Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

LG DISPLAY CO. v. MADIGAN (November 18, 2011)

The Illinois Attorney General filed suit in state court against LG Display and other LCD panel manufacturers, alleging violations of the Illinois Antitrust Act. The complaint sought damages for the state itself, as purchaser, and also sought damages for the state's residents, under parens patriae. The defendants removed the complaint to federal court under the Class Action Fairness Act. Judge Dow (N.D. Ill.), on plaintiff’s motion, remanded the case to state court. Defendants petition for permission to appeal.

In their opinion, Seventh Circuit Judges Flaum, Williams, and Tinder denied the petition. A remand order is generally not reviewable on appeal. Here, however, the defendants argue that the Attorney General's claim is really a disguised class action or mass action under CAFA. Under CAFA, a class action is a civil action brought under Rule 23 (or similar state statute or rule) as a class action by a class representative. The Attorney General's case was not brought under Rule 23 or a state counterpart, was not brought by a class representative, and was not brought as a class action. It was brought as a parens patriae case, authorized by the Illinois Antitrust Act. Therefore, the case is not a class action. Under CAFA, a mass action is an action brought by 100 or more persons proposed to be tried jointly because of common questions of law or fact. But here, there is only the claim of the Attorney General. Also, CAFA expressly excludes from the mass action definition actions asserted on behalf of the general public pursuant to a state statute. Therefore, the case is not a mass action. The district court was correct in remanding the case to the state court.

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KEELING v. ESURANCE INSURANCE COMPANY (September 26, 2011)

Esurance Insurance Company has issued over 50,000 automobile insurance policies with uninsured/underinsured motorist coverage. It has collected more than $600,000 in premiums and paid no claims. A class of policyholders brought suit for fraud against Esurance, alleging that the uninsured/underinsured coverage was worthless given the policy language. Esurance removed the action to federal court pursuant to the Class Action Fairness Act. Chief Judge Herndon (S.D. Ill.) concluded that the amount in controversy included the $600,000 in premiums, what little amount it would cost to amend the policy form as requested by the class, and punitive damages. Concluding that a $4.4 million punitive damage award was "legally impossible," he remanded the class action to state court on the ground that it did not meet the $5 million amount in controversy threshold. Plaintiffs appeal.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Cudahy and Kanne reversed and remanded. The Court noted that the district court stated the correct "legally impossible" standard but applied it improperly. First, the value of the injunctive relief is not simply the cost of changing a form. Esurance currently reports a $125,000 annual profit on the challenged coverage. Eliminating the coverage (and the profit) would cost Esurance $1.5 million (the present value of $125,000 for 20 years). Therefore, the question becomes whether it is "legally impossible" for the plaintiffs to be awarded $3 million in punitive damages. A $3 million punitive damage award, compared to the $600,000 in actual class injury, would only be a multiplier of five. Illinois courts have affirmed punitive damage awards with higher multipliers. The Supreme Court has suggested that such a multiplier would not be unconstitutional. Although such an award might be improbable, the Court concluded that it was not "legally impossible" and that the amount in controversy requirement was met.

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CLEARY v. PHILIP MORRIS INC. (August 25, 2011)

A class-action complaint brought against Philip Morris in 1998, and later amended, sought disgorgement of profits under an unjust enrichment theory, alleging that Philip Morris concealed facts about the dangers of cigarettes in its marketing and advertising. The complaint alleged three classes: an "addiction" class consisting of Illinois residents who purchased cigarettes between 1953 in 1965, a "youth marketing" class consisting of Illinois residents who first purchased cigarettes as minors, and a "lights" class consisting of Illinois residents who purchased Marlboro Lights. The class plaintiffs withdrew the "lights" class allegations because of another similar pending case. That "lights" case was ultimately unsuccessful in Illinois state court but a 2008 United States Supreme Court case breathed new life into the theory. The class plaintiffs therefore amended their complaint again, reinserting a "lights" class claim. The amended complaint added as defendants other companies who manufactured light cigarettes, including Lorillard Tobacco Company, and also added allegations regarding other brands of light cigarettes manufactured by Philip Morris. Lorillard removed the case to federal court under the Class Action Fairness Act. The district court rejected plaintiffs request to remand on the grounds that the new "lights" claim did not relate back to the original complaint, then dismissed Lorillard on statute of limitations grounds, and then again rejected a request to remand on the ground that Lorillard, the reason for the removal, was no longer a defendant. Later, the district court dismissed as time-barred all claims against the other non-Philip Morris defendants and limited the claims against Phillip Morris to the original Marlboro Lights claims. Ultimately, Judge Kennelly (N.D. Ill.) dismissed the unjust enrichment claims as a matter of law. The class appeals.

In their opinion, Seventh Circuit Judges Cudahy, Manion, and Hamilton affirmed. Before turning to the merits of the unjust enrichment claim, the Court briefly addressed the district court's refusal to remand after the Lorillard dismissal and its limitation of the "lights" claim to Marlboro Lights. With respect to the former, the Court stated that jurisdiction under CAFA is determined at the time of removal. Therefore, Lorillard's dismissal after removal did not affect the court's jurisdiction. With respect to the latter, the Court noted that an amendment relates back to an earlier complaint only when it arises out of the same occurrence. Here, the expansion of the allegations to include other Phillip Morris light cigarette brands would add additional class members and encompass numerous additional transactions. The additional allegations, therefore, do not arise out of the same occurrence and do not relate back. Turning to the unjust enrichment allegations, the Court recognized some tension in Illinois law as to whether unjust enrichment is an independent cause of action or must be tied to a separate claim. It ultimately decided that it did not have to resolve the tension, given its conclusion that the class allegations did not state a cause of action. An unjust enrichment claim must allege defendant's unjust retention of a benefit to the plaintiffs detriment and that the retention was unjust. The only detriment plaintiffs allege, however, is a violation of their right to be informed of the actual dangers and risks inherent in cigarettes. Under plaintiffs' theory, the class would include consumers for whom that alleged violation was not a detriment -- the consumers who would have acted no differently had they known the truth. Without any allegations of harm or that they would have acted differently, the class allegations cannot support a claim of unjust enrichment.

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MORRISON v. YTB INTERNATIONAL, INC. (July 27, 2011)

YourTravelBiz.com (also known as YTB International) is based in Illinois and operates a business in which its customers purchase the right to act as a travel agent and sell travel services to the public. A number of its customers brought suit against YTB. They brought the suit as a class action on behalf of all of YTB’s customers and invoked jurisdiction under the Class Action Fairness Act. The class alleged that YTB's business practices violated the Illinois Consumer Fraud Act's prohibition on pyramid schemes. The Act prohibits businesses in which a customer's income is based primarily on inducing others to participate rather than on the amount of goods or services sold. Judge Murphy (S.D. Ill.) dismissed the complaint. First, he ruled that YTB's transactions with the non-Illinois class members were not covered by the Act. Second, he ruled that he should decline to exercise CAFA jurisdiction over the remaining intrastate claims under § 1332(d)(4). Plaintiffs appeal.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Flaum and Rovner vacated and remanded. The Court rejected the district court's rationale for dismissing the case. CAFA jurisdiction is examined at the time of the filing of the complaint. Here, the plaintiffs proposed a nationwide class that met the CAFA jurisdictional requirements. Although the district court labeled its dismissal of the non-Illinois plaintiffs as one based on standing, it was wrong. The ruling that the Illinois Act does not cover transactions with out-of-state plaintiffs is a ruling on the merits, not a jurisdictional one. Notwithstanding the district court's error, the Court concluded that it also had to resolve the Illinois Consumer Fraud Act question. It likened § 1332(d)(4) to abstention, a concept under which a federal court has jurisdiction but declines to exercise it. If non-resident plaintiffs are covered by the Act, the claim is predominately interstate and a federal court should resolve the entire claim. Whether the non-resident plaintiffs are covered by the Act is governed by the Illinois Supreme Court's decision in Avery. There, the court concluded that the Act applies if "the circumstances that relate to the disputed transaction occur primarily and substantially in Illinois." The Court found the factors here quite balanced: YTB's only office was in Illinois, it included an Illinois choice of law clause in its contracts, and it conducted training sessions in Illinois -- but the class members come from many different states, the class members' losses incurred in different states, and some states may not prohibit pyramid schemes. On balance, the Court concluded that the factors, although they may not compel application of Illinois law, they certainly did not defeat its application. The complaint therefore must survive a motion to dismiss.

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BLOMBERG v. SERVICE CORPORATION INTERNATIONAL (April 14, 2011)

Employees of Service Corporation International brought a class action in Illinois state court against their employer, alleging that it failed to properly compensate them for hours worked, in violation of the Illinois Wage Payment and Collection Act and the Illinois Minimum Wage Law. SCI removed the case to federal court pursuant to the Class Action Fairness Act (CAFA). Judge Coleman (N.D. Ill.) remanded the case to state court on the grounds that SCI failed to establish the $5 million minimum amount in controversy required by CAFA. SCI petitions for permission to appeal.

In their opinion, Judges Posner, Wood, and Hamilton granted the petition and reversed and remanded. When one party challenges CAFA’s amount in controversy requirement, the other party must establish that fact by a preponderance of the evidence. The Court appreciated the difficulty a party has in establishing that fact when the plaintiff controls many of the facts and reveals little information about the scope of its claim. Here, SCI did provide some support for this jurisdictional fact. It cited deposition testimony in a similar case against it in another state regarding the number of allegedly unpaid hours. If the Illinois class members had similar allegedly unpaid hours, the threshold would be met. It also cited a Virginia case against it by significantly fewer class members wherein the class itself asserted CAFA jurisdiction. The Court found this evidence plausible and sufficient to support SCI's good faith estimate of the amount in controversy requirement. Unless it is legally impossible for them to recover $5 million, which the plaintiffs have not even argued, removal was appropriate.
 

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BACK DOCTORS LTD. V. METROPOLITAN PROPERTY AND CASUALTY INSURANCE CO. (April 1, 2011)

Back Doctors Ltd., a medical service provider, believed that Metropolitan Property and Casualty Insurance Co. used software that resulted in medical providers being underpaid for their services. Back Doctors filed suit in Illinois state court, on behalf of a class, alleging that Metropolitan breached its contracts with its insurers and violated the Illinois Consumer Fraud and Deceptive Business Practices Act. The suit asks for $2.9 million in damages. Metropolitan removed the case to federal court pursuant to the Class Action Fairness Act. Back Doctors moved to remand on the ground that their $2.9 million demand did not meet CAFA’s $5 million amount in controversy requirement. Judge Reagan (S.D. Ill.) agreed, stating that removal is disfavored and that Metropolitan had not demonstrated a "reasonable probability" that the $5 million threshold had been met. Metropolitan petitioned to appeal.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Evans granted the petition, vacated the remand order, and remanded. The Court first noted that the Supreme Court, in St. Paul Mercury, established the “amount in controversy” test in 1938 -- the threshold is met unless plaintiff cannot possibly recover the jurisdictional minimum. The Court then recited some of the history of the Circuit’s "reasonable probability" test in reference to the amount in controversy. It arose in 1993 in Shaw in reference to a plaintiff's burden to prove jurisdictional facts by a preponderance of the evidence. But the amount in controversy is not a jurisdictional fact, like where a company is incorporated or headquartered. After several years of misapplication, the Court tried to clarify the phrase in 2005 in Brill. When that failed, the Court eliminated the phrase entirely in 2006 in Sadowski. The Court even circulated the Sadowski opinion pursuant to Circuit Rule 40(e) so that it had the effect of an en banc decision. Unfortunately, there is obviously still some confusion. Having established the correct test, the Court asked whether a $5 million recovery was possible. It concluded that it was because of the possibility of punitive damages. Back Doctors, although it has not specifically asked for punitive damages, may still recover them. They have not disavowed them, they have cited no Illinois case disallowing punitive damage coverage when it is not pleaded, and they have a fiduciary duty to other class members to maximize the class recovery. The Court added that Illinois does have a procedure whereby a plaintiff can cap its relief. Back Doctors has not taking advantage of the procedure. Since a $5 million recovery is possible, removal was appropriate.

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KORAL v. BOEING COMPANY (January 4, 2011)

An Boeing airplane crashed in the Netherlands in 2009. One hundred seventeen plaintiffs have filed suit in Illinois state court in 29 separate actions. Boeing filed motions to dismiss the state court actions on the basis of forum non conveniens, citing the considerable inconvenience of transporting its witnesses from out-of-state in 29 different trials. In response, the plaintiffs pointed out that the standard practice in aviation crash cases is to establish liability by trying a small number of exemplar cases, thereby significantly reducing the inconvenience. Boeing used that response to remove all the state court cases to federal court, arguing that plaintiffs' comment was a proposal for a joint trial and thus qualified the case as a "mass action" under the Class Action Fairness Act. Judges Shadur, Guzman, Conlon, Coleman, and St. Eve (N.D. Ill.) each granted motions to remand. Boeing petitions for an appeal.

In their opinion, Seventh Circuit Judges Posner, Wood, and Tinder granted the petition and affirmed the remands. Under Rule 1332, a "mass action” is a civil action in which the claims of 100 or more people are "proposed to be tried jointly," except when the proposal is by a defendant. So Boeing’s “proposal cannot be a Rule 1332 proposal. Here, the only “proposal” is plaintiffs' predictions about what might happen as the case progresses. That falls short of a Rule 1332 proposal – Boeing’s removal was therefore premature. 

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LINCOLN NATIONAL LIFE INSURANCE CO. V. BEZICH (June 25, 2010)

Peter Bezich is a Lincoln National Life Insurance Company policyholder. He has a variable life policy, under which he can allocate funds to either a General Account or a Separate Account. The General Account accumulates premium payments while the Separate Account is an investment account registered with the SEC. Each month, Lincoln National deducts cost-of-insurance charges from a policyholder's account proportionately to the amounts invested in each of the two accounts. Bezich brought a class action in Indiana state court, alleging that Lincoln National breached the terms of the policy in the way it calculated the cost-of-insurance charges. Lincoln National removed the case to federal court under the Class Action Fairness Act (CAFA). Judge Van Bokkelen (N.D. Ind.) remanded the case to state court, relying on the CAFA exception for cases that solely involve claims relating to rights and obligations created by any “security.” Lincoln National petitioned for leave to appeal.

In their opinion, Judges Bauer, Posner, and Wood dismissed the petition for want of jurisdiction. Although the Court was first obliged to look at its appellate jurisdiction, it noted that the language governing its appellate jurisdiction was identical to the language creating the removal exception relied on by the district court. The core question for both is whether the policy is a "security" as defined by the Securities Act of 1933. Although the Court conceded there was authority in different contexts supporting Lincoln National's desire to look at the two component parts of the policy (and find one a security and one not), the Court rejected the applicability of those cases. It cited its agreement with the Eleventh Circuit's decision in Herndon that treated a variable life policy as a "security" under the Securities Litigation Uniformed Standards Act of 1998. Here, the claims of the class concern a promise made by Lincoln National that applied whether a policyholder's funds were in the General or Separate Account. The policy treated as a whole meets the definition of "security" -- the Court therefore lacks jurisdiction to consider the petition.

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ANDERSON v. BAYER CORP. (June 22, 2010)

Bayer Corporation manufactured a prescription medication called Trasylol. A lawyer in St. Clair County, Illinois brought suit against Bayer alleging personal injury resulting from the use of the medication. The action was brought in five separate complaints with 171 plaintiffs spread among the complaints. All but one (the one apparently a mistake) of the virtually identical complaints named fewer than 100 plaintiffs. Bayer removed, citing the "mass action" removal mechanism of the Class Action Fairness Act ("CAFA"). Judge Murphy (S.D. Ill) remanded the four complaints that had fewer than 100 plaintiffs. Bayer petitioned to appeal under CAFA.

In their opinion, Judges Flaum, Manion, and Evans denied the petition. CAFA's "mass action" provision allows a defendant to remove an action if it has 100 or more plaintiffs and otherwise meets CAFA’s removal requirements. The provision specifically excludes an action in which claims are consolidated upon the request of a defendant. The Court found this plain language of the statute dispositive of Bayer's request. Apparently, Congress anticipated this very situation and decided to allow plaintiffs to proceed in state court by limiting each complaint to fewer than 100 plaintiffs. Although the Court concluded that CAFA removal was not available, it did note that the claims could be removable in the future if, for example, the claims were consolidated for trial. The Court declined to consider Bayer's alternative argument that diversity jurisdiction existed under a fraudulent misjoinder theory. The exception to the general rule prohibiting review of a remand order that allowed the Court's review of the "mass action" argument applies only to the remand of class actions. Since these cases are not class actions under CAFA, the Court lacks jurisdiction to review the district court's decision regarding fraudulent joinder.

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IN RE: BURLINGTON NORTHERN SANTA FE RAILWAY CO. (May 19, 2010)

A number of residents of the town of Bagley, Wisconsin filed a class-action suit in state court against Burlington Northern Santa Fe Railway (BNSF). They allege that BNSF's failure to maintain its railroad trestle resulted in a flood and damage to their property. BNSF removed the case to federal court pursuant to the Class Action Fairness Act (CAFA). After Judge Crabb (W.D. Wis.) denied the class' motion to remand, the class moved to amend the complaint to withdraw all class allegations. The court granted the motion and remanded the case to state court. It analogized the situation to one in which class certification is denied and noted that district courts were divided on the impact of denial of class certification on CAFA jurisdiction. BNSF requested leave to appeal.

In their opinion, Judges Kanne, Wood, and Sykes granted the petition, vacated the remand order, and remanded. The Court noted the general rule that jurisdiction is determined at the time of removal. It then cited its recent decision in Cunningham Charter Corp. (see intheiropinion), which was decided after the district court's remand. In Cunningham Charter, the Court concluded that the denial of class certification did not require remand of a case removed under CAFA. The same considerations that lead to that conclusion should apply when class action status is amended away voluntarily.

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FIRST BANK v. DJL PROPERTIES (March 24, 2010)

First Bank filed two lawsuits against DJL Properties in state court. In both cases, DJL filed class-action counterclaims. First Bank removed both cases to federal court, pursuant to the provisions of the Class Action Fairness Act. Both district court judges to whom the cases were assigned remanded. First Bank sought leave to appeal.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Williams granted the petitions for leave to appeal but affirmed the district courts. The Court stated that the law is settled, possibly for over 150 years, that a state court plaintiff cannot remove the case to federal court, even if that plaintiff becomes a counter-defendant. The 4th and 9th Circuits have applied that long-standing general rule to the Class Action Fairness Act. The Court agreed. The Act specifically refers to the general removal sections of the statute where "defendant" is limited to a defendant, it uses the phrase "any defendant," and it uses a word that has a long-established meaning. The Court specifically noted the value in giving words used by Congress their standard meaning. Congress could have easily expanded the removal rights in the Act to counter-defendants. It did not. 

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THOROGOOD v. SEARS, ROEBUCK & CO. (February 12, 2010)

Stephen Thorogood filed a state court class-action on behalf of the purchasers of stainless steel dryers in multiple states. He alleged that the defendant’s representation that the dryers were made of stainless steel violated the consumer protection acts of those states. The defendant removed the case to federal court under the Class Action Fairness Act (CAFA). Although the district court certified a class, the Seventh Circuit reversed and ordered the class decertified (intheiropinion.com post). The Court thought the case was not only a weak candidate for class certification, but also flimsy on its own merits. On remand, the defendant made an offer of judgment, inclusive of attorneys fees, of $20,000. Finding that that offer exceeded plaintiff's maximum recovery under state law of $3,000 and therefore the amount in controversy, the district court dismissed the case as moot. Thorogood appeals.

In their opinion, Judges Posner, Kanne, and Evans affirmed. The Court first rejected plaintiff's argument that the case should have been remanded upon class decertification, relying upon its decision in Cunningham Charter (intheiropinion.com post) just three weeks earlier. Then, the Court rejected the plaintiff's argument that the case was not moot because of his entitlement to significant attorneys’ fees. First, an award of fees for value conferred beyond the relief obtained must generally be relief ordered by the court. Second, the court was within its discretion in deciding that no fees were warranted. Finally, the Court noted that most of the fees were incurred pursuing the failed class action, not the $3,000 individual action.

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IN RE: SPRINT NEXTEL (January 28, 2010)

Sprint Nextel, a Kansas corporation, was sued in Kansas state court for allegedly conspiring with its competitors to impose artificially high prices for text messaging. The suit was brought as a class action on behalf of "all Kansas residents" who purchased the relevant services from Sprint Nextel or any of its competitors and a) who had a Kansas cell phone number and b) who received their cell phone bill at a Kansas address. Sprint Nextel removed the case to federal court pursuant to the Class Action Fairness Act (CAFA). The district court remanded the case to the Kansas state court under CAFA's home-state exception. Sprint Nextel petitioned for leave to appeal.

In their opinion, Judges Flaum, Evans, and Sykes granted the petition to appeal, vacated the order, and remanded. Under the home-state exception in CAFA, a district court must decline jurisdiction if both the defendant and two-thirds of the proposed class members "in the aggregate" are citizens of the state in which the action was originally filed. The Court first addressed Sprint Nextel’s argument that the "in the aggregate" language meant that two-thirds of proposed class members in this suit and in suits with similar allegations (of which there are many) must be Kansas citizens. Relying on the inclusion of identical language in a separate section under which Sprint Nextel's argument makes no sense, the Court joined the First Circuit in rejecting that interpretation. Instead, the Court concluded, the language simply refers to the possibility of multiple subclasses. The Court next reviewed the district court's conclusion that the plaintiffs' careful definition of the class left "little doubt" that two-thirds of the class members were Kansas citizens. The Court noted the plaintiffs had the burden to establish they were entitled to remand under the home-state exception. Yet they actually presented no evidence. The Court agreed with the district court’s “sensible guesswork” in concluding that the class met the two-thirds threshold through the use of Kansas cell phone numbers and mailing addresses in the definition of the class. Nevertheless, the Court concluded that it should not draw such conclusions without actual evidence and vacated the order of remand. It suggested the plaintiffs could present statistical evidence based on a representative sampling of potential class members or it could even limit the class to Kansas citizens (instead of residents) by definition.

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BERGQUIST v. MANN BRACKEN, LLP (January 26, 2010)

Sandra Bergquist owed money to the bank that issued her a credit card. The bank retained the law firm of Mann Bracken to collect the debt. The firm arbitrated the dispute before the National Arbitration Forum, as provided in the credit card agreement. The bank prevailed at the arbitration and a state court entered judgment enforcing the arbitration award. Bergquist was suspicious of the connection between Mann Bracken and the National Arbitration Forum. She asked the state court to set aside its judgment enforcing the award. It did so and dismissed the case with prejudice. She also filed a class-action on behalf of all persons who were pursued by Mann Bracken and had their claims arbitrated before the National Arbitration Forum. The defendants removed the case to federal court pursuant to the Class Action Fairness Act (CAFA). The district court remanded, concluding that the Rooker-Feldman doctrine precluded federal jurisdiction of the claim. Defendants appeal.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Rovner vacated and remanded. The Court first rejected the argument that CAFA trumps Rooker-Feldman. Although CAFA expands federal jurisdiction with respect to class actions, it does not change the Rooker-Feldman limitation on collateral attacks of state court decisions. The Court concluded, however, that the Rooker-Feldman doctrine had no application in the case. First, although the district court recognized the inapplicability of the doctrine to Bergquist's individual claim (because the state case had been dismissed with prejudice), it nevertheless remanded because Bergquist sought relief on behalf of others who had lost in state court. The Court found this to be error. The district court was not allowed to remand the entire case because some portion of it did not belong in federal court. A federal court must exercise the jurisdiction that does exist. Second, it was not apparent to the Court that any claim need be remanded. The Court identified three possible subclasses: those who won in state court, those who lost in state court, and those who neither won nor lost. The class can be defined to eliminate those who lost in state court, the only persons in the class with a Rooker-Feldman problem. The Court remanded for a determination of whether the jurisdictional requirements were met under that revised class definition.

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CUNNINGHAM CHARTER CORP. v. LEARJET (January 22, 2010)

Cunningham Charter Corp. brought a breach of warranty and products liability class action against Learjet in state court. Learjet removed the case to federal court pursuant to the Class Action Fairness Act (CAFA). After the district court denied class certification for failure to satisfy the requirements of Rule 23, it remanded the case to state court. The district court concluded that the denial of certification deprived the court of federal jurisdiction under CAFA. Learjet sought leave to appeal.

In their opinion, Judges Posner, Coffey, and Flaum granted leave to appeal and reversed and remanded. CAFA, said the Court, grants federal jurisdiction to certain class actions. A class action is defined as "any civil action filed under rule 23." The statute also specifically provides that it applies before or after a class is certified. Based on these and other provisions of CAFA, as well as the principles that jurisdiction is determined at the time of filing and is generally not affected by later developments, the Court concluded that CAFA jurisdiction does not depend on class certification.
 

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IN RE: SAFECO INSURANCE CO. (October 22, 2009)

Safeco Insurance Co. of America ("SICA") and Safeco Insurance Co. Of Illinois ("SICI") are subsidiaries of Safeco Corp. and provide automobile insurance. Although SICI adjusts its own claims only, SICA adjusts its claims and the claims of several other companies owned by Safeco. In 2005, Dr. F. Ryan Bemis, a chiropractor, filed a class action in Illinois state court against SICI and SICA. The complaint included causes of action based on breach of contract, consumer fraud statutes and unjust enrichment. It alleged a scheme by SICA and SICI to reduce medical payments coverage through its use of particular audit software. The Class Action Fairness Act of 2005 (“CAFA”) became effective seven days after the complaint was filed. Bemis later dismissed the statutory and unjust enrichment counts and amended the breach of contract count. In 2009, the state court granted class certification to a class consisting of all persons insured by Safeco insurance companies in 14 different states who had their claims adjusted by the specific software in question. Safeco removed the case to federal court, asserting that the class definition amounted to the commencement of a new action for CAFA purposes. The district court remanded, concluding that the class definition related back to the original complaint. Safeco sought leave to appeal.

In their opinion, Judges Ripple, Manion and Kanne granted leave to appeal and affirmed the judgment. The Court agreed with the district court that federal jurisdiction would have existed under CAFA. The Act is not retroactive, however, and the action was filed before its effective date. Therefore, stated the Court, removal under CAFA is proper only if the class certification amounted to the commencement of a new action. The central question in a relation-back analysis is whether the original pleading provided adequate notice of the class' claims. Although SICA continued to add affiliates to its roster of those for whom it processed claims after the complaint was filed, the Court concluded that the class definition related back to the filing of the complaint. The gravamen of the complaint was the use of the particular claims-processing software by SICA. The original complaint put the defendants on notice that any claim adjusted with that software was within the scope of the complaint. 

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MARSHALL v. H&R BLOCK TAX SERVICES, INC. (April 30, 2009)

Suit was filed in state court against a defendant class of companies. The defendant class consisted of H&R Block Tax Services, Inc. ("TSI") and its affiliates or franchisees. The suit, brought on behalf of a plaintiff class, alleged violations of the Illinois Consumer Fraud Act. The state court certified the defendant class and originally three plaintiff classes, including people in all 50 states and the District of Columbia. On TSI's motion, the court decertified the defendant class but refused to decertify the plaintiff class, although it did narrow it to residents of only 13 states. TSI removed the case pursuant to the Class Action Fairness Act (CAFA), on the theory that the decertification of the defendant class occurred after CAFA’s effective date and increased TSI’s potential liability. The district court remanded the case to state court. TSI requested leave to appeal, which the Court granted.

In their opinion, Chief Judge Easterbrook and Judges Posner and Tinder reversed. A case that was filed before the effective date of CAFA may still become removable if a court's ruling after its effective date increases a defendant's potential liability and does not "relate back" to the original claim. The Court first explored whether the decertification increased TSI's potential liability. On the pleadings, the Court concluded that TSI's potential liability may well have increased. Before decertification, it was not liable for the unlawful acts of all class members simply because it was a corporate affiliate, or because it was a class representative. Similarly, although the original complaint alleged joint and several liability, the complaint included three other defendants. The Court could not determine whether the plaintiffs sought to hold TSI liable for all the affiliates. The Court concluded that the plaintiffs may well be attempting to hold TSI liable for the acts of all the affiliates after decertification, which would appear to increase TSI's liability. With respect to whether the change "relates back" to the original complaint, the Court looked to whether the original complaint provided sufficient notice of the scope of the claim such that the defendant should not be surprised by the increased scope. Relying on its own conclusion that TSI's original liability was significantly less than it was facing after the ruling, the Court concluded that it did not relate back.

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KATZ v. GERARDI (January 5, 2009)

Jack Katz brought this action on behalf of a class of persons who contributed real property to a real estate investment trust (“REIT”). In exchange, they received an interest in the REIT. The REIT merged into a new entity in 2007. The interest-holders were offered either cash or an interest in the new entity. Katz took the cash but filed suit in state court, alleging that the offer violated the terms of their original agreement with the REIT. He based the action on the Securities Act of 1933 ( “’33 Act”). Defendants removed the suit to federal court under the Class Action Fairness Act of 2005 (“CAFA”). The district court concluded that removal was not allowed by the ’33 Act. The defendants petition for appeal.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Sykes granted the petition and vacated and remanded the decision of the district court. The Court first addressed whether Katz’ action was even one under the ’33 Act. The ’33 Act applies only to purchasers of securities – Katz and the class members are sellers of securities. The Court was inclined to believe that Katz was styling his claim as one under the ’33 Act in order to prevent removal. The district court had acknowledged the same issue. It decided that the weakness of the pleading went to the merits, not to whether it was removable. The Court recognized the difficulty in distinguishing between a claim designed to defeat federal jurisdiction and one, though ultimately unsuccessful, is properly pleaded. Ultimately, the Court decided to accept the pleading as one under the ’33 Act and address the conflict between the laws.

The ’33 Act provides that actions brought under the statute in state court are not removable except in particular circumstances. CAFA allows for removal of class actions if certain criteria are met – which admittedly are met here. The Court noted the canons of construction that apply when statutes are in conflict – an older statute yields to a newer and a less specific yields to a more specific. But the Court concluded that it did not have to apply those canons. The statutes, in fact, are not incompatible. The very language of CAFA provides the answer. The broad removal authority granted by CAFA is modified by the almost identical lists of exceptions in §1332(d)(9) and §1453(d). The Court concluded that class actions brought under the ‘33 Act are removable unless one of the §1453(d) exceptions applies. Katz relied on one of the exceptions – claims that relate to rights and duties relating to any security. The Court noted an inconsistency between Katz’ attempts to fit his claim into the exception while still relying on the ‘33 Act. Nevertheless, the Court decided the best course was to remand to determine whether the claim fit within the exception.

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