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CAFA Issues Continue to Be Debated by Circuit Courts

By Scott T. Schutte and Gabriel A. Crowson

When the Class Action Fairness Act (CAFA) was enacted in February 2005, questions abounded on both the plaintiff and defense sides of the bar as to what impact it would have on class-action litigation. Remarkably, two issues that were not on the radar screen back then are hot-topic issues today. The first deals with the circumstances under which a case filed pre-CAFA could become removable, and the second deals with the circumstances under which a case that qualified for CAFA removal could be subject to remand to state court based on subsequent events in federal court.

Litigants Continue to Debate CAFA’s “Commencement” Language
As most class-action practitioners are aware, CAFA only applies to class actions “commenced” on or after February 17, 2005. Pre-CAFA suits, however, can sometimes be removed under CAFA, if certain events happen in the case, such that a new action is “commenced.” Given that five years have passed since CAFA’s enactment, one would think that most pre-CAFA class actions would have naturally run their course and thus not be subject to CAFA. A few recent circuit court decisions, however, show that the commencement issue continues to be litigated.

For example, just in the last year, both the Seventh Circuit and Fifth Circuit have issued decisions squarely addressing certain “commencement” issues: In re Safeco Insurance Co. of America, [1] Marshall v. H&R Block Tax Services, [2] and Admiral Insurance Co. v. Abshire.[3]

Safeco involved a class action filed in Illinois state court, just seven days before CAFA became law. The plaintiff claimed that Safeco had used a computerized billing system to underpay claims under car insurance policies in breach of the insurance contracts. After four years of litigation, the state court granted the plaintiff’s motion for class certification and certified a 14-state class composed of consumers with Safeco insurance policies. Shortly after the class certification order, Safeco removed the case to federal court, arguing that the certification order commenced a new case for purposes of CAFA because it added new claims that did not relate back to the original complaint, citing Knudsen v. Liberty Mutual Insurance Co. (Knudsen II).[4] According to Safeco, the definition certified in the state court’s certification order expanded Safeco’s liability from what was alleged in the original complaint.

The district court granted the plaintiff’s motion for remand, but the Seventh Circuit granted Safeco’s request for a discretionary appeal. The court noted that there was no dispute that CAFA’s minimal diversity jurisdictional requirements were satisfied, namely $5 million in controversy, at least 100 putative class members, and minimal diversity of citizenship. The determinative issue was whether CAFA was even applicable to the case, given that the plaintiff’s original suit was filed before CAFA became law. To that end, the court confirmed that events occurring after the filing of a complaint can commence a new action under CAFA, such as the addition of a new party, a new claim for relief, or some other event that courts would treat as independent for limitations purposes. Applying this general rule, the court concluded that the class definition didn’t add any new claims against Safeco, primarily because the claims were related to the main transaction that was the subject of the suit, namely the computerized billing system. And the court found that the original complaint put Safeco on notice that it would be liable for the adjustment of claims handled by that billing system, irrespective of which affiliate wrote the policies. The court thus affirmed the district court’s decision to remand the case back to state court.

In Marshall, the original complaint had been filed in Madison County Circuit Court in January 2002—a full three years before CAFA reared its head. In August 2003, the state court certified a defendant class and a nearly nationwide class of H&R Block customers. Several years later, in November 2006 (after CAFA), H&R Block moved to decertify the defendant class and the nationwide plaintiff class. The briefing on the motion to decertify was completed in April 2008 and a hearing held in June 2008 (litigation moves quite slowly in Madison County). The state court agreed with H&R Block that the defendant class should be decertified and also that the number of states for the plaintiffs class should be reduced.

H&R Block—the company that asked for the decertification order—then removed to federal court, claiming that the order commenced a new case under CAFA because the only defendant left in the case was now jointly and severally liable for the liability of all the entities that had previously been covered by the defendant class. The district court thought that this was quite a novel commencement argument and granted the plaintiffs’ remand motion, but the Seventh Circuit disagreed. The court held that the change in liability didn’t relate back to the original complaint and thus commenced a new case under CAFA. According to the court, it was of no moment that the change in liability was the result of something that the defendants had requested. It also didn’t matter to the court that there was no formal amendment to the complaint.

The Abshire decision issued by the Fifth Circuit involved a suit that had been pending in Louisiana state court for 17 years before the named plaintiffs filed a ninth amended complaint that added class allegations for the first time in the litigation’s history. The proposed class included plaintiffs who had at various times filed claims against the defendants. Taking a somewhat restrictive view of prior Fifth Circuit precedent on the commencement issue, the court held that the addition of class allegations did not commence a new suit for purposes of CAFA jurisdiction.

The lesson from Marshall, Safeco, and Abshire is that litigants need to remain on the lookout for CAFA removal possibilities, even for those class actions that were filed before CAFA and still remain pending. In addition, defense lawyers shouldn’t cavalierly rule out removal just because the triggering event was something that the defendant caused.

Can the Denial of Class Certification Cause a Court to Lose CAFA Jurisdiction?
Imagine that a defendant successfully removes a putative class-action suit to federal court under CAFA’s minimal diversity jurisdiction rules. The trial court denies the plaintiffs’ motion to remand, and the parties engage in class certification discovery and briefing. The defendant scores another victory when the district court denies the plaintiffs’ motion for class certification. At this point, things are looking pretty good for the defendant, who’s thinking that the case is effectively over. Then the district court, however, says “not so fast, my friend,” and rules that the denial of class certification eliminated jurisdiction under CAFA and remands the case to state court. This situation was recently before the Seventh Circuit in Cunningham Charter Corp. v. Learjet, Inc.[5]

In that case, Cunningham Charter sued Learjet in Illinois state court, asserting breach of warranty claims, on behalf of itself and all buyers of Learjets who had received the same warranty. Not wanting to litigate in state court, Learjet removed to federal court under CAFA. Once the case was in federal court, Cunningham Charter filed a Rule 23 motion for class certification, which was denied by the district court. The court then ruled that the denial meant that there was no longer CAFA jurisdiction and remanded the suit back to state court. Learjet filed a petition for appeal to the Seventh Circuit.

In reversing the district court’s remand ruling, the Seventh Circuit held that federal jurisdiction under CAFA doesn’t depend on class certification. In doing so, the court noted that CAFA applies “to any class action [within the act’s scope] before or after the entry of a class certification order,” and that there is no requirement in CAFA that a class action be certified before the case can be removed.[6] According to the court, the better interpretation of this language is that jurisdiction doesn’t hinge on class certification. The court further held that such an interpretation was also a vindication of the general principle that once jurisdiction has been properly invoked, it’s not lost by subsequent developments in the suit. As the court so eloquently put it, a case “should not be shunted between court systems; litigation is not ping-pong.”[7]

The Cunningham court noted that its decision was consistent with the Eleventh Circuit’s decision in Vega v. T-Mobile USA, Inc.[8] Vega also held, albeit in a footnote, that once a court has jurisdiction under CAFA, subsequent events (such as the denial of class certification) generally don’t divest the court of jurisdiction.

The Seventh Circuit in Cunningham did note the existence of a seemingly contrary decision by the First Circuit in In re TJX Companies Retail Security Breach Litigation.[9] In that case, AmeriFirst Bank filed a putative class-action suit against TJX in federal court in Massachusetts, asserting a variety of state tort and contract claims. The district court dismissed several of the counts from the complaint and sustained certain other claims. The court then denied the plaintiffs’ request for class-action status and invited briefing on whether the denial of class status would defeat CAFA subject matter jurisdiction.[10] Soon thereafter, the district court transferred the case to Massachusetts state court, apparently on the grounds that there was no longer CAFA jurisdiction. The First Circuit issued a detailed opinion that primarily addressed the district court’s dismissal of certain claims from the complaint, but the court also discussed briefly the district court’s decision to transfer the case to state court. Although the First Circuit vacated the district court’s transfer order, the court didn’t offer any meaningful analysis as to why the transfer order was vacated. The court did appear to be concerned that the district court had suggested that the transferee court could revisit the district court’s prior dismissal rulings, which was likely not permissible under res judicata principles.

Given the absence of any material discussion by the First Circuit as to whether the denial of class certification can oust CAFA jurisdiction, there doesn’t yet appear to be a mature circuit split on this topic.[11] Instead, the Seventh Circuit remains the only circuit court to squarely address this issue, holding that once there is CAFA jurisdiction, subsequent events (such as the denial of class certification) cannot eliminate that jurisdiction.

Keywords: litigation, commercial and business, commencement, CAFA, removal

Scott T. Schutte is a partner and Gabriel A. Crowson is a senior associate with Howrey, LLP, in Chicago, Illinois.

This article appears in the Spring 2010 issue of Commercial and Business from the Commercial and Business Litigation Committee.


End Notes

  1. 2009 WL 3380355 (7th Cir. Oct. 22, 2009).
  2. 564 F.3d 826 (7th Cir. 2009).
  3. 574 F.3d 267 (5th Cir. 2009).
  4. 435 F.3d 755 (7th Cir. 2006).
  5. F.3d, 2010 WL 199627 (7th Cir. Jan. 22, 2010).
  6. Id. at *1.
  7. Id. at *3.
  8. 564 F.3d 1256 (11th Cir. 2009).
  9. 564 F.3d 489 (1st Cir. 2009).
  10. See In re TJX Cas. Retail Sec. Breach Litig., 246 F.R.D. 389 (D. Mass. 2007).
  11. The Ninth Circuit recently passed on an opportunity to comment on this issue in United Steel, Paper & Forestry v. ConocoPhillips Co., 2010 WL 22701 (9th Cir. Jan. 6, 2010). In that case, after the defendants removed the class action to federal court under CAFA, the district court denied the plaintiffs’ motion for class certification. The district court then found that there was no longer CAFA jurisdiction and remanded to state court. Both sides appealed. The Ninth Circuit held that the district court abused its discretion in denying class certification and thus did not address whether the denial of class certification could eliminate CAFA jurisdiction.


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