but it may be continued upon substitution of the proper parties as provided by the rules of court, or if the claim is one which survives to or against the surviving parties the action shall proceed in favor of or against the surviving parties as provided by the rules of court.

         In determining whether a plaintiff's claim survives after the death of a defendant, Hawai`i courts analyze whether the claim would survive if the plaintiff died. In Mitsuba Publishing. Co. v. State, the Hawai`i Intermediate Court of Appeals (“ICA”) dismissed the appeal against a defendant who had died while the appeal was pending, holding that the defamation action did not survive the defendant's death. 1 Haw.App. 517, 620 P.2d 771 (1980) (per curiam). The ICA stated:

Appellants argue that s 634-61, HRS, which provides that the death of a plaintiff or defendant does not cause an action to abate but that it may be continued upon substitution of proper parties saves their case. That statute, however, is derived from Act 34 of the Laws of 1876. It was long ago stated:
The Act of 1876 provides the method to be pursued in proceeding with an action after the death of the plaintiff or defendant. But it seems to me from the language and intent of the Act that this procedure is only applicable to such actions as survive to the personal representatives of the deceased, that is, such actions as might originally be maintained by the executor or administrator.
Bishop v. Lokana, 6 Haw. 556, 557 (1885). The same result was reached in Alameda v. Spenser, 34 Haw. 667 (1938). Obviously, at common law, an action for defamation could not be commenced by a personal representative of a defamed decedent.

1 Haw.App. at 517, 620 P.2d at 772 (citation omitted). The ICA noted that the general rule in Hawai`i was that, “[a]t common law, personal actions died with the person.” Id. (citing City & County of Honolulu v. Sherretz, 42 Haw. 177 (1957)). In Sherretz, the Supreme Court of the Territory of Hawai`i stated, “[t]his is particularly true where the damages sustained are personal in nature and do not affect property rights or interest.” 42 Haw. at 180 (citing 1 R. C. L., § 22, p. 28).

         This Court concludes that, under Hawai`i law, the Baclaan Plaintiffs' and the Toro Plaintiffs' claims against Char were personal actions that they could not pursue after his death.[4] This Court therefore CONCLUDES that, at the time of removal, there was complete diversity amongst the parties, and that diversity jurisdiction existed.

         B. Defendant Char Hamilton

         After removal, the Baclaan Plaintiffs and the Toro Plaintiffs attempted to join Char Hamilton by filing a First Amended Complaint and seeking leave to do so in the Old Motions. Plaintiffs allege that Char Hamilton is a Hawai`i corporation that was doing business in Hawai`i at all relevant times. [Baclaan First Amended Complaint at ¶ 6.] This Court terminated the Old Motions and gave Plaintiffs leave to file the instant Motions. 28 U.S.C. § 1447(e) states: “If after removal the plaintiff seeks to join additional defendants whose joinder would destroy ...

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