CAFA Removal in the Seventh Circuit

Posted on January 20, 2009 08:35 by Troy A. Bozarth

The Class Action Fairness Act of 2005 (“CAFA”), enacted on February 18, 2005, greatly expanded federal jurisdiction for certain types of class actions.  Under CAFA, complete diversity of citizenship is no longer required.  See 28 U.S.C. § 1332(d)(2).  Instead, district courts have original and removal jurisdiction over any class action “in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs”; in which “any member of a class of plaintiffs is a citizen of a state different from any defendant”; and in which “the number of members of all proposed plaintiff classes in the aggregate” is more than 100.  28 U.S.C. § 1332(d)(2),(5)(B), (6). 

CAFA applies to “any civil action commenced on or after the date of enactment of this act.”  Pub. L. 109-2 § 9.  Nonetheless, if a pre-CAFA class action is changed, it may be possible to remove the case to federal court, arguing that the change constitutes a recommencement of the action after the enactment of CAFA, thus making the action subject to CAFA. 

This theory of removal was attempted in Knudsen v. Liberty Mutual Insurance Company, 411 F.3d 805 (7th Cir. 2005) (Knudsen I). Knudsen I involved a class action that was initially filed in state court prior to the enactment of CAFA.  The action was filed against Liberty Mutual Insurance Company as the sole defendant.  Following the enactment of CAFA, plaintiffs proposed to amend their class definition to include in the class definition insureds of another Liberty Mutual-affiliated entity, Liberty Mutual Fire Insurance Company.  Liberty Mutual Insurance Company characterized this amendment as a recommencement for the purposes of CAFA, and removed the case to federal court.  The district court remanded the case and the 7th Circuit subsequently affirmed the decision finding that a proposed amendment to a class definition did not effectuate a recommencement because the state court had not added the newly named entity as a new party.  In its opinion, however, the 7th Circuit commented that “should [Liberty Mutual Fire Insurance Company] be added as a defendant, it could enjoy a right to remove” under CAFA.  The 7th Circuit noted that “a new claim for relief (a new ‘cause of action’ in state practice), the addition of a new defendant, or any other step sufficiently distinct that courts would treat it as independent for limitations purposes, could well commence a new piece of litigation for federal purposes . . .”  Id. at 807.

The state court judge in Knudsen did eventually certify a class definition, but with material changes from that originally proposed by plaintiffs.  In addition to the claims of Liberty Mutual Insurance Company’s insureds, the approved class sought to hold Liberty Mutual Insurance Company liable for claims of insureds of other Liberty Mutual sister companies.   This led to the second removal in the case and the second 7th Circuit opinion -- Knudsen v. Liberty Mutual. Ins. Co., 435 F.3d 755 (7th Cir. 2006) (“Knudsen II”).   The Knudsen II court found that the state court’s post-CAFA expansion of the class definition to hold Liberty Mutual liable to the insureds of the policies issued by the Liberty Mutual affiliates and subsidiaries constituted the commencement of a new action, rendering the suit removable under CAFA.  The court applied a relation-back standard, reasoning that if the new claims did not relate back to the pre-CAFA complaint, the change would constitute the commencement of a new action.  The court then held that the claims arising under subsidiaries’ policies did not relate back to the original complaint under applicable state law and concluded that the case was removable under CAFA.  Id. at 758.

In the wake of Knudsen, a new body of class action removal case law developed.  For instance, in Phillips v. Ford Motor Company, 435 F.3d 785 (7th Cir. 2006), the 7th Circuit held that the substitution or addition of class representatives in a class action following the enactment of CAFA does not recommence an action for removal purposes so long as the amendment relates back to the original complaint.  The suit complained about the quality of the paint job on cars manufactured by defendant.  After first alleging a class consisting of purchasers of 1988 through 1997 Ford models, plaintiffs amended their complaint to limit the class to the 1989 through 1995 model years.  The state court judge, without being asked to do so, certified a class that included the 1996 models and in response, the plaintiffs amended their complaint a second time to add a class representative for the 1996 models.  This amendment came after CAFA’s effective date, which prompted defendants to remove the case under the theory that the amendment had recommenced the case for CAFA purposes.

The 7th Circuit looked to the relation-back doctrine for guidance on a suit’s date of commencement.  It stated that under Illinois law as well as federal law, an amendment relates back when it arises out of “the same transaction or occurrence set up in the original pleading.”  Id. at 788.  The filing of a class action complaint tolls the statute of limitations for class members.  As a result, other members of the class can be substituted for the named plaintiffs, without being barred by the passage of time.  The court found that the amendment, adding the substituted plaintiff, related back to the original complaint because the original complaint included the 1996 model year.  As such, the amendment did not recommence the action under CAFA  Id.

Springman v. AIG Marketing, Inc. and Illinois National Insurance Co., 523 F.3d 685 (7th Cir. 2008), involved a class action lawsuit filed prior to the enactment of CAFA against AIG Claim Services (AIGC).  Shortly after the lawsuit was filed (in 2003), AIGC notified plaintiff that he had sued the wrong party.  Id. at 686.  The proper party was an affiliate of AIGC called AIG Marketing (AIGM).  Nearly four years later and after CAFA came into effect, plaintiff moved for leave to amend his complaint to add AIGM as a defendant and drop AIGC.  Id.  Promptly after the amendment of the complaint, AIGM removed the case to federal court.  The plaintiff’s motion to remand was subsequently denied and an appeal to the 7th Circuit followed.  Id. 

The 7th Circuit held that the substitution of AIGM for AIGC did not
comply with the requirements of the relation-back rule.  (The court noted that although previous opinions had assumed that state law governs whether a claim relates back for purposes of CAFA, where a state’s relation-back rule would defeat CAFA’s goal, it is preferable to apply the federal relation-back standard.  Id. at 688.)  Both the Illinois and federal relation-back rules provide that a party may be changed if, within the deadline for service of the complaint on it, (1) the new party had received enough notice of the original suit that it would not be “prejudiced in maintaining a defense on the merits” if it were brought into the case belatedly, and (2) it “knew or should have known that, but for a mistake concerning the identity of the proper party, the action would have been brought against” it.  Springman, 523 F.3d at 688. 

The 7th Circuit found that the first of these conditions may have been satisfied, but not the second.  The court explained that this was a situation in which for at least three years the plaintiff knew that he had sued the wrong party and knew who the right party to sue was – yet, he neither dropped the wrong party from the case nor added the right one as a defendant.  Springman, 523 F.3d at 689.  After years passed without AIGC being dropped as a defendant, AIGM could reasonably assume that the plaintiff had a reason for wanting to persist in the suit against AIGC.  The court concluded that because of this, the conditions of the relation-back rule were not satisfied and plaintiff’s amendment to his complaint was therefore a commencement of a suit for the purposes of CAFA.       

In Coy v. Country Mutual Insurance Company, No. 06-620-MJR, 2006 U.S. Dist. LEXIS 87638 (S.D. Ill. Dec. 4, 2006), plaintiff chiropractors sued defendant, Country Mutual Insurance Company (“Country Mutual), alleging that it wrongfully reduced payments to plaintiffs by improperly claiming the benefits of a purported Preferred Provider Organization (“PPO”) agreement without any evidence that a valid PPO agreement existed and/or without performing the associated obligation of “preferring” the effected healthcare providers to their insureds/beneficiaries through the financial incentives designed to channel patients to plaintiffs before taking the discount.  Id. at *2. 

The original complaint was filed on February 10, 2005, a week before the enactment of CAFA.  Among other things, plaintiffs alleged breach of contract, unjust enrichment, and violation of the Illinois Consumer Fraud Act.  The breach of contract was based upon certain Country Mutual Insurance Company automobile policies.  By virtue of an assignment and/or as a third party beneficiary, plaintiff chiropractors asserted a right to payment of their reasonable and necessary bills under the medical payments portion of Country Mutual Insurance Company automobile policies.   The state court granted plaintiffs leave to file an amended complaint.  In the amended complaint (which was filed after the enactment of CAFA), plaintiffs chose to switch gears and plead a new breach of contract claim.   This breach of contract claim stemmed from two altogether different contracts – (1) a contract between the medical provider and the PPO organization and (2) a contract between the PPO and Country Mutual Insurance Company.  Country Mutual then removed the action, stating that the amended complaint’s new contract claim commenced a new action for the purposes of CAFA. In response, plaintiffs argued that the amended complaint related back to the original complaint filed prior to the enactment of CAFA.  Id.

The court held that the amended complaint did not relate back to the original complaint.  The court explained that the breach of contract claim in the original complaint was based upon a contract of insurance between Country Mutual and its insured, while in the amended complaint, the contract rights were based on two different and separate contracts (the preferred provider agreements between plaintiffs and the network administrator, and a Payor Agreement between Country Mutual and the network administrator).  Since the amended complaint was based on different contracts, it did not relate back.  Id. Accordingly, the court concluded that the amended complaint recommenced the action under CAFA.

It is important to note that, contrary to remand orders entered in other cases, CAFA remand orders may be appealable.  Generally, remand orders are not reviewable on appeal by virtue of 28 U.S.C. § 1447(d).  However, CAFA provides that “notwithstanding section 1447(d), a court of appeals may accept an appeal from an order of a district court granting or denying a motion to remand a class action to the State court from which it was removed . . .”  See Section 1453(c)(1).  See also Section 1453(d) listing certain cases excepted from Section 1453.  The petition for leave to appeal must be filed with the court of appeals “not less than 7 days after entry of the order.”  Although some have argued that in construing the 7 day time period in section 1453(d) “less” should be read as “more”, the 7th Circuit recently held the statute should be read as it was written.  In Spivey v. Vertrue, Inc., 528 F.3d 982 (7th Cir. 2008), the court reasoned that, “Turning ‘less’ into ‘more’ would be a feat more closely associated with the mutating commandments on the barn’s wall in Animal Farm than with sincere interpretation.”  Id. at 984.  Instead, the court concluded, litigants and lawyers always should be safe in relying on a statute’s actual language and that under Rule 5(a)(2) of the Federal Rules of Appellate Procedure, the petition for leave to appeal must be filed within 30 days.  Id. at 985.

Thus, Knudsen and its progeny teach that a class action filed in state court before the enactment of CAFA may still be removable.  If the class action is changed post-CAFA, it may be possible to remove the case to federal court, arguing the change constitutes a post-CAFA recommencement of the suit.  Moreover, even if the district court disagrees and issues a remand order, it is now possible to ask that the appellate court accept an appeal of the question of federal jurisdiction under CAFA.

Troy A. Bozarth and W. Jason Rankin are both partners with Hepler, Broom, MacDonald, Hebrank, True & Noce LLC and are members of the firm's class action practice group.  They also serve on the DRI Class Action Specialized Litigation Group.  The firm has offices in St. Louis, Missouri, and Chicago, Springfield and Edwardsville (Madison County) Illinois

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