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

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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