Unreported / Non-Citable
Background
Plaintiffs Kristofer Keith and Spacecraft Design Construction LLC filed a complaint in Los Angeles County Superior Court on May 26, 2026, against Gemini Insurance Company, Vela Insurance Services LLC, W.R. Berkley Corporation, and Kirkland McKenzie, a senior claims specialist and adjuster for Vela and Gemini. The suit arises from an insurance coverage dispute concerning two underlying actions—the Cho Action and the Williams Action—tendered to Gemini for defense and indemnification under a commercial general liability policy.
Gemini denied coverage in full for the Cho Action and in part for the Williams Action. Defendants removed the case to federal court on July 23, 2026, asserting diversity jurisdiction and arguing that McKenzie, the only non-diverse defendant (a California citizen like Plaintiff Keith), was fraudulently joined. Plaintiffs moved to remand, contending that McKenzie’s citizenship destroys complete diversity.
The Court’s Holding
The Court granted Plaintiffs’ Motion to Remand. Applying Ninth Circuit precedent, the Court held that the removing defendants bear a heavy burden to prove fraudulent joinder by showing there is no possibility the plaintiff can state a valid cause of action against the non-diverse defendant. The Court found that Plaintiffs alleged a potentially viable claim for promissory fraud against McKenzie under California law, based on allegations that McKenzie promised to promptly send a copy of the policy to Plaintiffs’ counsel but did so without intent to perform, causing delay and interim defense costs.
Because Defendants failed to establish that no possibility of a valid claim exists, McKenzie was not fraudulently joined. With both McKenzie and Keith being California citizens, complete diversity is lacking under 28 U.S.C. § 1332, requiring remand to state court. All hearings and deadlines were vacated.
Key Takeaways
- The fraudulent joinder standard in the Ninth Circuit is higher than a Rule 12(b)(6) standard; a claim that might not survive a motion to dismiss can still defeat fraudulent joinder if there is any possibility of stating a valid claim.
- An insurance adjuster may be personally liable for independent tortious conduct, such as promissory fraud, committed within the scope of the agency relationship, even if not liable for breach of contract or bad faith.
- Plaintiffs need only one potentially valid claim against a non-diverse defendant to defeat a fraudulent joinder challenge and preserve remand.
- The Court resolved all ambiguities in favor of the plaintiff, consistent with the requirement to strictly construe the removal statute against removal jurisdiction.
- The case is remanded to Los Angeles County Superior Court (Case No. 26STCV16730).
Why It Matters
This order reinforces the Ninth Circuit’s stringent fraudulent joinder standard, clarifying that defendants seeking to remove based on diversity must conclusively negate any possibility of a valid state-law claim against a non-diverse defendant. The decision confirms that insurance adjusters can face personal liability for independent torts like promissory fraud under California Civil Code § 2343(3) and Bock v.
Hansen, even when acting as agents. By granting remand, the Court preserves state court jurisdiction over insurance coverage disputes involving local adjusters, limiting federal diversity jurisdiction in cases where non-diverse claims personnel are plausibly alleged to have committed independent torts.
The order is also a practical reminder that litigants must distinguish the immediate ruling from issues left open. Its deadlines and procedural directions apply to this case, while the court’s stated reasoning identifies the legal framework counsel should address in comparable matters. Lawyers should preserve the factual record relevant to that framework, comply precisely with any stated deadline, and avoid treating an interim procedural ruling as a final merits judgment. Those distinctions can determine both the next filing and whether later review is available.