U.S. Supreme Court Decision in Standard Fire Insurance Company v. Knowles -- Class Action Fairness Act Case

Posted on March 20, 2013 by Wystan M. Ackerman

Yesterday, the U.S. Supreme Court issued its opinion in The Standard Fire Insurance Company v. Knowles, No. 11-1450 (slip opinion), which involves the Class Action Fairness Act of 2005 (CAFA).  In a unanimous opinion authored by Justice Breyer, the Court overturned the district court’s decision remanding a putative class action to state court.  The Court held that a stipulation filed by the named plaintiff together with the complaint, concerning the amount in controversy under CAFA, must be ignored.  The Court explained, among other things, that the named plaintiff had no right to bind the absent members of the proposed class at the time suit was filed, and jurisdiction must be determined as of the time of filing. 

I will not analyze the decision in detail here because I am one of the lawyers representing Standard Fire in this case.

SPECIAL DISCLAIMER: Because I am counsel for Standard Fire in this case, while I intend this blog to serve as an informational resource on insurance class actions and not advertising for my services as a lawyer, because I’m writing here about one of my own cases someone might think it is advertising. Please understand that every case is different and the result achieved in the case described above may differ from the result in some other case, which may involve different facts or different applicable law. Past results do not guarantee future results, and you should always consult your own lawyer about your own case.

Standard Fire Ins. Co. v. Knowles: U.S. Supreme Court Hears Oral Argument in First Class Action Fairness Act (CAFA) Case

Posted on January 08, 2013 by Wystan M. Ackerman

Yesterday the U.S. Supreme Court heard oral argument in Standard Fire Insurance Co. v. Knowles, its first case involving the Class Action Fairness Act of 2005 (CAFA).  The case involves whether a named plaintiff can evade federal jurisdiction under CAFA by stipulating that he will not seek more than $5 million on behalf of the putative class.  I represent Standard Fire in this case (it was my first time at counsel table for a U.S. Supreme Court oral argument), so I will not be able to give you my prediction on what the outcome might be.  But you can read the transcript, and the media coverage on the case, such as the Washington Post article, New York Times article, Insurance Journal piece, Wall Street Journal editorial and Fortune magazine article.  There is also a blog piece on the Class Action Defense Blog.  In accordance with the Court’s custom, the case will be decided no later than the end of June.

Class Action Fairness Act (CAFA) Interlocutory Appeals: Article Published in DRI's In-House Defense Quarterly

Posted on November 27, 2012 by Wystan M. Ackerman

I recently published an article on Class Action Fairness Act (CAFA) interlocutory appeals (pdf) in the Defense Research Institute’s In-House Defense Quarterly magazine.  DRI was kind enough to allow me to republish it here for readers of my blog.  My article focuses on the practical challenges in these appeals given their expedited timeframe, and strategies for petitioning for permission to appeal, opposing permission to appeal, and seeking a stay pending appeal.  If you take a look, I’d be interested in any comments you have on it.

Standard Fire Insurance Company v. Knowles: Supreme Court Grants Certiorari

Posted on August 31, 2012 by Wystan M. Ackerman

In my August 20, 2012 post, I noted that there were several petitions pending before the U.S. Supreme Court involving class action issues.  Today the U.S. Supreme Court granted certiorari in The Standard Fire Ins. Co. v. Knowles, an insurance class action case presenting the following question:

Whether, after Smith v. Bayer, when a named plaintiff attempts to defeat a defendant’s right of removal under the Class Action Fairness Act of 2005 by filing with a class action complaint a “stipulation” that attempts to limit the damages he “seeks” for the absent putative class members to less than the $5 million threshold for federal jurisdiction, and the defendant establishes that the actual amount in controversy, absent the “stipulation,” exceeds $5 million, the “stipulation” is binding on absent class members so as to destroy federal jurisdiction.

I drafted the petition for certiorari and am counsel of record in this case.  The papers filed with the Court are available on SCOTUSblog.

Supreme Court Class Action Cases for October 2012 Term

Posted on August 20, 2012 by Wystan M. Ackerman

The U.S. Supreme Court has already granted review on one class action law issue as described in my June 26, 2012 post.  In Comcast Corp. v. Behrend, No. 11-864, the Court granted certiorari on “[w]hether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.” 

Will the Court also take up other class action issues in the next Term?  That remains to be seen, but SCOTUSblog has reported on other class action cases set for consideration at the Court’s September 24th conference, its first conference of the new Term, which typically results in a significant number of grants of certiorari.  Here are the issues presented in the petitions SCOTUSblog lists as petitions to watch:

  •  Missouri Title Loans, Inc. v. Brewer, No. 11-1466:  “(1) Whether the Federal Arbitration Act (‘FAA’) preempts state law finding an arbitration agreement to be unconscionable when the plaintiff cannot vindicate her statutory rights without a class action; and (2) whether the Supreme Court of Missouri, on remand from the Supreme Court, contravened the FAA by again refusing to enforce Missouri Title Loans' arbitration agreement, this time based upon alleged evidence submitted by the plaintiff aimed at substantiating the very public policy arguments that were held to be preempted in AT&T Mobility v. Concepcion.”
  • The Standard Fire Ins. Co. v. Knowles, No. 11-1450:  “Whether, after Smith v. Bayer, when a named plaintiff attempts to defeat a defendant’s right of removal under the Class Action Fairness Act of 2005 by filing with a class action complaint a ‘stipulation’ that attempts to limit the damages he ‘seeks’ for the absent putative class members to less than the $5 million threshold for federal jurisdiction, and the defendant establishes that the actual amount in controversy, absent the ‘stipulation,’ exceeds $5 million, the ‘stipulation’ is binding on absent class members so as to destroy federal jurisdiction.”  (Disclosure: I am counsel of record in this case.)
  • Zurn Pex v. Cox, No. 11-740: “When a party proffers expert testimony in support of or in opposition to a motion for class certification, may the district court rely on the testimony in ruling on the motion without conducting a full and conclusive examination of its admissibility under Federal Rule of Evidence 702 and this Court’s decision in Daubert v. Merrell Dow Pharmaceuticals, Inc.?”  For more on the Eighth Circuit’s decision in this case, see my July 14, 2011 post.  It seems possible the Supreme Court might hold this petition pending its decision in Comcast Corp. v. Behrend.

 

Amount in Controversy Under CAFA: Burden of Proof, Disclaimer in Complaint and Punitive Damages Addressed By Tenth Circuit

Posted on July 03, 2012 by Wystan M. Ackerman

Motions to remand under the Class Action Fairness Act (CAFA) in insurance class actions often focus on whether the amount in controversy exceeds $5 million.  This is because the “local controversy” and “home state” exceptions to CAFA jurisdiction are inapplicable if the defendant is not a citizen of the state where suit is filed.  Thus, if the plaintiffs’ attorneys sue outside of the defendant’s state of incorporation and principal place of business, the only way they can avoid federal jurisdiction is if the amount in controversy is found to be below $5 million.  Last week, in Frederick v. Hartford Underwriters Ins. Co., No. 12-1161, __ F.3d. __, 2012 WL 2443100 (10th Cir. June 28, 2012), the Tenth Circuit addressed several issues that are at the heart of these disputes, resolving all three issues in a manner favorable to defendants: 

  • Burden of Proof:  The Tenth Circuit agreed with the majority of other circuits that a defendant must establish that the amount in controversy exceeds $5 million by a preponderance of the evidence. This standard (or a similar formulation) applies in the First, Second, Fourth, Sixth, Seventh, Eighth and Eleventh Circuits.  But the Third and Ninth Circuits require a defendant to establish to a “legal certainty” that the amount in controversy exceeds $5 million.  This is a well-developed circuit split (ten of the twelve circuits have weighed in) that the Supreme Court might be inclined to decide, if presented with an appropriate case. 
  • Allegation That Plaintiff Seeks Less Than $5 Million:  In Frederick, the complaint alleged that the named plaintiff was seeking “a total award for compensatory and punitive damages [that] does not exceed $4,999,999.99.”  Id. at *1.  The district court held that this allegation, by itself, required a remand, but the Tenth Circuit reversed.  The court of appeals explained that “a plaintiff’s attempt to limit damages in the complaint is not dispositive when determining the amount in controversy.  Regardless of the plaintiff’s pleadings, federal jurisdiction is proper if a defendant proves jurisdictional facts by a ‘preponderance of the evidence’ such that the amount in controversy may exceed $5,000,000.  Once a defendant meets this burden, remand is appropriate only if the plaintiff can establish that it is legally impossible to recover more than $5,000,000.  Id. at *3.  The district court erred when it “treated the plaintiff’s pleadings as dispositive” because “[a] court may not forgo an analysis of a defendant’s claims regarding the amount in controversy merely because a plaintiff pleads that he is seeking less than the jurisdictional minimum.”  Id. at *4.  The Tenth Circuit noted in footnote 3 of its opinion that the Jurisdiction and Venue Clarification Act of 2011 (“JVCA”), Pub. L. No. 112-63, was inapplicable because the JVCA did not become effective until after Frederick was filed.  Regardless of that, the JVCA amendments appear to plainly apply only to diversity jurisdiction under § 1332(a), not CAFA jurisdiction under § 1332(d).  See 28 U.S.C. § 1446(c)(2).  (For more on the JVCA, see my January 6, 2012 blog post.)  Frederick did not involve a purported binding stipulation by a named plaintiff as to the amount in controversy, but the district court treated the allegation as binding, so the court might treat a stipulation in the same fashion.  For more on stipulations, see my February 7, 2012 blog post. 
  • Punitive Damages:  The Tenth Circuit further held that, with respect to punitive damages, a defendant must show “merely that: (1) state law permits a punitive damages award for the claims in question; and (2) the total award, including compensatory and punitive damages, could exceed $5,000,000.”  Frederick, 2012 WL 2443100, at *4 (emphasis added).  The Tenth Circuit explained that this showing may be made based upon “facts alleged in the complaint, the nature of the claims, or evidence in the record to demonstrate that an award of punitive damages is possible.”  Id.  This does not appear to be an onerous standard for defendants to satisfy.  If applicable state law on one or more causes of action permits an award of punitive damages and the maximum amount awardable under state law would bring the amount in controversy over $5 million, that would appear to satisfy the Tenth Circuit’s test.

House Judiciary Committee Hearing on Class Action Fairness Act (CAFA) Amendments

Posted on June 14, 2012 by Wystan M. Ackerman

The Subcommittee on the Constitution of the U.S. House of Representatives Judiciary Committee recently held a hearing on potential amendments to the Class Action Fairness Act of 2005 (“CAFA”).  The hearing, held seven years after CAFA’s enactment, was intended to address the impact the statute has had on class action litigation and what improvements or modifications, if any, are needed.  An article by Jessie Kokrda Kamens in the Bloomberg BNA Class Action Litigation Report and an article by John O’Brien in Legal Newsline summarize the hearing, and  the House Judiciary Committee website has a webcast and the hearing testimony.  The article in Class Action Litigation Report describes the Republican and Democratic subcommittee leaders’ positions as follows:

[Subcommittee chairman Rep. Trent] Franks [R-Ariz.] expressed concern in his opening statement that CAFA has introduced a new form of forum shopping where attorneys choose to file their cases in particular federal circuits that have proven friendlier to class actions. He also disapproved of some courts' requirement that defendants must prove to a legal certainty that the amount in controversy in a suit is over CAFA's $5 million threshold for removal.

Rep. Jerrold Nadler (D-N.Y.), ranking member of the subcommittee, said in his opening statement, “Far from reducing frivolous, time-consuming and expensive litigation, CAFA appears to have encouraged such litigation by enmeshing courts in lengthy battles of threshold questions that threaten meaningful access to the courts.”

Class action plaintiffs’ attorney Thomas Sobol recommended that CAFA be amended to make it easier for single-state class actions to remain in state court.  He argued that CAFA, together with Multidistrict Litigation (MDL) procedures, have resulted in single-state class actions that should be litigated in state courts being removed to federal court, consolidated in an MDL, and then having class certification denied because the federal court finds it unmanageable to resolve the numerous differences in state law among the various jurisdictions.  He also argued that the Supreme Court’s decision in AT&T v. Concepcion, upholding arbitration provisions that ban class actions, is unfair to consumers. 

John Beisner of Skadden Arps, representing the U.S. Chamber of Commerce’s Institute for Legal Reform, noted the successes that CAFA has made in reducing improper nationwide class actions in state courts.  He highlighted the 90% decrease in class actions filings in Madison County, Illinois, for example, following the enactment of CAFA.  He recommended that Congress consider fixing the requirement some circuits have imposed that a defendant establish the amount in controversy to a “legal certainty,” arguing that was inconsistent with CAFA’s intent to make it easier for defendants to remove cases to federal court.  He also recommended consideration of an amendment to address settlements that provide little benefit to anyone but the plaintiffs’ lawyers or provide chiefly cy pres relief together with attorneys’ fees.  Beisner also noted that some federal courts are certifying classes that include many putative class members that have not really sustained any injury. 

Professor Martin Redish of the Northwestern University School of Law also argued that settlements where the primary relief consists of cy pres relief (e.g., a contribution to a nonprofit organization to do work that might aid the class members) are an abuse of the class action device, and suggested that Congress either prohibit cy pres awards or impose a requirement that the district court find that a substantial portion of the class will actually receive compensation.

From the perspective of someone who is in the trenches defending class actions, most of them brought against insurance companies, I see a couple of potential loopholes in CAFA that were not addressed in this hearing and are worthy of consideration (although neither of these issues are fully resolved by the courts).  Under CAFA, if no defendant is a citizen of the state where suit is brought, the case is always removable if the amount in controversy is over $5 million.  This is because neither the “home state” nor the “local controversy” exception applies if there is no in-state defendant.  In insurance cases this is a common scenario because putative class actions are rarely filed in the insurance company’s home state, and it is rarely proper to name more than one insurer in the same case or to name some other in-state defendant.  That means that the only way plaintiffs’ lawyers can try to keep a case in state court is to keep the amount in controversy under $5 million.  There are two ways they have attempted to do this:

  1. The time period for the putative class is shortened to some period far shorter than the statute of limitations to keep the amount in controversy down.  If permitted, this tactic seems to defeat the purpose of CAFA because the plaintiffs’ attorneys, if they win the first “under $5 million” case, they can push for a larger settlement and/or potentially use collateral estoppel in bringing other “under $5 million” cases covering other short time periods.  The courts of appeals have not squarely addressed the propriety of this tactic, but it is something Congress could easily fix by requiring the use of the statute of limitations time period in calculating the amount in controversy.
  2. A purportedly binding “stipulation” is signed by the named plaintiff that he or she will not seek or accept more than $5 million on behalf of the proposed class.  The Eighth Circuit upheld this tactic in Rolwing v. Nestle Holdings, Inc. where otherwise there was over $12 million in controversy.  As I said in my prior post about Rolwing, these stipulations, if permitted, essentially make CAFA avoidable whenever a plaintiff’s attorney would like, as long as they can find a client willing to execute the stipulation.  While the Eighth Circuit’s opinion is unlikely to be the last word from the courts on this issue, it is something Congress could correct either by prohibiting these stipulations or reducing CAFA’s $5 million threshold to the $75,000 threshold for ordinary federal diversity jurisdiction.

These issues may not be as evident to those involved who are at the center of the debate over potential amendments to CAFA because the plaintiffs’ lawyers who tend to bring the largest, high-profile nationwide and multistate class actions do not tend to use these tactics (they may find them ethically questionable), and defense counsel who tend to defend the largest cases would not see these tactics being used.  But they are becoming an increasingly serious problem and are worthy of consideration in any potential CAFA reform.

Amount in Controversy Under CAFA: New Arkansas Decision

Posted on June 08, 2012 by Wystan M. Ackerman

You may recall my blog post from last November about the Eighth Circuit’s opinion in Thatcher v. Hanover Ins. Group, Inc., 659 F.3d 1212 (8th Cir. 2011).  In that opinion, the Eighth Circuit reversed an Arkansas federal district court decision allowing a plaintiff to voluntarily dismiss a putative class action without prejudice in order to re-file the case in state court with several causes of action omitted.  The plaintiff sought to eliminate those causes of action in order to ensure that the amount in controversy would be below the $5 million threshold for federal jurisdiction under the Class Action Fairness Act (CAFA), and thereby keep the case in state court.  The Eighth Circuit explained that “we have repeatedly stated that it is inappropriate for a plaintiff to use voluntary dismissal as an avenue for seeking a more favorable forum,” and instructed the district court to first determine whether federal jurisdiction existed, and then, if it found jurisdiction, to reconsider whether the motion for voluntary dismissal was an improper “forum-shopping measure.” 

The Arkansas federal district court has now ruled in Thatcher that it has jurisdiction under CAFA, and that the motion to dismiss was an improper forum shopping device.  In Thatcher v. Hanover Ins. Group, Inc., Civil No. 10-4172, 2012 U.S. Dist. LEXIS 73961 (W.D. Ark. May 29, 2012), the court held that each of the causes of action in the complaint (unjust enrichment, fraud/constructive fraud, and breach of contract) potentially could result in a separate damages award, which, together with statutory penalties and attorneys’ fees, would substantially exceed the $5 million threshold for CAFA jurisdiction.  The court rejected the plaintiff’s argument that by alleging that he was not seeking a “double recovery,” he was seeking only breach of contract damages.  The court also found that punitive damages were potentially available on the fraud and constructive fraud claims because such damages potentially can be awarded even where not expressly requested in the complaint.  (For more on this point, see my blog post about the Seventh Circuit’s Back Doctors opinion.)  The court rejected the plaintiff’s argument that an allegation that the aggregate amount in controversy was less than $5 million could establish to a legal certainty that the actual amount in controversy was below $5 million.

After finding jurisdiction, the court then reconsidered its decision to grant the motion for voluntary dismissal without prejudice.  It held that to allow the plaintiff to voluntarily dismiss the case for the purpose of re-filing in state court “clearly amounts to improper forum shopping . . . .”  The court further explained that:

While this plaintiff and his attorneys had the right to draw his complaint as he saw fit (as the master of the complaint), he and they are obliged to live with it as drawn and to pursue it – if they can – in a court having proper jurisdiction over it as drawn.  They are not to be permitted to shop for a new and hopefully more favorable forum if it turns out that their complaint – as drawn – places them in a court not of their liking.

The amount in controversy is often the focus of disputes over whether CAFA jurisdiction exists in insurance class actions.  This is because the “local controversy” and “home state” exceptions to CAFA are inapplicable if none of the defendants are citizens of the state where suit is brought.  (And bringing one class action against multiple insurers is typically not proper.)  The only way plaintiffs’ lawyers can try to keep these cases in state court is by keeping the amount in controversy under $5 million.  As I mentioned in my prior post, filing an answer at the same time you remove a case to federal court is a helpful strategy to try to prevent plaintiffs from filing a notice of voluntary dismissal without prejudice so that they can re-file a case in state court with revised allegations designed to keep the amount in controversy below $5 million.  It’s also important, in preparing a notice of removal, to consider every potential category of damages that might be awarded on each cause of action that is pled.  It’s somewhat counterintuitive for a defendant to be trying to increase the calculation of potential damages and for the plaintiff to be fighting against that, but that is what determining the amount in controversy under CAFA is all about.

SPECIAL DISCLAIMER:  While I intend this blog to serve as an informational resource on insurance class actions and not advertising for my services as a lawyer, because I’m writing here about one of my own cases someone might think it is advertising.  Please understand that every case is different and the result achieved in the case described above may differ from the result in some other case, which may involve different facts, different applicable law or a different jurisdiction.  Past results do not guarantee future results, and you should always consult your own lawyer about your own case.

Evidence Supporting Removal Under the Class Action Fairness Act (CAFA): Ninth Circuit Confirms That There Is No Requirement to Submit Evidence at the Time of Removal

Posted on April 02, 2012 by Wystan M. Ackerman

Some plaintiffs’ lawyers have suggested that when a defendant removes a case under the Class Action Fairness Act, it must submit evidence (such as affidavits) with the notice of removal establishing the amount in controversy and other facts pertinent to removal.  The Ninth Circuit recently issued a short, unpublished opinion explaining that there is no such requirement.  It’s unfortunate this opinion was not published because this is a significant issue on which there is no other circuit-level precedent (although this opinion is freely citable under Fed. R. App. P. 32.1).

In Janis v. Health Net, Inc. of Cal., No. 12-55206, 2012 U.S. App. LEXIS 5767 (9th Cir. Mar. 20, 2012), a federal district court refused to consider evidence the defendant submitted in opposition to the plaintiff’s motion to remand, simply because the evidence had not been submitted at the time the notice of removal was filed.  The Ninth Circuit reversed, explaining that a notice of removal is a pleading, not an evidentiary submission:

Nothing in 28 U.S.C. § 1446 requires a removing defendant to attach evidence of the federal court's jurisdiction to its notice of removal. Section 1446(a) requires merely a “short and plain statement of the grounds for removal.” Moreover, we have observed that “it is clearly appropriate for the district courts, in their discretion, to accept certain post-removal [evidence] as determinative of the [jurisdictional requirements].”  Abrego Abrego v. Dow Chem. Co., 443 F.3d 676, 690-91 (9th Cir. 2006); see Singer v. State Farm Mut. Auto. Ins. Co., 116 F.3d 373, 377 (9th Cir. 1997) ("The district court may consider whether it is 'facially apparent' from the complaint that the jurisdictional amount is in controversy. If not, the court may consider facts in the removal petition, and may 'require parties to submit summary-judgment-type evidence relevant to the amount in controversy at the time of removal.'") (quoting Allen v. R & H Oil & Gas Co., 63 F.3d 1326, 1336 (5th Cir. 1995)).

The district court erred as a matter of law and thus abused its discretion in refusing to consider Health Net’s evidence.

Id. at *2-3.

 

Stipulations Regarding Amount in Controversy Under the Class Action Fairness Act (CAFA): Eighth Circuit Upholds Stipulations

Posted on February 07, 2012 by Wystan M. Ackerman

A February 2, 2012 decision by the Eighth Circuit upheld the use of stipulations by the named plaintiff and plaintiff’s counsel attempting to limit the amount in controversy to below the $5 million threshold for federal jurisdiction under the Class Action Fairness Act (CAFA).  This is the first court of appeals opinion squarely addressing this important issue.  If followed by other circuits, this decision potentially allows any plaintiffs’ attorney to avoid federal jurisdiction in any class action, no matter how large the amount in controversy would otherwise be, simply by using stipulations following the form used in this case.  CAFA potentially becomes avoidable essentially at will.  Such stipulations might make little difference to a defendant if the state’s class action law closely follows federal law, the state courts are accustomed to handling complex commercial disputes and discovery rulings are reasonable and appealable.  However, the plaintiffs’ bar is more likely to employ these stipulations in state courts that have looser class certification standards, plaintiff-friendly courts and limited (or non-existent) appellate review of discovery rulings preceding certification.  In those jurisdictions, defendants can be pressured to settle by the larger costs of litigation and greater likelihood of class certification.

In Rolwing v. Nestle Holdings, Inc., No. 11-3445, 2012 WL 301030 (8th Cir. Feb. 2, 2012) (available at Eighth Circuit website), a proposed class action was filed arising out of a merger between Nestle and Ralston Purina Company.  The plaintiff contended that payments to Ralston Purina shareholders for their shares were made six days late, and thus, under the interest rate established in a Missouri statute, over $13 million was owed to the shareholders.  The complaint, however, included allegations and two stipulations attempting to limit the amount in controversy to below $5 million, as follows:

Rolwing’s complaint included a prayer for relief requesting “judgment against defendant in an amount that is fair and reasonable in excess of $25,000, but not to exceed $4,999,999.”  The prayer stated further:  “Plaintiff and the class do not seek –and will not accept – any recovery of damages (in the form of statutory interest) and any other relief, in total, in excess of $4,999,999.”   . . . Rolwing also included two stipulations with his complaint: one stating that as named plaintiff and putative class representative he would not seek or accept any recovery in excess of $4,999,999 on his own behalf or on behalf of the class, and a second signed by his counsel stating that no attorneys’ fees would be sought or accepted other than on a contingency basis out of the maximum recovery of $4,999,999 provided for by the other stipulation.

Id. at *1 (emphasis in original). 

The Eighth Circuit initially found that Nestle had established that the actual amount in controversy exceeded $5 million, and thus, “for a remand to be justified, Rolwing must show that it is legally certain that recovery in this case cannot exceed $5 million.”  Id. at *2.  The court stated that “[s]tipulations of this sort, when filed contemporaneously with a plaintiff’s complaint and not after removal, have long been recognized as a method of defeating federal jurisdiction in the non-CAFA context.”  Id.   The court did not address whether this should be extended to CAFA or what Congress intended in that regard.  The court concluded that the stipulations were enforceable under  Missouri law of judicial estoppel, reasoning as follows:

Under Missouri law, “[t]he doctrine of judicial estoppel provides that ‘[w]here a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he may not thereafter, simply because his interests have changed, assume a contrary position, especially if it be to the prejudice of the party who has acquiesced in the position formerly taken by him.’ “ Taylor v. State, 254 S.W.3d 856, 858 (Mo.2008) (second alteration in original) (quoting Zedner v. United States, 547 U.S. 489, 504, 126 S.Ct. 1976, 164 L.Ed.2d 749 (2006)). According to this rule, by defeating removal through asserting the position that he will not accept more than $4,999,999 in damages on behalf of the class he is seeking to represent, Rolwing is estopped from later accepting damages that exceed that amount. Similarly, by taking the position that he would only accept fees on a contingency basis out of damages not exceeding $4,999,999, Rolwing's counsel is estopped from accepting any other fee award.

Id. at *3 (emphasis added).

A few observations:

  • The Eighth Circuit here seemed to assume that pre-CAFA law allowing stipulations that the amount in controversy in an individual case was below $75,000 should be extended to apply to class actions under CAFA.  Doesn’t resolving that issue depend on:  (1) whether class action law allows a named plaintiff to stipulate to damages on behalf of proposed class members pre-certification; (2) whether such a stipulation is binding pre-certification; and (3) what Congress intended in enacting CAFA?  None of these issues were addressed in this decision.
  • The law on judicial estoppel varies somewhat from state to state, as well as the law regarding the enforceability of these types of stipulations, so the application of this opinion in cases arising from other jurisdictions may vary. 
  • It seems somewhat inconsistent with principles of federalism for federal jurisdiction to depend on the vagaries of state law, although to some extent state law informs the determination of the amount in controversy under diversity jurisdiction.  Should state law be allowed to completely control whether federal courts have jurisdiction under CAFA?
  • If this decision is not consistent with Congressional intent, should CAFA be amended to correct it?

Federal Courts Jurisdiction and Venue Clarification Act of 2011: Impact on Class Actions

Posted on January 06, 2012 by Wystan M. Ackerman

[Note to subscribers: I've made a correction in this post to fix an error in Prof. Hellman's name.  If you've read it already, there are no substantive changes.]

The Federal Courts Jurisdiction and Venue Clarification Act of 2011 (Public Law 112-63) becomes effective today, January 6, 2012, with respect to new cases commenced in state or federal court from today forward.  It makes a series of changes, some significant and others quite minor, to federal statutes governing jurisdiction, venue and removal.  I will explain here what I see as the potential impact of this on class actions.  For comprehensive summaries of the changes, I recommend Professor Arthur Hellman’s recent articles on Jurist summarizing the new law and describing its lengthy prior history and some missing pieces.  Pepper Hamilton also has a detailed summary that is even more comprehensive than Prof. Hellman’s articles.  House Report 112-10 provides Congress’s most comprehensive summary.  But none of these sources discuss the potential class action impact, which I will focus on here:

The new law makes some changes that apply directly to removal of class actions on the basis that one of the named plaintiffs has an individual claim worth more than $75,000.  These changes also raise some interesting questions about how these new provisions might impact Class Action Fairness Act removals.  Here is the new language in 28 U.S.C. § 1446:

(c) Requirements; Removal Based on Diversity of Citizenship.—

(1) A case may not be removed under subsection (b)(3) on the basis of jurisdiction conferred by section 1332 more than 1 year after commencement of the action, unless the district court finds that the plaintiff has acted in bad faith in order to prevent a defendant from removing the action.

(2) If removal of a civil action is sought on the basis of the jurisdiction conferred by section 1332(a), the sum demanded in good faith in the initial pleading shall be deemed to be the amount in controversy, except that--

(A) the notice of removal may assert the amount in controversy if the initial pleading seeks

(i) nonmonetary relief; or

(ii) a money judgment, but the State practice either does not permit demand for a specific sum or permits recovery of damages in excess of the amount demanded; and

(B) removal of the action is proper on the basis of an amount in controversy asserted under subparagraph (A) if the district court finds, by the preponderance of the evidence, that the amount in controversy exceeds the amount specified in section 1332(a).

(3)(A) If the case stated by the initial pleading is not removable solely because the amount in controversy does not exceed the amount specified in section 1332(a), information relating to the amount in controversy in the record of the State proceeding, or in responses to discovery, shall be treated as an `other paper' under subsection (b)(3).  [Emphasis added.]

Class actions in which a named plaintiff has a claim for more than $75,000 are not that common, but when that is the case the federal court has supplemental jurisdiction over the putative class members’ claims under the Supreme Court’s decision in Exxon Mobil Corp. v. Allapattah Services, Inc., 545 U.S. 546 (2005).  One tactic some plaintiffs’ lawyers have used to try to prevent removal of these cases is to state in the complaint that the named plaintiffs are each seeking less than $75,000.  Sometimes affidavits under oath or formal stipulations to that effect are also attached to the complaint.  Prof. Hellman describes in his article how Congress deleted provisions from the proposed bill that would have expressly authorized this kind of stipulation.  Instead, as long as state law does not allow a demand for a specific amount in a complaint or allows recovery in excess of what the complaint demands, the defendant’s notice of removal will control the amount in controversy under the statute, as long as it meets the preponderance of the evidence test.  This should help defendants successfully remove more of these types of cases to federal court. It is rare that state law prohibits a plaintiff from ever recovering more than they ask for in their initial complaint.

What I find particularly interesting is Congress’s failure to expressly address the impact of this on the Class Action Fairness Act (CAFA).  One tactic plaintiffs’ lawyers have been using in class actions is to have the named plaintiff try to limit the amount of the putative class members’ claims in the aggregate to below the $5 million threshold for CAFA jurisdiction.  No court of appeals has directly addressed this, although the Eighth Circuit is poised to do so, as I noted in a recent post.  For defendants in class actions, this is a much bigger issue than in the $75,000 context because the vast majority of class actions seek relatively small amounts on behalf of each class member, and thus it is rare that a named plaintiff has at least $75,000 at stake. 

The new Section 1446(c) applies only to Section 1332(a), which is the traditional $75,000 diversity jurisdiction section.  It does not expressly apply to CAFA, which is Section 1332(d).  I think there are at least two potential ways to interpret this.  First, it may be that Congress expects that in a class action a named plaintiff cannot ask for a specific amount of damages on behalf of a putative class or limit the damages of the putative class to a specific sum because the named plaintiff has no authority to act on behalf of putative class members before certification.  That would be consistent with the Supreme Court’s decision this year in Smith v. Bayer Corp., where the Court said that putative class members are not bound by what happens in a case before certification and notice.  (It would also be consistent with what the Fifth, Sixth and Seventh Circuits have said on the stipulation issue.  District courts have disagreed on the enforceability of stipulations and there is some dicta in other court of appeals decisions that plaintiffs’ lawyers and some district courts have relied on.)  Second, it may be that Congress expects that what it has now enacted for traditional diversity jurisdiction would be applied by courts, at least by analogy, to CAFA removals.  The federal courts in CAFA cases have generally applied other basic principles of removal jurisdiction to CAFA removals, on the assumption that Congress would presume those principles to apply, while making appropriate exceptions to those principles as necessary based on the purpose, intent and language of CAFA.  The final House Report does not shed any light on what is intended with respect to CAFA but the lengthy prior legislative history (which I have not yet studied) might provide some guidance.

While this new law was not made expressly applicable to pending cases that were filed before today, it may demonstrate Congress’s intent behind pre-existing law where there were gaps in that law, and thus provide courts with some guidance in resolving pending cases.

 

Recent Grants of Permission to Appeal Under CAFA and Rule 23(f)

Posted on December 28, 2011 by Wystan M. Ackerman

Whenever the Supreme Court grants certiorari in a case, that is broadcast broadly to the legal community and those who follow the Court know about it within hours.  But when courts of appeals grant permission to appeal an important issue under the Class Action Fairness Act or Fed. R. Civ. P. 23(f), often few people find out about it, other than the parties to the case, until a decision comes down.  These decisions can have very important implications.  With CAFA cases, given how quickly they move forward under CAFA’s 60-day timeframe for decisions to be issued, there is little time for timely amicus briefs to be filed.  So I thought it would be helpful to take a look at what cases are currently pending on which review has been granted.  Here is a summary of pending cases I found where review has been granted (without attempting to predict where a circuit might grant review and deciding the merits at the same time, which has happened several times in the Seventh Circuit):

CAFA

South Carolina v. AU Optronics Corp., No. 11-254 (4th Cir.) and South Carolina v. LG Display Co., No. 11-255 (4th Cir.):  These cases involve whether a lawsuit filed by a state attorney general qualifies as a “mass action” under CAFA and issues regarding minimal diversity under CAFA where a state is a plaintiff.  See South Carolina v. AU Optronics Corp., 2011 U.S. Dist. LEXIS 104213 (D.S.C. Sept. 14, 2011); South Carolina v. LG Display Co., 2011 U.S. Dist. LEXIS 104216 (D.S.C. Sept. 14, 2011).  The Fourth Circuit has not formally acted on the petitions for permission to appeal but has ordered merits briefing, scheduled to be completed by the end of February, and indicated that it will set the cases for oral argument.  This procedure will delay triggering the 60-day clock under CAFA, which does not start running until permission to appeal is granted (although query whether this is really what Congress had in mind when it established the 60-day period).

Rolwing v. Nestle Holdings, Inc., Case No. 11-3445 (8th Cir.):  This case presents the question of whether a named plaintiff in a proposed class action can avoid federal jurisdiction under CAFA by executing a stipulation, on behalf of putative class members he is not yet authorized to represent, purporting to cap the  damages of these putative class members below $5 million.  This is a very important issue under CAFA that has never been decided by any court of appeals.  Review has been granted and according to the docket, the parties have consented to an extension of time under which the court will issue a decision by February 8, 2012.

Rule 23(f)

Churchill v. Cigna Corp., Case No. 11-3887 (3d Cir.):  This case involves a district court ruling granting class certification on a purported across-the-board practice by CIGNA of denying coverage for certain kinds of treatment for autism.  For a discussion of the district court opinion, see my prior blog post.  According to the docket, briefing in this case will be completed by April 2, 2012.

Rodriguez v. National City Bank, No. 1108079 (3d Cir.):  This is an appeal from an order denying certification of a proposed settlement class in an employment discrimination case.  See Rodriguez v. National City Bank, 2011 U.S. Dist. LEXIS 101367 (E.D. Pa. Sept. 8, 2011).  The Third Circuit has requested briefing on the merits but not formally acted on the petition for permission to appeal.

Dart v. Smentek, No. 11-3261 (7th Cir.):  The Seventh Circuit granted review under Rule 23(f) “to the extent that the court will permit an appeal on the sole issue that follows: when should a district court on deciding a motion for class certification defer, based on the principles of comity, to a sister court's ruling on a motion for certification of a similar class. See Smith v. Bayer Corp., 131 S. Ct. 2368, 2382 (2011).”  An interesting issue.  Briefing is scheduled to be completed by March 6, 2012. 

McReynolds v. Merrill Lynch, Pierce, Fenner, & Smith, Inc., No. 11-3639 (7th Cir.):  This employment discrimination case involves whether Wal-Mart v. Dukes allows certification of an “issues” class to decide liability and injunctive and declaratory relief, where individual trials would then need to be conducted on backpay awards.  See McReynolds v. Merrill Lynch, Pierce, Fenner & Smith Inc., 2011 U.S. Dist. LEXIS 115431 (N.D. Ill. Sept. 19, 2011).  The case is on an expedited schedule, with briefing to be completed by January 5, 2012 and oral argument on January 13, 2012.

Rogers v. Epson America, Inc., No. 11-57016 (9th Cir.):  This is an appeal from a denial of class certification in a products liability case involving alleged misrepresentations in the sale of computer printers.  The issues focus on whether reliance, injury and causation can be presumed and whether a lack of standing on behalf of some class members bars certification.  The Ninth Circuit has granted review and briefing is to be completed by April 2012.

Amount in Controversy Under CAFA: New Ohio Decision Illustrates Importance Of Tailoring Data To The Proposed Class Where Possible

Posted on November 11, 2011 by Wystan M. Ackerman

One challenge defendants and their counsel face early in defending a putative class action filed in state court, assuming they would prefer to litigate in federal court, is how to show that the $5 million amount in controversy requirement is satisfied.  This must be done quickly so that the removal can be timely filed within 30 days, and it often takes considerable time to find the right people to do the analysis, figure out what the relevant data is, analyze various iterations of data and then decide how best to present this issue to the court.  The courts of appeals have agreed that the burden of proof is on the defendant to show that the amount in controversy is satisfied, although there is some variation in how the applicable standard is articulated.

A recent Northern District of Ohio decision demonstrates the importance of tailoring the defendants’ data to the definition of the proposed class, where possible, as opposed to using more generic data that may be more easily retrievable but is not specific to the proposed class.  Andrews v. Nationwide Mutual Insurance Co., 2011 U.S. Dist. LEXIS 124737 (N.D. Ohio Oct. 26, 2011) is one of a series of class actions recently filed seeking to require life insurance companies to search for information about whether their insureds have died (typically by using the Social Security Administration’s Death Master File) and then make more proactive efforts to pay proceeds where a claim has not been submitted.  (For more about these kinds of cases, see the prior posts I did on June 2, 2011 and July 13, 2011.)  The complaint sought injunctive and declaratory relief, and also asserted claims for breach of the implied covenant of good faith and fair dealing and unjust enrichment.  The only issue in dispute on jurisdiction was the amount in controversy. 

Nationwide’s notice of removal alleged “three components of damages: (1) $826,000, which constitutes the face value of active life insurance policies for which the insured has been determined to be deceased, (2) $1,228,000, which constitutes the value of lapsed insurance policies during the past 15 years for which the insured has been determined to be deceased; and (3) the $10,200 annual cost to conduct yearly searches of the Death Master File (‘DMF’) for active life insurance policyholders and monthly searches for all lapsed policies.”  Id. at *3-4.  Nationwide argued that “the injunction plaintiffs seek is indefinite and perpetual and, as such, the amount in controversy is satisfied by category three alone.”  Id. at *4.

The court found this showing insufficient in large part because the data was not adequately tailored to the putative class as defined in the complaint:

Upon review, the Court finds that defendants have not established a $5 million amount in controversy by a preponderance of the evidence. Defendants provide the affidavit of Jeffrey Stein, who avers that defendants ran searches of their active and lapsed policies against the DMF. The results of these searches indicated that there are approximately 230 active policies worth $826,000 for which defendants received an "exact or near exact match" and for which defendants could not locate the policy beneficiary. In addition, there are approximately 17 lapsed policies worth $1,228,000 that fit the same criteria. Defendants ask the Court to include these dollar figures in the amount in controversy. These dollar figures, however, are derived from searches of defendants' entire book of business. Thus, these figures do not accurately represent the interests at stake in this case, as the number of policies at issue is far less than defendants' entire book of business. For example, there is no indication as to how many of the 230 active policies and 17 lapsed polices were held by class members. Nor is there any indication as to the value of the class members' policies.

In addition, the Court rejects defendants' argument that the cost of running searches ad infinitum would itself exceed the jurisdictional amount. Defendants provide evidence that the cost to run the searches is $10,200 per year. Defendants' argument ignores the simple fact that the injunction could not, by definition, run ad infinitum. Count one, which seeks mandatory injunctive relief, asks the Court to order defendants to make reasonable inquiries as to the "life-status of the Class Members." Similarly, count two asks that the Court declare that defendants must pay death benefits to "Class Members ... without first requiring further notice of death." On the face of the complaint, the injunctive and declaratory relief is requested only on behalf of "Class Members." The class is defined generally as individuals who have policies that are "currently in force" or have been "wrongfully canceled" and who held such policies "within the period of time that commenced 15 years prior to the filing" of this lawsuit Construing the class definition as broadly as possible, the injunction could only last as long as the youngest person in the class is alive. Once the youngest person is deceased, the injunction would necessarily expire as there would be no more records to search or benefits to pay.

Id. at *7-10 (footnotes omitted).

It seems likely here that at least some of Nationwide’s data could have been tailored more closely to the proposed class.  But it may very well be that if the data had been tailored specifically to the proposed class, Nationwide would have had no hope of reaching the $5 million threshold, and thus they may have just been giving this the old college try.  What I think is critical here is for insurers and their counsel to understand that thoroughly developing the amount in controversy data to be used in a CAFA removal requires substantial time and effort.  In some cases it is simply not possible to tailor the data to the proposed class as defined in the complaint because the insurance company simply does not maintain the right kind of data, but you can probably get pretty close.  That may take several meetings with the right people knowledgeable about the company’s data, and working through several different iterations of data that you might want to use, in order to get the best possible data and accompanying argument to present to the court.  From the outside (and in-house) counsel perspective, gaining a deep understanding of how the client maintains the data can be essential.  Don’t underestimate the amount of time and effort that is required for this, and don’t assume that a judge will accept some kind of rough, back of the envelope calculation.  That might fly where it is clear that the case involves much more than $5 million, but it might not where, as in this case, it was a closer call.

Can a Voluntary Dismissal And Re-Filing Avoid the Class Action Fairness Act? Eighth Circuit Says No, Where A Defendant Has Answered

Posted on November 07, 2011 by Wystan M. Ackerman

One strategy some plaintiffs’ attorneys have used to try to avoid federal jurisdiction under the Class Action Fairness Act (CAFA) is to voluntarily dismiss a case after it has been removed to federal court, and then re-file a new complaint in state court with amended allegations framed in a way that will bar federal jurisdiction.  For example, after a defendant’s notice of removal explains how the $5 million amount in controversy is satisfied for the proposed class, the plaintiff might attempt to voluntarily dismiss the case and then re-file a new complaint that withdraws certain causes of action, or narrows the time period for the proposed class or the manner in which the class is defined, in order to reduce the amount in controversy to below $5 million.  (Some defendants might welcome such a limitation if the state courts in the jurisdiction closely adhere to federal precedent on class certification.  This tactic is more commonly used in states where class action law differs markedly from federal law, or where the judicial climate is considered much more friendly to plaintiffs in a state court.)  This tactic also might be employed to try to fit a case into CAFA’s local controversy exception or home state exception. 

This issue was recently addressed in a case in which I represented the defendants.  In Thatcher v. Hanover Ins. Group, Inc., No. 11-1610, 2011 WL 5247892 (8th Cir. Nov. 4, 2011) (slip opinion available on the 8th Circuit website), the defendants had answered shortly before the plaintiff sought a voluntary dismissal, and opposed the motion for voluntary dismissal. The district court allowed dismissal before taking up the issue of jurisdiction under CAFA.  The Eighth Circuit reversed and remanded.  The court wrote that:

[T]he district court failed to address Thatcher's [i.e., the plaintiff’s] purpose in seeking to voluntarily dismiss. If the trial court had done so, it could have concluded that Thatcher was dismissing so he could return to the more favorable state forum. Thatcher's expressed intent was to amend his complaint in order to avoid federal jurisdiction. . . . This reading of Thatcher's purpose is supported by his failure to consider the effects of his actions on the putative class that he purportedly represents. In the original complaint, Thatcher included claims for unjust enrichment, fraud, constructive fraud, and breach of contract. In his motion to dismiss without prejudice, Thatcher set forth his intention to refile this matter in state court as a breach of contract claim only. Thatcher set forth no adequate reason why it would benefit the class to abandon these additional claims.

In addressing whether a district court should allow voluntary dismissal, we have repeatedly stated that it is inappropriate for a plaintiff to use voluntary dismissal as an avenue for seeking a more favorable forum. See, e.g., Cahalan v. Rohan, 423 F.3d 815, 818 (8th Cir. 2005) (“A party may not dismiss simply to ... seek a more favorable forum.”). In the removal context, this rule coincides with other measures which “strike a balance between the plaintiff's right to select a particular forum and the defendant's right to remove the case to federal court.” Knudson v. Sys. Painters, Inc., 634 F.3d 968, 976 (8th Cir. 2011). For example, under the fraudulent-joinder exception, a plaintiff cannot defeat a defendant's right of removal by “fraudulently joining a defendant who has no real connection with the controversy.” Id. (citation omit-ted). Likewise, under the St. Paul Mercury rule, in a diversity action a plaintiff may not merely amend his complaint after removal to claim damages below the jurisdictional amount and deprive the federal court of jurisdiction.   St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 292, 294 (1938) ( “If the plaintiff could, no matter how bona fide his original claim in the state court, reduce the amount of his demand to defeat federal jurisdiction the defendant's supposed statutory right of removal would be subject to the plaintiff's caprice.”); see also Jones v. Mosher, 107 F. 561, 564 (8th Cir.1901) (“As the right to remove an action which falls within the jurisdiction of the federal courts is a substantial right, the federal courts ... should be astute not to permit devices to become successful which are used for the very purpose of destroying that right.” (internal citation omitted)).

In this case, the determination of whether the motion to dismiss was an improper forum-shopping measure, by its very nature, called into question the trial court's subject matter jurisdiction. Defendants exercised their right to removal under CAFA, and Thatcher appears to have sought dismissal merely to deprive the federal court of jurisdiction. As a result, determining whether the district court had subject matter jurisdiction was at the crux of the issue of whether the motion to dismiss was being used for the improper purpose of seeking a more favorable forum. The district court erred in failing to take up the jurisdictional question, thereby necessitating remand of this matter. After the trial court determines whether it has subject matter jurisdiction, it can consider whether dismissal without prejudice is appropriate, taking into consideration whether the motion to dismiss is a forum-shopping measure. Alternatively, if the court finds that it does not have subject matter jurisdiction, it should remand to the state court. 

Thatcher, 2011 WL 5247892, at *2-3.

A key practice pointer here is that if the defendant has not filed an answer or summary judgment motion, there will be no opportunity to object to a voluntary dismissal – in that circumstance, Rule 41(a)(1)(A)(i) allows a plaintiff to voluntarily dismiss a case as of right, without any need for court approval.  The only way to ensure that you preserve the right to oppose a voluntary dismissal is to file an answer or summary judgment motion together with your notice of removal.  Some defense counsel are concerned about not being able to file a motion under Rule 12(b)(6) after you have answered, but the same relief should be available on a Rule 12(c) motion for judgment on the pleadings.

SPECIAL DISCLAIMER:  While I intend this blog to serve as an informational resource on insurance class actions and not advertising for my services as a lawyer, because I’m writing here about one of my own cases someone might think it is advertising.  Please understand that every case is different and the result achieved in the case described above may differ from the result in some other case, which may involve different facts, different applicable law or a different jurisdiction.  Past results do not guarantee future results, and you should always consult your own lawyer about your own case.

Calculating the Amount in Controversy Under the Class Action Fairness Act in an Insurance Class Action: New Seventh Circuit Opinion

Posted on October 04, 2011 by Wystan M. Ackerman

The Seventh Circuit recently issued a decision favorable to insurers regarding calculating the amount in controversy under the Class Action Fairness Act (CAFA).  In Keeling v. Esurance Insurance Company, 2011 U.S. App. LEXIS 19598 (7th Cir. Sept. 26, 2011), the plaintiff brought a class action alleging that certain UM/UIM coverage sold by Esurance was purportedly worthless due to policy restrictions.  The case sought refunds of the premiums paid for this coverage, which totaled $613,894, along with declaratory relief and punitive damages.  The district court found that the $5 million threshold under CAFA was not met, but the Seventh Circuit reversed, concluding that the amount in controversy exceeded $5 million. 

The district court had placed no value on the prospective declaratory relief, but Judge Easterbrook’s opinion concluded that the proper measure of that would be the present value of the anticipated profits on this coverage ($125,000 per year) over the next 20 years, which he calculated at $1.5 million (it’s unclear why he chose a 20-year period).  That amount, together with the $613,894, would total over $2 million.  The court concluded that an additional punitive damages of $3 million would not be “legally impossible,” noting that such an award would be “[i]mprobable, perhaps, but not impossible.” 

The lesson I see here is that where it is not obvious that a case involves over $5 million, insurers and their counsel need to think very carefully about every element of damages being sought or potentially sought in a complaint, and try to place a dollar figure on it, even if it’s not easy to come up with a dollar figure.  Courts seem quite willing to give insurers (and other defendants) the benefit of the doubt on this, consistent with the “legally impossible” standard. 

Smith v. Bayer Corp. Opinion: Potential Impact on Insurance Class Actions

Posted on June 17, 2011 by Wystan M. Ackerman

The Supreme Court failed to take the opportunity to resolve the pressing problem of relitigation in class actions, but suggested some potential solutions.  On June 16, the Supreme Court issued its opinion in Smith v. Bayer Corp., addressing whether a federal court, after denying class certification, can enjoin a state court from adjudicating a putative class action on the very same issue.  Unfortunately, the result was not what corporate America had hoped for.  In a unanimous opinion authored by Justice Kagan, the Court held that, at least in the vast majority of circumstances, such an injunction is not available.  

The case involved the relitigation exception to the Anti-Injunction Act, under which a federal court can enjoin a state court from relitigating issues fully and finally decided by a federal court.  Applying this exception involves an issue preclusion (collateral estoppel) analysis, focusing on: (1) whether the issue presented to the state court is the same as the issue previously decided by the federal court; and (2) whether the plaintiff in the state case was a party to the federal case or a nonparty that can be bound (such as a nonparty that was in privity with a party to the federal case). 

The Court concluded that: (1) the issue of whether to certify a class in state court is not identical to the issue of whether to certify a class in federal court if the state has a different class action rule, or even if the text of the state rule is identical, but the state supreme court applies the rule differently; and (2) a putative class member in a case in which class certification is denied is not a “party” or the kind of nonparty that can be bound by a denial of certification.  The Court concluded that “[n]either a proposed class action nor a rejected class action may bind nonparties.”  (Slip op. at 15.)

This opinion has not gotten much attention in the media or blogs from what I can find.  There was a short AP piece published in the Washington Post and other places, but it doesn’t say much. 

I found most interesting the Court's discussion of the problem that is presented, for corporate defendants and the legal system, by allowing plaintiffs' lawyers to keep pursuing class certification on the same issue, even after certification has been denied multiple times:

Bayer’s strongest argument comes not from established principles of preclusion, but instead from policy concerns relating to use of the class action device.  Bayer warns that under our approach class counsel can repeatedly try to certify the same class “by the simple expedient of changing the named plaintiff in the caption of the complaint.”  Brief for Respondent 47-48.  And in this world of “serial relitigation of class certification,” Bayer contends, defendants “would be forced in effect to buy litigation peace by settling.”

The Court suggested several solutions to this problem:

  1. Stare decisis and comity among courts can mitigate the problem of repetitive class action litigation.  The problem I see here is that this does not help when you have a few "rogue" state courts that largely ignore what the federal courts and majority of state courts are doing on class certification.  These states become meccas for class action litigation, particularly against insurers.
  2. The Court concluded that CAFA might solve the problem because "Congress enabled defendants to remove to federal court any sizable class action involving minimal diversity of citizenship."  (Slip op. at 17.)  This might work, as long as the federal courts do not allow gamesmanship by plaintiffs’ lawyers seeking to frame their cases so that numerous $4.9 million class actions can be brought in state courts in places favorable to class certification.
  3. The Court suggested, in footnote 12, that Congress could enact a statute, or the Federal Rules of Civil Procedure could be amended, so as to restrict relitigation of class certification.  I think those options are worth pursuing and insurance and other industry associations should consider supporting them.

A couple other potential solutions I see are: (1) an effort by the defendant, perhaps through a declaratory judgment claim against a putative class, to try to obtain one final, binding resolution by a federal court on the issue of class certification; and (2) the Supreme Court using the federal Due Process Clause to place some limitations on state court class certification rulings.  On the due process point, there is currently a petition for certiorari pending in Philip Morris USA Inc. v. Jackson, No. 10-735 (docket), involving due process issues in a state court class action. 

Attorneys General and the Class Action Fairness Act: When Are Attorney General Suits "Class Actions"? Fourth Circuit Weighs In

Posted on May 31, 2011 by Wystan M. Ackerman

When a state attorney general files a lawsuit that is not expressly pled as a class action, but the suit seeks a recovery on behalf of consumers that would put money in their pockets just like a class action, is that a “class action” within the meaning of the Class Action Fairness Act (CAFA)?  The Fourth Circuit answered “No” on the facts presented by West Virginia ex. rel. McGraw v. CVS Pharmacy, Inc.  In a 2-1 decision, the majority concluded that “[b]ecause this action was brought by the State under state statutes that are not ‘similar’ to Federal Rule of Civil Procedure 23, we conclude that it is not removable under CAFA as a class action.”  Under this decision, a state attorney general who wants to bring a suit equivalent to a class action but wants to stay out of federal court likely can find a way to frame the suit to have a strong chance of staying in state court.  The Fifth Circuit, however, reached a contrary result in an attorney general suit it found was a “mass action” under CAFA, see Louisiana ex.. rel. Caldwell v. Allstate Ins. Co., 536 F.3d 418 (5th Cir. 2008).

In this case, the attorney general brought suit under the West Virginia Pharmacy Act, which requires pharmacists to fill prescriptions with generic drugs, when appropriate, and pass on certain savings to consumers.  The attorney general contended that various pharmacies named as defendants failed to comply with this statute and also violated the West Virginia Consumer Credit Protection Act.  The attorney general sought monetary refunds on behalf of all affected West Virginia consumers.

The court focused on CAFA’s definition of “class action,” which is “any civil action filed under rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action.”  28 U.S.C. § 1332(d)(1)(B).  The majority reasoned that:  (1) CAFA’s definition of “class action” should be interpreted to require that the state statute or rule at issue have typicality and adequacy of representation requirements, which are not applicable to West Virginia’s Pharmacy Act or Consumer Credit Protection Act; (2) the attorney general’s role was “more analogous to the role of the EEOC or other regulator when it brings an action on behalf of a large group of employees or a segment of the public”; and (3) a finding of federal jurisdiction “would risk trampling on the sovereign dignity of the State,” although the court does not find that the Eleventh Amendment applies.

The dissent was by Judge Gilman, a senior circuit judge of the Sixth Circuit, sitting on the Fourth Circuit by designation.  He concluded that: (1) this case would meet Black’s Law Dictionary’s definition of “class action” because the plaintiff seeks to represent the interests of a group of people; (2) the real parties in interest on the primary claim were consumers; (3) the legislative history of CAFA, including rejection of an amendment that would have exempted attorney general suits from CAFA, supports finding that jurisdiction exists; and (4) sovereign immunity concerns were inapplicable where the state voluntarily brought the suit.  Judge Gilman’s most quotable line was:

In sum, there is a saying that if something looks like a duck, walks like a duck, and quacks like a duck, it is probably a duck.  To my mind this case “quacks” much more like a CAFA class action than a parens patriae case.

Here are my thoughts: 

  • Look for an en banc petition or petition for certiorari in this case.  The strong dissent, the conflict with the Fifth Circuit decision (although that involved a “mass action”) and the prominence of this issue might lead to further review.  The Fourth Circuit takes more en banc petitions than most circuits.  If further review is sought, industry associations may want to weigh in with amicus briefs. 
  • Attorney general and insurance commissioner suits may increase.  Depending on the political climate in particular jurisdictions, insurers may see an increase in the filing of “class action-like” suits, particularly in the event of catastrophes.  In some states insurance commissioners can file suits on their own, in others they have to go through the attorney general. 
  • CAFA jurisdiction in each case still will depend on its own facts.  Under the Fourth Circuit’s test for what is a “class action,” each state statute asserted by an attorney general must be analyzed carefully to determine whether it is sufficiently “similar” to Federal Rule 23 for CAFA to apply.  It appears that key issues will include whether there are requirements similar to typicality and adequacy of representation. 

Class Action Fairness Act: Eighth Circuit Addresses Aggregation of Multiple Suits to Determine Amount in Controversy

Posted on May 25, 2011 by Wystan M. Ackerman

One tactic plaintiffs’ attorneys have attempted to use in trying to avoid federal jurisdiction under the Class Action Fairness Act (CAFA) is to split up what would ordinarily be one class action into multiple cases, each of them structured to try to achieve an amount in controversy below $5 million.  An important issue that federal courts are addressing is whether the amount in controversy in multiple similar class actions can be aggregated to determine whether CAFA jurisdiction exists.

In Marple v. T-Mobile Central LLC, the Eighth Circuit recently issued a per curiam decision refusing to aggregate multiple suits in determining the amount in controversy, but the case appears to be limited to its unusual facts.  T-Mobile had filed ten separate lawsuits against municipalities in Missouri, seeking to recover tax payments it made under protest.  Plaintiffs, customers of T-Mobile, then filed ten separate class action lawsuits, claiming that T-Mobile improperly passed on the taxes to its customers, and seeking to recoup any monies obtained by T-Mobile in each of its lawsuits against the municipalities.  The class actions filed against T-Mobile mirrored the declaratory judgment lawsuits it brought.

The Eighth Circuit noted that CAFA does not expressly address aggregation of multiple class actions to determine the amount in controversy, and it discussed the Sixth Circuit’s opinion in Freeman v. Blue Ridge Products, Inc., where the Sixth Circuit aggregated the amount in controversy in five separate class actions that appeared to be structured to avoid CAFA.  In Marple, the Eighth Circuit distinguished Freeman on the basis that “the structure of Marple’s class actions exactly mirror the underlying ten lawsuits brought by T-Mobile and are driven by T-Mobile’s own litigation decisions.  Moreover, there is no indication that Marple artificially divided the lawsuit to avoid CAFA.”  The Eighth Circuit was careful to indicate that it was not disagreeing with Freeman and only distinguishing it on the unusual facts of Marple, which may also have been why this was a per curiam decision.

While the circumstances in Marple were unique, this is a critical issue not only for insurers but all defendants in class actions, and its resolution is important for the continued viability of CAFA.  If federal courts allow plaintiffs to divide up class action lawsuits that would otherwise be over $5 million into a series of smaller suits that are under $5 million, nearly any class action can be structured in a way to avoid CAFA, and the entire purpose of CAFA is defeated.  This type of structuring is the new equivalent of fraudulent joinder and federal courts should recognize it as such. 

Can Counterclaims Be Removed Under the Class Action Fairness Act? Ninth Circuit Says No

Posted on May 11, 2011 by Wystan M. Ackerman

A recent decision by the Ninth Circuit, Westwood Apex v. Contreras, holds that a defendant brought into a case as an additional defendant to a counterclaim cannot remove a case to federal court under the Class Action Fairness Act (CAFA).  The original plaintiff and counterclaim defendant, Westwood Apex, filed a collections action in California state court seeking to recover $20,000 on an unpaid student loan.  In response, the consumer filed class action counterclaims against Westwood Apex, Westwood College and others, alleging violation of California consumer protection laws.  The Ninth Circuit held that, because the well-established rule for traditional diversity jurisdiction is that a counterclaim defendant or additional counterclaim defendant cannot remove a case, and Congress did not expressly alter that rule for CAFA, the same rule applies under CAFA.  The Ninth Circuit cites consistent rulings by the Fourth and Seventh Circuits construing CAFA on this point.

Judge Bybee’s concurring opinion points out that the result “seems strange” and maybe Congress should amend CAFA to fix it:

In this case, what started as a $20,000 debt-collection case has now morphed into a complex class action involving approximately 7,000 counter-plaintiffs and an amount in controversy in the hundreds of millions of dollars. The original action filed by Westwood Apex against Jesus Contreras has been consumed by Contreras’s counterclaim. The original debt is now a sideshow, an insignificant offset to anything recovered by the class. It is thus counterintuitive that CAFA does not authorize the removal of this suit but, for the reasons explained in the principal opinion, the court has properly adopted the original defendant rule as CAFA’s own.

. . .

Given that “Congress expressly intended CAFA to expand federal diversity jurisdiction over class actions,” Lowery v. Alabama Power Co., 483 F.3d 1184, 1197 (11th Cir. 2007), it seems strange that Congress would have wanted to funnel class actions filed by means of an original complaint into federal court but keep those filed by means of a counterclaim in state court. But as the court correctly concludes, CAFA achieves this particular result, and if Congress does not like it, Congress should rethink the rule.  (Emphasis added.)

I’m not sure it makes sense to assume that CAFA jurisdiction should follow the same rules as traditional diversity jurisdiction, except where Congress has expressly said otherwise.  That is an easy thing for a court to do because it reduces the number of new issues that have to be decided.  But CAFA is really a different animal from traditional diversity jurisdiction, and intended to achieve a different purpose.  Individual suits seeking over $75,000 are not comparable to class actions with amounts in controversy over $5 million.  Traditional, “well-established” rules that made sense many years ago in construing the scope of federal jurisdiction in traditional diversity cases do not necessarily make sense as applied to CAFA.  Instead, applying these rules to CAFA can create unintended loopholes and leave cases in state court that should be in federal court.  At some point, if the political climate is right, an amendment to CAFA may be necessary to close some of the loopholes courts have created.

Commentary about this case on the Class Action Defense Review blog highlights one strategy a counterclaim defendant can take to try to avoid this result – seeking severance in state court prior to removal.

Here is what I see as the impact for insurers and their counsel:  Be careful in bringing “small” suits against insureds, such as collections actions for unpaid premiums or to recover erroneous claim payments.  These small suits can potentially turn into class actions via counterclaims that, at least in several circuits, may not be removable to federal court.  Look into whether collections cases can be brought in a manner that will prevent these types of counterclaims (maybe if brought in a small claims court?).  Be careful about where you file these cases, as some state courts are better places to be than others. 

The Burden of Proof on the Amount in Controversy Under the Class Action Fairness Act: Seventh Circuit Makes It Easier for Insurance Companies and Other Defendants

Posted on April 27, 2011 by Wystan M. Ackerman

Often the first step for a carrier in defending an insurance class action filed in state court is to determine if the $5 million amount in controversy under the Class Action Fairness Act (“CAFA”) can be met for removal to federal court, and how the amount in controversy can be proven.  In Back Doctors Ltd. v. Metropolitan Property & Casualty Insurance Company, No. 11-8003 (7th Cir. Apr. 1, 2011), the issue was whether punitive damages could be considered in determining the amount in controversy where punitives were not requested in the complaint, but a state court potentially could award them on the causes of action pled.  The Seventh Circuit held that punitive damages could be considered, and that the defendant does not have to establish the amount in controversy by a preponderance of evidence.  Rather, the defendant’s estimate of the amount in controversy controls unless the plaintiff can show it is legally impossible for more than $5 million to be recovered: 

The legal standard was established by the Supreme Court in St. Paul Mercury:  unless recovery of an amount exceeding the jurisdictional minimum is legally impossible, the case belongs in federal court.  Only jurisdictional facts, such as which state issued a party’s certificate of incorporation, or where a corporation’s headquarters are located, need be established by a preponderance of the evidence.

. . .

[T]he estimate of the dispute’s stakes, advanced by the proponent of federal jurisdiction controls unless a recovery that large is legally impossible.  So the question here is not whether the class is more likely than not to recover punitive damages, but whether Illinois law disallows such a recovery.  (Slip opinion at 4-5) 

The court also made an interesting comment about how the named plaintiff could not, after removal, attempt to disavow any claim by the putative class for punitive damages in order to reduce the amount in controversy.  In addition to mentioning the settled rule that actions taken to reduce the amount in controversy after removal cannot deprive the federal courts of jurisdiction, the court explained that: 

[Plaintiff] has a fiduciary duty to its fellow class members.  A representative can’t throw away what could be a major component of the class’s recovery.  Either a state or a federal judge might insist that some other person, more willing to seek punitive damages, take over as representative.  What [Plaintiff] is willing to accept thus does not bind the class and therefore does not ensure that the stakes fall under $5 million.  (Slip opinion at 6.) 

Lessons Learned for Insurance Class Actions:  The lightened burden should make it easier for insurers to win battles over the amount in controversy under CAFA.  But this is only the Seventh Circuit speaking, and other circuits have imposed a preponderance of the evidence standard.  For plaintiffs who want to bring a class action for less than $5 million, the lesson is that the complaint must be very specific because plaintiffs will have only one chance to “get it right.”