Supreme Court of the United States.
Dr. Kirsten Knudsen, individually
Liberty Mutual Insurance Company,
PETITION FOR WRIT OF CERTIORARI
1. Is a state court order certifying an amended class of plaintiffs the “commencement” of a new action under the Class Action Fairness Act of 2005 (“CAFA”) for purposes of allowing a defendant to remove the case to federal court where the state court class action was begun in 2000, CAFA does not apply to any civil action commenced before February 18, 2005, and this Court's decisions make clear that members of a class can be determined at any time subsequent to the filing of the complaint without risking the “commencement” of new litigation?
2. Did the court of appeals ignore Congress' intent in enacting CAFA by holding that because an amended class certification could subject the respondent to more liability than when the complaint was first filed, it is the “commencement” of fresh litigation under CAFA entitling the respondent to remove the action to federal court?
3. Where respondent's deliberate and fraudulent 5-year “shell game” in state court to avoid disclosing its true identity as a party has been so evasive and obfuscatory that no discovery ever took place and that ultimately contempt and default judgments were entered against it, should it now—even though still in contempt of state court discovery orders---be entitled to remove the action to federal court under CAFA where the federal district court now must give no weight at all to the state court's default judgment or the respondent's contumacious conduct which justified it?
4. Are public policies, notions of comity and a pragmatic federalism undermined by the decision below which usurps a state court's power to enforce its own judgments and rewards a recalcitrant and contumacious defendant with a federal forum where it can shed the default judgment entered against it in state court and renew its fraudulent “shell game” concerning its true identity?
Table of Contents
Questions Presented For Review.................................................................................................... i
Table of Contents...........................................................................................................................ii
Table of Authorities........................................................................................................................iii
Citations of Opinions and Orders....................................................................................................
Basis for Jurisdiction in this Court....................................................................................................
Constitutional and Statutory Provisions Involved..............................................................................
Statement of the Case.....................................................................................................................
Argument Supporting Allowance of the Writ...................................................................................
Table of Authorities
Citations of Opinions and Orders.
The published opinion of the United States Court of Appeals for the Seventh Circuit in Kirsten Knudsen, Chris Baker and Vikki Baker v. Liberty Mutual Insurance Company (C.A. No. 05-8037), decided January 27, 2006, and reported at 435 F. 3d 755(7th Cir.2006)(“Knudsen II ”), granting the petition for leave to appeal and vacating the District Court's order remanding the case to state court, is set forth in the Appendix hereto(App. 1-8).
The published opinion of the United States Court of Appeals for the Seventh Circuit in Kirsten Knudsen, Chris Baker and Vikki Baker v. Liberty Mutual Insurance Company (C.A. No. 05-8010), decided June 7, 2005, and reported at 411 F. 3d 805(7th Cir.2005)(”Knudsen I ”), denying the petition for leave to appeal thereby affirming the District Court's order remanding the case to state court, is set forth in the Appendix hereto(App. 9-14)
The unpublished Memorandum Opinion and Order of the United States District Court for the Northern District of Illinois, Eastern Division, in Dr. Kirsten Knudsen, P.C. and Chris Baker and Vikki Baker v. Liberty Mutual Insurance Company, (Civil Action No. 05-C-5924), decided December 13, 2005, granting the petitioners' motion to remand the case to state court for lack of federal jurisdiction, is set forth in the Appendix hereto(App. 15-26).
The unpublished order of the United States Court of Appeals for the Seventh Circuit in Kirsten Knudsen, Chris Baker and Vikki Baker v. Liberty Mutual Insurance Company (C.A. No. 05-8037), decided February 22, 2006, denying the petitioners' timely filed petition for rehearing and rehearing en banc, is set forth in the Appendix hereto(App. 27-28).
Basis for Jurisdiction in this Court.
The decision of the United States Court of Appeals for the Seventh Circuit granting the petition for leave to appeal and vacating the District Court's order remanding the case to state court, was entered on January 27, 2006; and its order denying the petitioner's timely filed petition for rehearing was filed on decided on February 22, 2006(App.1;27).
This petition for writ of certiorari is filed within ninety (90) days of the date of the court of appeals' denial of the petitioner's timely filed petition for rehearing and rehearing en banc. 28 U.S.C. Section 2101(c). Revised Supreme Court Rule 13.3.
The jurisdiction of this Court is invoked pursuant to the provisions of 28 U.S.C. Section 1254(1).
Constitutional, Statutory and Rule Provisions
Statement of the Case.
On March 13, 2000, the petitioner Dr. Kirsten Knudsen, P.C., on behalf of herself and all other persons and entities similarly situated(“the petitioners”), brought this national civil class action complaint against the respondent Liberty Mutual Insurance Company(“Liberty”), a Massachusetts corporation, in the Chancery Division of the Circuit Court of Cook County in Chicago, Illinois. The thrust of the petitioners' complaint was that Liberty employs a computerized cost containment program using a database which systematically and wrongly reduces its payment of medical bills submitted for reimbursement either by Liberty's insureds or by health care providers who have treated Liberty's insureds.
Dr. Knudsen's claim is typical of the class. Her patient stated that his medical expenses were being handled by Liberty and he gave her Liberty's phone number in Schaumburg, Illinois. Dr. Knudsen called the number and spoke to Liberty's adjuster who verified coverage, the patient's claim and claim number and then told her where to send her bills. After Dr. Knudsen treated the patient and billed Liberty for the care she rendered, the sum she eventually received was unilaterally reduced by Liberty and it refused to pay the full amount billed even though Dr. Knudsen's charges were customary for similar medical treatment within the same geographic area.
Asserting that Liberty's use of this database is a breach of contract and violation of the Illinois consumer fraud statutes as well as analogous statutory schemes in other states where Liberty does business, the petitioners sought class certification and the award of damages to both the named plaintiff and the putative class of plaintiffs for the medical expenses Liberty wrongly refused to pay “for a period of ten years prior to the date of filing of this complaint to present.” In an amended complaint filed on March 15, 2001, the petitioners refined their claims, added a third count seeking declaratory relief and continued to identify as actionable Liberty's use of a computer database which systematically applied inaccurate fee schedules to reduce its payout of medical bills for its insureds regardless of what line of Liberty's business generated these medical bills or what policy of Liberty was involved.
The petitioners' amended complaint defining this class and the actionable conduct for which they sought redress was not directed to any specific subsidiary company of Liberty. Instead, they alleged generally that “Liberty has knowingly and intentionally engaged in such practices for the purpose of reducing its overall claims ratio and payments expenditures” and that “Liberty's medical claims database is designed solely to reduce the level of medical benefit reimbursement.”
The petitioners adopted this open-ended description of the respondent Liberty because they knew from their examination of Liberty's required annual filings with the Departments of Insurance in states where it does business that Liberty files one such statement with those departments on behalf of all of its operating subsidiaries and one federal income tax return for all of its companies; its board of directors make all investment decisions for all of its subsidiary companies; and almost all of the employees of Liberty's subsidiaries are also employees of the parent Liberty. Even Liberty's counsel conceded during one oral argument that “a separate company” houses all of Liberty's subsidiaries. The petitioners' attorneys accordingly looked forward to discovery in state court in order to identify Liberty Mutual Insurance Company (or some other entity) as (1) the parent holding company of all of Liberty's subsidiaries;(2) the entity which controls all corporate policies for the shell subsidiaries; and therefore (3) the appropriate class defendant who employs the offending computer database to deny full payment of medical claims for Liberty's insureds and those of its shell subsidiaries.
In appearing and answering the petitioners' complaint and amended complaint, Liberty never claimed that it was wrongly sued or that it was an improper party; and it never once in its answers, affirmative defenses or other pleadings denied the petitioners' individual allegations that it was the party responsible for denying full payment of Dr. Knudsen's bill for her medical services or their class allegations that it denied full payment of medical bills for other beneficiaries of Liberty policies issued by its subsidiaries.
However, the petitioners' discovery in state court as to their class allegations as well as to the merits of their complaint proved chimerical. Even though they issued multiple interrogatories and requests for production of documents upon Liberty seeking to identify the dimensions of Liberty's responsibility for its use of the offending computer database to deny full payment of medical claims for Liberty's insureds and for those of its shell subsidiaries or companies, Liberty repeatedly failed to respond in any respect, refusals which prompted numerous motions to compel by the petitioners and which eventually resulted in a finding of contempt against Liberty for its repeated and obstinate failure to provide discovery.
After some parties-plaintiffs (Chris and Vikki Baker) from another national civil class action in the State of Washington alleging identical claims were allowed to intervene as additional class representatives and more than three years after this lawsuit was brought with no discovery having taken place because of Liberty's failure to respond to any of the petitioners' discovery requests, Liberty moved to dismiss the petitioners' complaint on August 13, 2003. It asserted that the insurance policies giving rise to their claims were not issued by Liberty Mutual Insurance Company as alleged “but by an entirely separate corporation, Liberty Mutual Fire Insurance Company(“Liberty Fire”).” It therefore claimed that the court lacked subject jurisdiction since Liberty Fire, a separate and distinct company, had not been named as a party to this action, had not been served and had not entered an appearance.
The petitioners opposed Liberty's motion arguing inter alia that the motion judge should not even entertain Liberty's motion since their own pending motions for sanctions and the entry of default judgment against Liberty for discovery abuses take precedence; that Liberty waived its right to claim that it was an incorrect defendant by answering the complaints as the correct defendant and then by obstinately refusing to provide discovery on this very question; and that its continuing contumacious conduct in refusing to provide discovery deprived it of the right to be heard on its motion.
On March 26, 2004, the Circuit Court for Cook County, Nowicki, J., issued a memorandum order and opinion denying Liberty's motion to dismiss, entering a default judgment against it for its repeated discovery abuses and striking its answer and affirmative defenses. Knudsen v. Liberty Mutual Insurance Company, 2004 WL 625679(Ill.Cir.2004). She found that Liberty made knowing, deliberate and bad faith misrepresentations in its pleadings concerning its standing as the correct defendant in this suit, stalled the petitioners' discovery in order to have the statute of limitations run on the petitioners' claim against the nominally “correct” defendant and then moved to dismiss for lack of “standing” once it became clear that discovery sanctions against it were imminent. As Judge Nowicki concluded, Liberty refused to comply with at least six of the Court's orders requiring it to provide responses to the petitioners' discovery requests. She found that
Id . at 2004 WL 625683.
In the wake of this ruling, the petitioners moved for an order from the Circuit Court of Cook County that this civil action satisfied the prerequisites of a class action under Illinois law and certifying the class of plaintiffs to be
However, twelve days before the hearing in state court on the petitioners' class certification motion scheduled for April 11, 2005, and in order to shed itself of the default judgment which had entered against it because of its pervasive discovery abuses, Liberty removed the case to the federal district court relying upon the provisions of the Class Action Fairness Act of 2005(“CAFA”), 28 U.S.C. Sections 1332(d) and 1453, contending that this new class certification amounted to “commencing” a new action, entitling it to removal under CAFA.
The Federal District Court for the Northern District of Illinois, Eastern Division, Castillo, J., promptly sent it back to the Illinois state courts, granting the petitioners' motion to remand the matter, stating in open court that the amendment of the class definition entertained by the state courts did not amount to the “commencement” of a new action; that the “new” class definition was completely consistent with the class which had been proposed throughout the litigation; and that “the only one that's trying to create federal jurisdiction in this case is some creative lawyers on the part of [Liberty].”
The Court of Appeals for the Seventh Circuit denied Liberty's petition to appeal and affirmed Judge Castillo's ruling. Kirsten Knudsen, Chris Baker and Vikki Baker v. Liberty Mutual Insurance Company, 411 F. 3d 805(7th Cir.2005) (“Knudsen I ”)(App. 9-14). The court, speaking through Circuit Judge Easterbrook, agreed with the Tenth Circuit Court of Appeals in Pritchett v. Office Depot, Inc., 404 F.3d 1232(2005), that Section 9 of CAFA means what it says, that CAFA applies only to suits “commenced on or after the date of enactment of this Act,” i.e., February 18, 2005(App. 10). Since the petitioners' civil action against Liberty was begun in state court in March of 2000, it was commenced before CAFA's enactment and could not be removed under its provisions(Id.).
The court rejected Liberty's argument that any “substantial” or “significant” change in the petitioners' class definition “commences” a new case, stating that a host of significant changes in a plaintiff's claim occur all the time in the course of litigation without them beginning a “new” claim; and it rightly noted that a doctrine of “significant” or “substantial” change is too imprecise a concept to use in implementing a jurisdictional rule like the one embodied in Section 9 of CAFA (Id. at 11).
However, Judge Easterbrook further observed 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 even it bears an old docket number for state purposes”(Id. at 12). He thought the decisional law under Fed. R. Civ. P. 15(c), for when a claim relates back to the original complaint, would provide guidance for when a court should treat a claim as sufficiently independent to be treated as “fresh litigation”(Id.). Since the change in class definition here neither presented a novel claim for relief nor added a new party, Liberty was not entitled to remove the case to federal court under CAFA(Id.).
The court went further and measured the petitioners' proposed revised class in state court which included “all Liberty Mutual Insurance Company and Liberty Fire Insurance Company insureds”( Id . at 12-13). Ignoring entirely Liberty's five-year discovery abuses in failing to provide the petitioners with the names of all of its subsidiaries and its relationship with them, its continuing contempt of state court discovery orders which were aimed at identifying Liberty's relationship with its subsidiaries and the default judgment which had been entered against it as a result, Judge Easterbrook thought it an odd revision: not only was the name of Liberty Mutual Fire Insurance Company incomplete in the class definition (due to a scrivener's error) but also the entity known as Liberty Mutual Fire Insurance Company was not a party to the suit(Id. at 13).
Since the petitioners had not alleged that Liberty and Liberty Fire were alter egos with two names for just one business, making a change in the class definition unnecessary, Judge Easterbrook concluded that Liberty Fire must be a separate, distinct party and suggested that removal under CAFA might be appropriate if Liberty Mutual Fire Insurance Company should be added as a defendant(Id. at 13-14). In that event, Liberty Fire “could enjoy a right to remove under [CAFA], for suit against it would have been commenced after February 18, 2005...But Liberty Mutual Insurance Company cannot remove five years after this suit was commenced just because a non-party corporate sibling has been mentioned in [the petitioners'] latest papers”(Id. at 14).
With the matter remanded to the Circuit Court for Cook County and the default judgment against Liberty fully in place as a result of its earlier discovery abuses, a hearing was held before Judge Nowicki in July of 2005 on the petitioners' motion to amend the proposed national class definition so that it included
On September 29, 2005, the Circuit Court issued a memorandum and order granting the petitioners' motion for this class certification. It identified the petitioners' core claim against Liberty since the beginning of this lawsuit as its nationwide use of a computerized cost containment program which systematically and arbitrarily reduces its payment of medical bills submitted for reimbursement by Liberty's insureds or by health care providers who have treated Liberty's insureds. Since Liberty allegedly resorts to this computer program not on any individualized basis but rather systematically whenever it reimburses for medical bills, the court concluded that there were common questions of fact and law which predominate over any individual questions of the class members.
As to whether the petitioners would adequately represent the class since each of them claims a right to medical payment under a policy issued by Liberty Fire rather than Liberty, the Circuit Court first noted that in order to address this argument, the petitioners submitted an amended class definition which encompasses all of Liberty's insureds as well as the insureds of its affiliates and subsidiaries. Addressing Liberty's further argument that its affiliates and subsidiaries were never given fair notice of these allegations and that the default judgment already rendered against it cannot serve as the basis for certifying the class here, Judge Nowicki referred to the unique fact of this litigation: Liberty's refusal for over five years to provide discovery and to delay--- -even up to the present time —to identify the “true defendant in this matter” has led to a “shell game” where no entity, including Liberty, took responsibility for the offending conduct; and it warranted the default judgment which now prevents Liberty from contending that its affiliates and subsidiaries were not implicated in its scheme.
In fact, because of Liberty's failure to respond to any of the petitioners' written discovery, and after more than five years since their suit was filed, the petitioners have been unable to conduct a single deposition of an employee of Liberty Mutual Insurance Group, Liberty Mutual Insurance Company or any Liberty subsidiary in order to identify the dimensions of Liberty's responsibility for its use of the offending computer database to deny full payment of medical claims for Liberty's insureds or for the insureds of its subsidiaries. Thus the petitioners have never been in a position to demonstrate factually that Liberty Mutual Insurance Company, as a holding company for its shell subsidiaries including Liberty Fire, is the entity which controls all corporate policies for those shell subsidiaries, policies which include the use of a distorted, unfair computer database to deny full payment of medical claims for the insureds of Liberty and its shell subsidiaries.
According to the Circuit Court, the default caused by Liberty's gamesmanship in discovery and its refusal to identify the extent of its relationship with its affiliates and subsidiaries justified the petitioners attempting to recover from Liberty itself on behalf of its affiliates and subsidiaries. Since Liberty's affiliates and subsidiaries will not be required to pay any judgment, their constitutional right to adequate notice was not impaired. Moreover, Liberty and its affiliates filed one income tax return; one board of directors makes investment decisions for all the companies; and Liberty provides the office space, the employees and the adjusting for all of its affiliates and subsidiaries. Indeed, Liberty and its affiliates act as one company. Even Liberty's counsel uncharacteristically conceded during one oral argument that “a separate company” houses all of Liberty's subsidiaries.
Following up on this ruling, the Circuit Court, on October 14, 2005, entered an order setting up a schedule for completing discovery on the issue of damages and costs due from Liberty on the petitioners' claims.
On the same day, October 14, 2005, Liberty removed this case once again to the Federal District Court for the Northern District of Illinois, Eastern Division, pursuant to CAFA contending that Judge Nowicki's order of September 29, 2005, certifying the petitioners' amended class had “commenced” a new action by adding new claims and alleging new conduct against Liberty and its subsidiaries and affiliates which do not “relate back” to their original complaint filed in March of 2000. Succinctly, Liberty argued that the new claims added by the September 29th order “involve policies, databases, and witnesses going back ten additional years: from 1994, when Liberty first started using a medical cost and utilization database to adjust claims under its own policies, to the mid 1980s, when at least two of Liberty's affiliates started using such databases...[and] [n]othing in the original complaint or the amended complaint told Liberty that it would be required to defend such claims.”
The petitioners moved to remand the case to state court. They contended that a change in class certification did not “commence” a new action for purposes of CAFA, as enacted by Congress; that no new defendant was added to this suit; that no new claims were added; that CAFA does not apply in any event since the amended certified class “still pertains to claims arising out of Liberty's use of biased, pre-pricing software;” and that the need to add Liberty affiliates and subsidiaries to the class definitions stems directly from Liberty's established discovery abuses. As the petitioners argued, the change in the scope of the class definition arises directly from Liberty's prior discovery violations and the state court's default order; and Judge Nowicki's order of September 29, 2005, certifying the class did not commence any new claims but rather defined the scope of claimants who could recover on these pre-existing claims, given Liberty's obstinate refusal for over five years to identify “the true defendant” in this case and the dimensions of its and its affiliates' responsibility for using their biased computer database.
On December 13, 2005, the District Court, Castillo, J., granted the petitioners' motion to remand the matter to state court(App. 15-26). He ruled that the change in class certification from all insureds of Liberty Mutual Insurance Company to all insureds of Liberty, its affiliates and subsidiaries relates back to the original complaint and while the amendment invokes different, additional policies than originally alleged, it does not cause such greater amount of legal research and discovery that it commences new litigation(Id. at 19-20). Nor does removal to federal court lie even if it creates new legal theories of liability(Id. at 20-21). In addition, while the amended class of plaintiffs may cause liability to reach farther back in time than Liberty envisioned under the original complaint, that fact alone is not enough to create new litigation since the suit still involved the same claim alleged in the original complaint, i.e., the unfair, unauthorized use by Liberty of a biased database to diminish reimbursement of medical expenses for insureds of Liberty, its affiliates and subsidiaries(Id. at 22-23).
Finally, the district judge rejected Liberty's claims that the amended class definition implicates ERISA claims thereby justifying removal under either CAFA or the federal preemption doctrine(Id. at 23-24). Referring to Judge Nowicki's decision of September 29, 2005, Judge Castillo determined that the claims of the new class would include only insureds of property and casualty policies, not those who are insured by group health insurance policies(Id. at 24). As he concluded in remanding the case to state court, “[t]his is not an attempt at ‘artful pleading' by [petitioners] to avoid a federal claim; rather it is a creative attempt by Liberty to find another way into federal court” (Id.).
Without full briefing or oral argument, the court of appeals granted Liberty's petition to appeal and reversed Judge Castillo's ruling. Kirsten Knudsen, Chris Baker and Vikki Baker v. Liberty Mutual Insurance Company, 435 F. 3d 755(7th Cir.2006)(“Knudsen II ”) (App.1-8). Minimizing Liberty's deliberate, five-year refusal in state court discovery to provide the identity of the true defendant in this case as merely “arguable error” and sanitizing Liberty's conduct (which justified its default in state court) as simply “not doing enough in discovery,” the court speaking again through Judge Easterbrook ruled that the amended class certification imports new claims into this proceeding which commences new litigation for purposes of CAFA(Id. at 5-7).
Relying upon Liberty's self-serving characterizations of the state court proceedings and its other post-removal submissions in federal court at odds with its conduct in state court, Judge Easterbrook found as a fact that the amended class definition now includes insureds of some of Liberty's affiliates whose claims Liberty did not adjust , e.g., Liberty Northwest Corporation and Employers Insurance of Wausau(Id. at 6-7). This was enough for him to conclude that new claims had been commenced within CAFA's coverage period justifying Liberty's removal(Id. at 7).
The court of appeals accordingly vacated Judge Castillo's order, revoked the remand and ordered the district court to decide the case on its merits without regard either to the state judge's order of default (or contempt) against Liberty or the scope of the class certification which she had approved(Id. at 7-8).
On February 22, 2006, the Court of Appeals denied the petitioner's timely filed petition for rehearing and rehearing en banc (App. 27-28).
Argument Supporting Allowance of the Writ.
1. Amending The Class Entitled To Pursue A Class Action Begun In State Court Before CAFA Was Enacted Due To The Defendant's 5-Year Refusal To Disclose The True Defendant In This Case Does Not “Commence” A New Action Which The Defendant Can Remove To Federal Court Under CAFA And To Rule Otherwise Undermines Congress' Intent In Enacting This Legislation And Overrules This Court's Decisions Recognizing The Right Of Class Members To Redefine Themselves Without The Risk Of “Commencing” New Litigation.
In this class action begun in the Illinois state courts in March of 2000, Liberty made knowing, deliberate and bad faith misrepresentations in its pleadings concerning its standing as the correct defendant; it has stalled the petitioners' legitimate discovery at every turn so that the statute of limitations could run against the nominally “correct” defendant; and it has moved to dismiss for lack of “standing” when it became clear that discovery sanctions against it were imminent. Liberty has refused to comply with at least six of the state court's orders requiring it to provide responses to the petitioners' discovery requests over a five-year span. This egregious behavior earned it a default judgment and the striking of its answer and affirmative defenses. Liberty is still in contempt of the Circuit Court's discovery orders and it has demonstrated a deliberate, continuing disregard for the state courts' authority in this litigation.
In the face of Liberty's refusal to disclose the actual relationship it has with its affiliates and subsidiaries so that the petitioners could sensibly clarify and refine the dimensions of its class action and the national class members who would pursue it, the Illinois Circuit Court justifiably allowed the class of plaintiffs seeking relief to encompass “all insureds of Liberty Mutual Insurance Company, its affiliates and subsidiaries (collectively “Liberty Mutual”), their third party beneficiaries and their assignees who submitted medical bills covered by a Liberty Mutual insurance policy, and whose claims were paid for less than the medical charge, based upon the application of a medical cost and utilization database.” However, contrary to the court of appeals' surmise, this redefined class—caused by Liberty's own refusal to enlighten either the petitioners or the state court about its relationship with its various component companies, Liberty Fire among them— never included claims which Liberty did not adjust. Instead, it includes only those claims of insureds of Liberty, its affiliates or subsidiaries which Liberty adjusted using the offending database.
That such a commonsense clarification of the petitioners' class in this five-year-old state litigation could be characterized as “commencing” a new civil action which gives Liberty the right to remove the matter to federal court under the Class Action Fairness Act of 2005, Pub. L. 109-2, 119 Stat. 4(February 18, 2005) (“CAFA”), and there to continue to litigate this case unencumbered by the state court contempt and default judgments which it so justly deserved in that forum, is a red flag that Congress' intent in enacting CAFA has been undermined and that this Court's decisions acknowledging the right of class members to redefine themselves without starting new litigation have been effectively overruled.
Moreover, in view of the disarray among the Circuits about CAFA's capacity to allow the removal of state court litigation begun before its enactment, this Court should resolve the confusion and define CAFA's contours so that a recalcitrant and contumacious defendant who has obstructed discovery for five years in state court is not rewarded with a federal forum where it can shed the default judgment entered against it in state court and renew its fraudulent “shell game” concerning its true identity.
CAFA, amending 28 U.S.C. Section 1332(d), confers federal jurisdiction over class actions involving at least 100 members and over $5 million in controversy when minimal diversity, i.e., diversity between any defendant and any plaintiff class member, is met. 28 U.S.C. Section 1332(d) (2)(A) . See Exxon Mobil Corp. v. Allapattah Services, ___U.S.___, 125 S. Ct. 2611, 2640 n.12 (2005) (Ginsberg, J., dissenting). Its own removal statute allows any defendant to remove to federal district court a qualifying action without regard to the residence or consent of the other defendants, 28 U.S.C. Section 1453(b); and Section 1453(c)(1) provides for appellate review of motions to remand despite the usual bar of such review in Section 1447(d).
Congress' purpose in enacting CAFA was to ameliorate the abuses encountered by national class action plaintiffs when their rights were decided by state and local courts, undermining the national judicial system, the free flow of commerce and the concept of diversity jurisdiction. Pub. L. 109-2, Section 2(a)(4) & (b), 119 Stat. at 4-5. CAFA was therefore aimed at assuring prompt and fair recoveries for class members with legitimate claims, restoring the Framers' intent that national class actions be decided in a federal forum under diversity jurisdiction; and encouraging innovation and the lowering of consumer prices. Id. “While some defendants may benefit by having their cases in federal court instead of state court, this is not a stated purpose of the Act.” Plubell v. Merck & Co., 434 F.3d 1070, 1073-1074(8th Cir. 2006)(emphasis supplied).
Section 9 of CAFA makes it apply “to any civil action commenced on or after the date of [its] enactment,” February 18, 2005, and it is not retroactive. Exxon Mobil Corp., ___ U.S. at ___, 125 S. Ct. at 2627-2628. As the court in Pritchett v. Office Depot, Inc., 420 F.3d 1090, 1095-1096(10th Cir. 2005), noted, CAFA's legislative history makes clear that the Senate's more restrictive view of its retroactive reach was adopted so that “Congress signaled an intent to narrow the removal provisions of the Act to exclude currently pending suits” and wanted the statute to apply only to civil actions actually begun after CAFA became effective on February 18, 2005. Id. Brown v. Kerkhoff, 2005 WL 2671529(S.D. Iowa 2005).
The question presented in this class action, begun in 2000, is whether the order amending the petitioners' class in the wake of a default judgment entered against Liberty in 2005, after CAFA was enacted, constitutes the “commencement” of a new civil action against Liberty entitling it to remove this action to federal court. In the short time since CAFA's passage, the federal courts have employed three different approaches to answering this question. The first group of courts treats the language of CAFA as a “bright line,” reasoning that since “a civil action” can only be commenced once, if it was commenced before CAFA was enacted, any amendment occurring in the litigation after CAFA's enactment is irrelevant and cannot invoke CAFA's right of removal. See, e.g., Gomes v. Microsoft Corp., 403 F. Supp. 897, 903(S.D. Iowa 2005); Weekly v. Guidant Corp., 393 F. Supp. 2d 1066, 1067-1068(E.D. Ark.2005); Hot Springs County Solid Waste Authy. v. UnitedHealth Group, 2006 U.S. Dist. Lexis 10028(W.D. Ark. 2006).
A second group of decisions acknowledge that with litigation begun before February 18, 2005, there may be amendments after CAFA's enactment which invoke the right to remove the matter to federal court. These courts take the position that in order to determine whether an amendment relates back to a prior pleading or kicks off fresh litigation triggering CAFA's right to remove, resort must be had to the forum state's own law governing the relation back of amendments to pleadings; and the governing state law's relation-back analysis, much along the lines of Fed. R. Civ. P. 15(c), controls the “commencement” inquiry for all amendments with no distinction being made for those which add defendants. See, e.g., Prime Care of Northeast Kansas LLC v. Humana Insurance Company, ___F.3d___, ___(10th Cir. 5/12/06); Plubell v. Merck & Co. , 434 F.3d at1073-1074(8th Cir.2006); Eufaula Drugs, Inc. v. ScripSolutions, 2005 WL 2465746 at 2-4(M.D. Ala. 2005); New Century Health Quality Alliance, Inc. v. Blue Cross & Blue Shield of Kan. City, Inc., 2005 WL 2219827 at 3-5(W.D. Mo. 2005).
A third group of courts employ the relation-back analysis for all amendments except those which add defendants—those amendments are categorically treated as commencing a new case as to the added defendant(s) entitling them to removal under CAFA. See, e.g., Braud v. Transp. Serv. Co., 2006 WL 880051 at 1-4(5th Cir. 4/6/06); Schillinger v. Union Pac. R.R. , 425 F. 3d 330, 333(7th Cir. 2005); Knudsen I; Adams v. Fed. Materials Co. , 2005 WL 1862378 at 3-4(W.D. Ky. 2005).
These disparate, irreconcilable decisions by courts in the 6th, 7th, 8th, 10th and 11th Circuits about the right to remove under CAFA in the wake of amendments in ongoing state court class actions demonstrate the need for this Court to clarify the dimensions of the removal right so that Congress' intent in enacting this legislation will be realized. The confusion among the lower federal courts on this issue has frustrated congressional intent, failed to provide any durable standards for measuring the right to remove national class actions filed in state court before CAFA, and led to the spawning of strategic removal actions by well financed state court defendants seeking to frustrate, delay and impede the resolution of state court class litigation.
The court of appeals here, for example, found as a fact that the amended class definition now includes insureds of some of Liberty's affiliates whose claims Liberty did not adjust, e.g., Liberty Northwest Corporation and Employers Insurance of Wausau, and this was enough for it to conclude that new claims had been commenced justifying Liberty's removal(Id. at 6-7). This finding, in turn, relied upon Liberty's own post-removal, self-serving view of the state court action, proceedings which it had deliberately sabotaged in order to claim prejudice before the federal courts. Instead of sending this case back to the state court for a determination of any imperfections in the amended class' definition, Judge Easterbrook peremptorily extinguished five years of state court litigation—together with the default judgment Liberty rightly deserved----and ordered the district court to decide the case on its merits without regard either to the state judge's order of default (and contempt) against Liberty or the scope of the class certification which she had approved.
Lost in this assumption of federal power over a state class action begun five years before CAFA was enacted is the simple truth that, contrary to the court of appeals' surmise, this class redefinition—caused by Liberty's own refusal throughout discovery to enlighten either the petitioners or the state court about its relationship with its various companies, Liberty Fire among them— never included claims which Liberty did not adjust. Instead, it includes only those claims of the insureds of Liberty, its affiliates or subsidiaries which Liberty adjusted using the offending database. If the court of appeals had any doubts on this score, it could have sent the case back to the Circuit Court and requested that Judge Nowicki issue a ruling on whether the amended class included those claims made by insureds of Liberty, its affiliates and subsidiaries which Liberty did not adjust. Instead of doing so, it burdened the district judge with this five-year-old litigation which does not belong in federal court. Nothing in CAFA or in relation-back principles justifies this result.
In order to promote Congress' intent in enacting CAFA, to discourage class action defendants from “creating” new claims out of every amendment in order to forum shop, and to avoid lost time and attendant attorney's fees, this Court should adopt a “bright line” rule, i.e., that a claim is “commenced” for purposes of CAFA only with the filing of the original complaint. As the district judge in Plummer v. Farmers Group, Inc., 388 F. Supp. 2d 1310,1317(E.D. Okla. 2005), recognized,
Id.(emphasis supplied). Whether an action has been commenced here is governed by Illinois law. Burham v. Humphrey Hospitality Reit Trust., Inc., 403 F.3d 709, 712(10th Cir. 2005). Cf. Walker v. Armco Steel Corp. , 446 U.S. 740, 751(1980)(state law determines when an action commences for limitations purposes).In Illinois, the filing of the petitioners' complaint against Liberty in 2000 in Circuit Court commenced this suit, 735 ILCS 5/2-201(a); Jackson v. Navik, 308 N.E. 2d 143,145(Ill. App. 1974); Kohlhaas v. Morse, 183 N.E.2d 16, 19(Ill. App. 1962), and under a “bright line” test, Liberty was not entitled to remove under CAFA.
Even under Illinois' relation-back principles, see 735 ILCS 5/2-616(b); Chandler v. Illinois Central R.R., 798 N.E. 2d 724, 732-733(2003), the “fresh” claim allegedly asserted by the petitioners' against Liberty with their amended class of plaintiffs in 2005 was nothing new. Its core claim of Liberty's deceptive and unfair use of a biased database remained the same as their original complaint and that seminal filing furnished Liberty with all the information it need to prepare a defense to this later amended class; nothing had changed. McCorry v. Gooneratne, 775 N.E.2d 591, 599(Ill. App. 1 Dist. 2002). Marek v. OB Gyne Specialists II, S.C., 746 N.E.2d 1,8(Ill. App. 1 Dist. 2001). Steinberg v. Dunseth, 658 N.E.2d 1239, 1246(Ill. App. 4 Dist. 1995). Accord, Phillips v. Ford Motor Co. , 435 F.3d 785, 787-788(7th Cir. 2006).
In any event, these events are routine matters in class action suits and provide no occasion, especially after Liberty's default for its repeated failure to illuminate the nature of its holdings, to suppose that a new claim had been made against it. 735 ILCS 5/2-802(a). Steinberg v. Chicago Medical Sch., 371 N.E.2d 634, 645(1977). Regnery v. Meyers, 679 N.E. 2d 74, 81(Ill. App. 1 Dist. 1997). Besides, Illinois law entitled the petitioners to correct by amendment the misnomer of the petitioners' class, a misnomer caused by Liberty's refusal to identify for five years its affiliates and subsidiaries, without the amendment kicking off a new action for purposes of CAFA. 735 ILCS 5/2-616(b). Norman A. Koglin Assoc. v. Valenz Oro, 680 N.E. 2d 283, 290(1997). Accord, Plubell v. Merck & Co., 434 F.3d at 1073; New Century Health Quality Alliance, Inc. v. Blue Cross & Blue Shield of Kan. City, Inc., 2005 WL 2219827 at 4-5; Heaphy v. State Farm Mutual Automobile Insurance Co., 2005 WL 1950244 at 4(W.D. Wash. 2005). Contrast Schiavone v. Fortune, 477 U.S. 21, 28(1986)(“This was not a situation where the ascertainment of the defendant's identity was difficult for the plaintiffs”).
Finally, the petitioners' suggested resolution is most consistent with this Court's recognition in American Pipe & Construction Co. v. Utah, 414 U.S. 538, 551(1974), that the commencement of their class action in 2000 “satisfied the purpose of the limitation provision as to all those who might subsequently participate in the suit as well as for the named plaintiffs.” Id. at 551-554 (emphasis supplied). Otherwise, the members of the class of plaintiffs added by the 2005 amendment—none of whom has slept on his rights—would have been forced to intervene earlier in order to preserve their claims and one of the major goals of class litigation, i.e., to simplify litigation involving a large number of class members with similar claims, would have been defeated. Devlin v. Scardeletti, 536 U.S. 1, 10(2002). Thus the order amending the class of plaintiffs in 2005 did not commence a new action or “fresh litigation” for purposes of CAFA and Liberty was not entitled to remove the action to federal court because of it.
2. Public Policy, Concerns For Comity And A Pragmatic Federalism Are Not Served By Usurping A State Court's Power To Enforce Its Own Judgments And Rewarding A Recalcitrant And Contumacious State Court Defendant With A Federal Forum Under CAFA Where It Can Evade The Default Judgment In State Court And Renew Its Frivolous Defense To The Petitioners' Class Action.
Liberty's interpretation of CAFA would empower federal courts to pluck cases from state court on the eve of trial or, as in this case, on the cusp of an assessment of damages after a default judgment had entered against it. Yet this view of an all-powerful federal judiciary is intolerable; it is disruptive of federal-state comity as well as the settled expectations of the litigants. Permitting removal in this case “would effectively apply new rules to a game in the final minutes of the last quarter,” in effect using a jurisdictional statute like CAFA, intended to curtail “jurisdictional gaming” and forum shopping, to accomplish this very result. See Pritchett v. Office Depot, Inc., 404 F.3d 1232, 1238 (10th Cir. 2005). The disposition below also raises basic due process concerns, see Hansberry v. Lee, 311 U.S. 32, 40(1940), and invokes this Court's duty of superintendence over the federal judiciary to insure that our system of federalism accommodates the integrity of state court class actions and the judgments they ultimately render against recalcitrant and contumacious defendants.
For all of these reasons identified herein, a writ of certiorari should issue to review the judgment of the United States Court of Appeals for the Seventh Circuit and, ultimately, to vacate that judgment and remand the matter to the state courts of Illinois for renewed discovery on the issue of the damages and costs due the petitioners from Liberty on the merits of their claims; or to provide the petitioners with such other relief as is fair and just in the circumstances of this case.