Insurance Class Actions Insider -

Recently there has been a fair amount of activity by the insurance departments in New York, New Jersey and Connecticut regarding setting up mediation programs for Superstorm Sandy claims.  These programs typically require insurers to offer mediation to policyholders on certain claims, participate in the mediation in good faith, and pay all or part of the mediator’s fee.  New York was the first to implement this for Sandy, as you would expect because New Yorkers always think they are the best at everything (except for the 2004 baseball post-season).  For more on the New York mediation program for Sandy, see our Property Insurance Coverage Insights blog.  New Jersey’s Governor and Department of Banking and Insurance commissioner have issued a press release saying they intend to establish a mediation program, and Connecticut’s Insurance Department has also suggested that they will follow suit. 

What occurred to me, in light of this, and similar programs that were in place for Hurricane Katrina claims, is whether insurance companies, in their policies, should require all insureds to participate in a mediation as a precondition to filing suit on any claim (or any claim over a certain dollar amount, if you want to exclude small claims court disputes).  The idea would be to give the company an opportunity to resolve every significant dispute that is headed for litigation, before the costs and inconveniences of litigation commence.  Mandatory pre-suit mediation provisions are not uncommon in commercial contracts.  I would imagine that insurance departments would have a hard time not approving these provisions, particularly if insurers agreed to pay for most or all of the mediator’s fee, and the provision was otherwise fair and reasonable.  Surely companies would avoid some litigation if this was required. How much litigation they would avoid would be hard to predict, but insurance department mediation programs have obviously had some significant success.  (By merely suggesting this, I’m probably hurting my own interests as someone who is paid to defend insurance companies in lawsuits.)  So what are the downsides?  Some of these mandatory mediations would no doubt be a complete waste of a mediator’s fee and the company representative’s time.  It is also possible that insureds who have no real intention of filing suit will demand a mediation to try to obtain some more money when they are not owed anything.  But there should be a way to ferret that out in how you draft the mediation provision and in the company’s mediation positions.  Maybe the insured should have to pay something towards the cost of the mediation and/or be penalized for a mediation request that the mediator deems to be in bad faith.  Would such mandatory mediations even be necessary, given that a company can always ask for a mediation immediately after suit is filed?  The risk there is it might send the wrong message, suggesting that the company is concerned about the suit and perhaps willing to open its checkbook.  If mediation is mandatory before any suit is brought, the company avoids sending such a message by requesting mediation.  My idea might be worth a shot.

So now I imagine you’re thinking, why am I reading about this on an insurance class action blog?  Does this have anything to do with class actions?  Well, if implemented, this would require every  would-be named plaintiff who wants to bring a putative class action to go through a mediation first.  Named plaintiffs fall into a variety of camps.  Some are dead set on pursuing a class action and are fully controlled by their counsel, in which case a pre-suit mediation is almost always going to be a waste of time.  But others are just looking to make a little money for themselves, or reluctantly signed up with class counsel not really knowing what they are getting themselves into, and others actually have no idea what a class action is when their counsel brings suit.  Other named plaintiffs agreed to sign onto a suit simply because they were upset with how they were treated by the company, and what they really want is for the company to make things right for them individually.  A simple apology for a mistake might even go a long way for them.  In defending a class action, it is usually quite some time into the litigation before you ever have any chance to talk to the named plaintiff, and the first opportunity comes in a formal deposition.  A mandatory pre-suit mediation would at least give the company a chance to talk directly to the named plaintiff, find out what their story is, and make them an offer, on an individual basis, that they will have a hard time refusing.  That seems likely to eliminate some class actions from being brought.  Of course there may be some danger of people posturing in a mediation about bringing a class action that they have no real intention of bringing.  Companies will not want to let plaintiffs’ lawyers make a cottage industry of threatening to bring phantom class actions that would never be brought.  But there are other ways of dealing with that. 

If any of you know of this concept being tried and how it worked out, please drop me an e-mail or give me a call.

One strategy defendants often consider at the outset of a class action is filing a motion to strike the class allegations based on the pleadings. Such a motion challenges whether the case as pled could ever be certified as a class action, similar to a Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted.  The defense strategy here is to try to avoid the time and expense of discovery on class certification-related issues where the court might conclude that such discovery is not necessary.  But there is some risk for the defendant because a denial of a motion to strike can sometimes make it more likely the judge will certify a class, and the filing of a motion to strike also can prompt a plaintiff to re-plead the case in a manner that increases the chances of certification.  In federal court, a motion to strike class allegations is provided for by Fed. R. Civ. P. 23(d)(1)(D), which states that “the court may issue orders that . . . require that the pleadings be amended to eliminate allegations about representation of absent persons and that the action proceed accordingly . . . .”  Many state class action rules modeled on the federal rules have similar provisions.  (Sometimes defendants also rely on Rule 12(f), which authorizes a motion to strike from a pleading “any redundant, immaterial, impertinent, or scandalous matter,” but in my view that is not the proper authority for a motion to strike class allegations.  It might make sense to rely on Rule 12(b)(6) as well as Rule 23(d)(1)(D) given that you are challenging whether the complaint states a claim upon which class relief could potentially be granted.)

The recent decision in Lawson v. Life of the South Insurance Company, Case No. 4:06-cv-42 (WLS), 2012 U.S. Dist. LEXIS 140831 (M.D. Ga. Sept. 28, 2012) will be particularly useful to insurance companies in support of motions to strike class allegations, especially in multi-state or nationwide class actions, and cases in which the putative class claims implicate different policy forms.  Lawson involved a credit insurance policy purchased in connection with an automobile loan.  Under the terms of the policy, if the loan was paid off early, unearned premium was to be refunded.  The plaintiffs claimed that the defendant failed to make a refund in accordance with the policy.  Id. at *3-4.  The complaint pled a nationwide class.  The insurer’s motion to strike class allegations focused on key differences in policy forms issued to putative class members, and differences in state law.  The insurer argued that these differences would defeat the predominance and superiority requirements for class certification under Rule 23(b)(3). 

The court concluded that it was appropriate to decide these issues on a motion to strike class allegations because “the issues for class certification are sufficiently represented in the pleadings . . . .”  Id. at *14.  The court agreed with the insurer that differences in the contract language and differences in state law would readily preclude class certification.  Here are some key passages from the opinion:

To illustrate, some of Defendant's insurance contracts provide for an insured's right to a refund or an account credit of the unearned premium, but do not require the insured to notify Defendant. (See, e.g., Doc. 144-2 at 51-54). Others explicitly inform the insured that he must contact the insurer to inform it of early payoff (id. at 10, 37), while others instruct the insured's creditor, and not the insured, to notify Defendant of the early termination of credit insurance due to early payoff or otherwise (id. at 98).

The required period within which a refund must be made also differs among the credit insurance contracts. Some contracts state that a refund must be made "promptly" (see, e.g., Doc. 144-3 at 98) or "promptly" within thirty days of the notice of early payoff (id. at 33), while others require payment of the refund with no designation of a required time period within which to do so (id. at 107). The contracts further vary as to the minimum refund amount: some of Defendant's contracts state that refunds under $10 will not be made (see, e.g., Docs. 144-2 at 5, 144-3 at 112), and others set the minimum amounts at $1, $3, or $5 (see, e.g., Docs. 144-4 at 4, 6, 12).

As a result of these and other variations among the contract provisions, which the Court finds to be material, the resolution of the overarching common issue of whether and when Defendant has (or will have) a duty to refund an unearned premium "breaks down into an unmanageable variety of individual legal and factual issues." Klay, 382 F.3d at 1264.

. . . 

The Court's review of applicable bodies of state law on credit insurance law reveal that substantial, material differences exist among the applicable state laws with regard to statutory requirements on notice provisions, the calculation of the refund amounts, and statutory minimum refunds, among other requirements. (See Doc. 144-5 at 48 to 51, 102 & accompanying notes; Doc. 144-7 at 24 to 77 (tables comparing relevant state statutory provisions on credit insurance policies)). Like the material variations among the provisions of Defendant's various contracts, see supra p. 13-14 & n.9, these state laws differ, for example, as to whether the lender, creditor, or insurer is obligated to refund the unearned premium; whether the debtor is required to provide notice of early payoff; and the formula for calculating the unearned premium. 11 (See Doc. 144-7 at 24 to 77).

Id. at *24-25, 31.

I recently was elected as a new member of the Federation of Defense and Corporate Counsel (FDCC) and last week I attended my first annual meeting of that organization.  One of the presentations was by two former senior military officers from Afterburner, a consulting company that teaches businesses and professionals how they can potentially use insights from the military to improve how they do business.  Here are a few things I gleaned from the Afterburner presentation that could be helpful in defending class actions and other complex litigation:

• Clearly Define Your Mission:  Often in litigation the end game is not clearly defined.  Defense counsel and the client simply go through the motions of responding to the complaint, responding to discovery, etc., without defining what the real goal is, such as settling the case for under X dollars, or obtaining a favorable ruling on summary judgment without spending more than Y dollars on attorneys’ fees, or taking the case to trial and obtaining a defense verdict.  Of course, sometimes it’s hard to determine what the end game is early in the case, and the mission can evolve or change, but there are plenty of cases where it should be possible to develop a  more specific mission early on.  The team of lawyers and paralegals (both outside and in-house) may benefit from a more clearly-defined mission established as early as reasonably possible.  The team can then develop a plan to achieve the specific goal(s) and plan for how to deal with contingencies that could derail the plan or prevent achieving the goal(s).
• Think Thoroughly About the Potential Opposition Positions and Court’s Approaches:  In military terminology this is identifying the “threats” to your “mission.”  Set aside time to think thoroughly about what positions the other side might take and how you would respond to them.  Include all team members in identifying the potential positions the opposition might take.  This is typically done in litigation, but not always in a systematic way, and not always early on, or as a team.  As a military analogy, think about the planning that must have gone into the raid on Osama Bin Laden’s compound.  By thoroughly identifying and planning for all sorts of contingencies before the operation, every member of the team probably knew what to do if faced with making a difficult split-second decision.  This type of approach is also important in preparing for what questions the court may have or how the court might look at an issue differently.  One thing I find helpful in preparing for an important oral argument is setting aside time to read through the briefs again as if I were the judge, write out a list of all the difficult questions I can think of, and then write out proposed answers or bullet points that would form the basis of answers.  I then typically run this document by others on the team and also sometimes run it by a lawyer who knows nothing about the case, asking them to identify both new questions that I have not come up with and weaknesses in proposed answers.  It feels good (and impresses your client) when nearly every question you get from the court is one you have anticipated and prepared for, or a slight variation thereof. 
• “Red Team” Your Proposed Strategy:  When you have come up with a proposed strategy for the case or a portion thereof, present it to a few lawyers (outside and/or in-house counsel) who are not involved in your case.  Encourage them to identify issues or potential strategies that might not have been considered.  It is important that this be done in a “nameless” and “rankless” manner so that no one feels hesitant about criticizing an idea or strategy that may have been developed by their “boss” or someone more senior in the law firm or company, or by the client.  This is sometimes done in litigation (such as when you do a moot court for an important argument), but often not in any systematic or regular way.  The senior lawyer on the team needs to establish upfront the “nameless” and “rankless” setting in order for this to work well. 
• Use Debriefing:   After significant events in the course of litigation (such as an important deposition, oral argument, court decision, mediation, etc.), schedule time for a brief meeting with the litigation team to discuss what came up that was unanticipated but might have been anticipated, what could have been done better, and lessons learned for the future of the case or for future cases.  Again, it is important that this be done in a “nameless” and “rankless” format.  Junior lawyers should not hold back in expressing their thoughts for fear that they will offend a senior lawyer, and the lawyer who took the lead should try to be critical of his or her own work.  The client should be involved in this as well and freely express his or her thoughts.  The idea here is that while we all try to achieve perfection, no piece of work is perfect and only by doing this kind of debriefing can we get as close to possible to perfection.  The military analogy that Afterburner gave for this was that the Blue Angels do this kind of debriefing after every show they put on, despite the fact that they have done thousands of them and to the ordinary observer every show looks near-perfect.

Several years ago, legal commentators wrote extensively about the U.S. Supreme Court’s decisions in Ashcroft v. Iqbal, 556 U.S. 662 (2009) and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), which revised the standard for a motion to dismiss under Fed. R. Civ. P. 12(b)(6).  Commentators have debated the extent to which these decisions have altered how motions to dismiss are decided.  A recent Second Circuit decision applying Iqbal in a title insurance class action provides some guidance to district courts and demonstrates how the new standard can be used effectively by defendants in class actions.

In Galiano v. Fidelity National Title Insurance Company, No. 10-4941-cv, 2012 U.S. App. LEXIS 13614 (2d Cir. July 3, 2012), the plaintiffs brought a putative class action against various title insurance companies doing business in New York, alleging that title insurance rates were improperly inflated due to “kickbacks” that violated the Real Estate Settlement Procedures Act (RESPA).  The complaint alleged that commissions paid to title agents violate RESPA because the commissions exceed the value of services rendered by title agents and in effect constituted “kickbacks” for referring business to the title insurer.  Id. at *5-6.  The district court dismissed the complaint.  The Second Circuit affirmed, based entirely on the plaintiffs’ failure to satisfy Iqbal.  Judge Chin’s opinion explained that:

In this case, the district court did not err in dismissing the Complaint because it did not contain sufficient factual matter to state a plausible claim for relief under § 8(a). See Iqbal, 556 U.S. at 678; Fed. R. Civ. P. 12(b)(6). While the Complaint did allege a kickback scheme, it did so in a wholly conclusory and speculative manner. See Iqbal, 556 U.S. at 678-79.

First, the Complaint failed to allege facts sufficient to establish the elements of a § 8(a) claim. The Complaint failed to identify: (1) a payment or thing of value; (2) given by defendants and received by plaintiffs' title agents, lawyers, brokers, lenders, or other third parties pursuant to an agreement to refer settlement business; and (3) an actual referral.  . . .

Second, the Complaint failed to allege any specifics as to the date, time, or amount of the alleged § 8(a) violations, or any connections between these plaintiffs — or their title agents, lawyers, brokers, or lenders — and these defendants.  . . . The Complaint contained no allegations that defendants charged any plaintiff a rate inflated by kickbacks.

Third, plaintiffs are essentially relying on a supposed industry-wide practice of kickbacks and referrals to sustain their § 8(a) claim. In effect, the Complaint presumed that (1) there were substantial differences between title insurance rates and the actual costs incurred by title insurers — namely, the costs associated with the risk of loss and the search and examination of prior ownership records — and (2) these differences represented kickbacks for referrals rather than profit margins.  . . . Without facts as to the alleged kickbacks, referral agreements, or referrals, however, plaintiffs are engaging in mere conjecture; this speculation is insufficient to state a plausible claim.

Id. at *12-14.

Galiano explains that, under Iqbal, a properly drafted complaint must: (1) allege facts (not mere conclusory assertions) that, if proven, would establish the elements of the cause of action; (2) allege specifics as to basic details such as dates, times and amounts; and (3) when alleging an improper practice, allege facts, not “mere conjecture” or “speculation.”  This opinion should be helpful to district courts adjudicating motions to dismiss in the Second Circuit, as well as to plaintiffs seeking to plead a complaint in compliance with Iqbal and defendants seeking dismissal of complaints under Iqbal.

Fred Krebs of the Association of Corporate Counsel’s In-House Access blog published an interesting recent post on “Dealing with the Media.”  His blog post has some great pointers about what it means to speak with the media “on background,” keeping answers short, remembering that discussions with PR people within the company might not be privileged, and avoiding engaging your adversary through the media (particularly the DOJ or a state attorney general).  Most in-house and outside counsel deal with media communications only occasionally, so this is a good list to keep handy for when this comes up. 

Class actions and high-profile insurance coverage litigation, particularly catastrophe-related insurance litigation, can frequently result in media inquiries.  I’ve dealt with this on a number of occasions and have some additional thoughts beyond what ACC has to say: 

• Some companies only want in-house PR professionals to speak to the media and keep outside counsel (and sometimes even in-house counsel) entirely out of those communications.  The danger there is that PR professionals, while trained to deal with the media, often do not have a thorough understanding of legal issues or litigation.  Unlike lawyers who are accustomed to predicting what questions a judge will ask in litigation and having answers ready, PR professionals are not versed in that.  Sometimes they will say something to the media that is not quite correct, or will not be able to clarify a reporter’s misunderstanding of legal procedure or a legal issue.  On the other hand, lawyers sometimes may have difficulty translating legal jargon for reporters not familiar with the law, and may not anticipate how the media might react to some types of answers.  One approach I’ve seen that can be effective is to have outside counsel and the PR professional prepare together and then speak to the media together, at least “on background” if not “on the record.”  This can sometimes avoid these types of problems.
• Some companies almost never comment on pending litigation.  While that may avoid mistakes, it can also become a disaster.  A consumer-minded reporter who hasn’t heard the real story or the full story can write a scathing article that says at the end “the company declined to comment.”  I don’t think I’ve ever seen a favorable (or even fair) article about an insurance lawsuit that says the company declined to comment.
• If you deal regularly with the media, I recommend following the Bulletproof Blog.  I read that occasionally and it offers good tips on corporate communications. 

After the U.S. Supreme Court heard lengthy oral arguments on Obamacare this week, it’s hard for me to resist saying something about it on this blog.  The issues before the Court, although they involve health insurance, for the most part have little to do with insurance law or anything that would impact insurance class actions.  But a recent column by George F. Will in the Washington Post caught my eye.  He highlights an amicus brief filed by the Institute for Justice, which argues that, as a matter of contract law, forcing individuals to enter into an insurance contract is contrary to the fundamental principle of mutual assent that has been a foundation of contract law for centuries.  I remember that being the focus of what was probably the very first contracts law class I had with E. Allen Farnsworth, but this has not been an obvious point when people think and write about the Obamacare debate.  The Institute’s brief explains how the law of contracts has held for ages that you cannot coerce someone to enter into a contract, which is why there are defenses of duress and fraud, for example.  The Institute argues that, if Congress has the power to compel people to buy an insurance product, why wouldn’t Congress have the power to compel people to buy other products it deems necessary for purposes of interstate commerce?  Where do you draw the line?

The Institute’s brief offers an interesting perspective on the issues before the Supreme Court.  There are, of course, some ways in which people are more or less forced to buy insurance, but generally there are exceptions.  For example, if you want to drive a car, which in many parts of our country is a necessity for the vast majority of people, typically you must buy auto insurance.  But states generally allow you to provide evidence that you have the financial means to self-insure as an alternative, and if you choose to live somewhere that has a good public transportation system you can avoid having a car at all.  And of course states have broader power than Congress does in any event.

There is no way of knowing whether the Court will address the Institute’s points at all, but if the Court were to take them up and analyze them, the decision might have broader impact on insurance law and some insurance class actions.  There are some class actions brought against insurers, and regulatory actions taken, where the gravamen of the case or regulatory action more or less seeks to force the insurer to enter into contracts with insureds, or renew contracts that the insurer would prefer not to renew, or decline to cancel contracts that the insurer believes it has the right to cancel.  As you delve into the details of whatever the specific issue may be in this kind of litigation or regulatory proceeding, don’t forget those basic, fundamental principles of contract law.

The Federal Circuit recently held that individual notice to absent class members is required to bind them to a judgment in a class action certified under Rule 23(b)(2), at least where the claims are monetary in nature.  This case is particularly significant for a defendant faced with a class action that has been certified under Rule 23(b)(2).  To ensure that class members will be bound by the result, the defendant will need to insist on formal notice to the class.

Beer v. United States, No. 2010-5012, 2012 U.S. App. LEXIS 3279 (Fed. Cir. Feb. 17, 2012) is a lawsuit brought by federal judges asserting that certain legislation regarding judicial salaries was unconstitutional under a provision of Article III of the Constitution that provides that salaries for Article III judges cannot be reduced while judges are in office.  In certain years, Congress has blocked cost of living adjustments for judicial salaries (but not other federal employees), and in other years Congress failed to provide such adjustments for judges (while providing them to other federal  employees),   (Incidentally, this case poses interesting issues of judicial recusal given that the outcome of this case would inure to the personal benefit or detriment of every federal judge.  But if the entire federal judiciary were recused there is no procedure for appointment of a special court to resolve the case.) 

This case has a complex procedural history.  In a previous class action on the same issue, a class of judges was certified under Rule 23(b)(2) by the Federal Court of Claims and the trial judge ruled in favor of the plaintiffs.  The Federal Circuit reversed on a 2-1 vote, holding that Congress’s action was constitutional.  En banc review was denied, with several dissents, and the Supreme Court denied certiorari, but with three justices dissenting (four votes are required to grant cert).  See Williams v. United States, 264 F.3d 1089 (Fed. Cir. 2001), cert. denied, 535 U.S. 911 (2002).  A group of judges who were members of the certified class in Williams, but not named plaintiffs in that case, then filed the Beer case.  Without reaching the issue of preclusion, the Court of Claims dismissed the case as barred by the Williams precedent.  The Federal Circuit affirmed, and en banc review was denied, but with four judges dissenting.  The Supreme Court then granted certiorari, vacated the judgment and remanded the case to the Federal Circuit for resolution of the preclusion issue.

The Federal Circuit held, in addressing an issue left open by the Supreme Court’s decision in Wal-Mart v. Dukes, that notice is required before a certified class can be bound by the judgment in a (b)(2) class action, and thus the prior decision in Williams is not binding in the Beer case:

The Supreme Court established in Wal-Mart that due process requires notice be given to absent class members when monetary claims are more than just "incidental" to the claims for injunctive or declaratory relief. See Wal-mart, 131 S. Ct. at 2557, 2559-60. Wal-Mart explicitly declined, however, to decide whether notice was required as a matter of due process when monetary claims were "incidental" to injunctive or declaratory claims in a class action. Id. at 2560.  . . .

We agree with the plaintiffs that the incidental exception, if there is one, cannot apply where the requested injunctive or declaratory relief is directed to the payment of money. The requested relief in Williams was framed as declaratory relief, asking the court, for example, to "declare" that the blocking legislation was "unconstitutional and void," and to "declare" that the plaintiffs were "entitled to damages in an amount to be determined by the Court."  Thus the government conceded that the declaratory relief requested in Williams was itself directed to the payment of money, and the case was "essentially one for money damages."

It may be, as the government argues, that the "other than money damages" provision of the Administrative Procedure Act ("APA"), 5 U.S.C. § 702, turns on whether a request is for past damages or an order for payment of money in the future. But, as far as the due process right to notice is concerned, we are unable to distinguish between actions in which the suit is for past due money and those situations in which the action is for both past due money and the payment of future money.  . . .

Because we conclude that both the prospective and retrospective aspects of the claims in Williams were essentially monetary in nature, we hold that due process does not allow the plaintiffs' claims in the present suit to be precluded by Williams in the absence of notice of the Williams class. In other words, Williams was a case in which money claims predominated and in which, accordingly, notice to absent class members was required as a matter of due process. We need not address whether opt-out rights are also required as a matter of due process.

Id. at *17-22.

The court went on to also hold that it was insufficient that informal notice may have been given through an article published in a newsletter distributed to the federal judiciary.  Rather, “when absent class members are entitled to notice as a matter of due process, formal notice must be provided advising absent class members of the pendency of the action and their right to participate before being precluded from bringing their own action.”  Id. at *26. 

So the Supreme Court, if it is so inclined, and assuming it agrees with this ruling, will have the opportunity to take up the constitutional issue regarding judicial salaries.  Given the federal judiciary’s repeated pleas for raises, and the significant number of judges who have complained about salary levels when leaving the bench, it will be interesting to see if the Court takes this up.

What does this mean for other class actions under Rule 23(b)(2)?  Given that a defendant will be bound by a judgment against it in a Rule 23(b)(2) class action, in order to avoid having to re-litigate the issues presented in most circumstances a defendant would be well-advised to insist that formal notice be given to the class, so that the class members will be bound if the defendant prevails.  What could be worse for the government here than winning a certified class action and then having to defend another lawsuit on the very same issue?

A recent opinion by the Western District of Pennsylvania reminded me of an interesting wrinkle of class action law:  the decertification of a class that was previously certified typically has binding impact on the class members, preventing further attempts to seek certification of the same or a similar proposed class.  But as we know from the Supreme Court’s decision last Term in Smith v. Bayer Corp., 131 S. Ct. 2368 (2011) (see my blog post about that decision), a denial of class certification does not have preclusive effect.  Why is it that a defendant who first loses on class certification and then wins later on what amounts to reconsideration (partial or complete) achieves a result that a defendant who wins on class certification the first time does not?  The reason for this is simply that the class members had adequate notice of the original certification so they are bound by the decertification.  But is there a way a defendant can achieve the same binding result when class certification is denied the first time?  Perhaps this result could be achieved by asking the court to certify a class of all would-be class representatives, solely for the purpose of deciding whether class certification is appropriate, and providing notice to that class, so that the decision on class certification is binding.  Some might call it certifying a class for the purpose of deciding whether to certify a class.  An unusual, “out of the box” defense strategy for sure, but one that might work.

The recent decision that brought these issues to the forefront of my mind is West v. CUNA Mutual Insurance Society, Civ. A. No. 11-1259, 2012 U.S. Dist. LEXIS 19512 (W.D. Pa. Feb. 16, 2012).  If you have a great memory you’ll recall my June 9, 2011 post about the Third Circuit decision in Meyer v. CUNA Mutual Insurance Society, 648 F.3d 154 (3d Cir. 2011), a disability insurance class action, in which the district court certified a class, made a coverage ruling, issued an injunction, and then decertified the class.  The Third Circuit affirmed the coverage ruling but vacated the injunction, finding it improper in light of the decertification.  West was a putative class action brought on the same issue as Meyer, alleging that the defendant continued to violate the coverage ruling made in Meyer.  In a short opinion, the Western District of Pennsylvania held that collateral estoppel barred the plaintiffs, who were members of the class that was decertified in Meyer, from pursuing class certification.

In a sense, CUNA Mutual got lucky here because the class was certified and then later decertified. This is the kind of outcome a defendant who wins class certification would love to have—the defendant would much rather not have to re-litigate class certification a number of times after winning on the issue.  One way that this might be accomplished, although I’ve never seen it done, would be by asking the court the first time around to certify a class of would-be class representatives for the purpose of rendering one dispositive, binding ruling on class certification.  If anyone is aware of this ever being sought or accomplished I’d be interested to know about it.

One strategic option in a class action that is rarely used in my experience (and as reflected in case law) but has a fair amount of law to support it is seeking a transfer of venue in federal court.  In a multistate or nationwide putative class action, a defendant may have a strong argument for transfer of venue to the federal district where the corporate headquarters are located.  A number of courts have concluded that the named plaintiff’s choice of forum in a putative class action is entitled to less weight where the named plaintiff is in one state and the putative class members are mostly in other states.  Because discovery in a class action often focuses on the defendant’s documents and witnesses, the standard factors for transfer of venue (the location of witnesses and documents and locus of operative facts) often point to the district where the defendant’s central corporate offices are located. 

A recent decision that caught my eye on this issue is Chambers v. North American Company for Life & Health Insurance, 2011 U.S. Dist. LEXIS 133844 (N.D. Ill. Nov. 18, 2011).  In that case, the court transferred a nationwide putative class action to the Southern District of Iowa, where the defendant had its headquarters.  The court explained that “because Plaintiff represents a putative class and opted to litigate outside of her home forum, we afford Plaintiff’s choice of forum little weight,” and also that “[b]ecause Plaintiff brings this suit as a national class action, we afford her choice of forum little weight but do not disregard it entirely.”  Id. at *7-9.  The other factors the court found significant were that the relevant witnesses were largely located at the insurer’s home office in Iowa, and the relevant events regarding the insurer’s alleged conduct occurred there.  Id. at *10-13.

This is a strategic option that should not be overlooked.  Most defendants would prefer to litigate a case in their “home” district and rarely is there anything to lose from filing a motion to transfer.  You’re unlikely to offend the judge you have in the court where suit was filed.  Indeed, many judges welcome getting a complex case off their busy docket and sending it elsewhere if it makes reasonably good sense to do so.  It’s surprising that there aren’t more decisions on this subject in class actions.

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.