United States: Can A Complaint Be Mislabeled To Avoid CAFA?

Last Updated: March 17 2014
Article by CAFA Law Blog

Erie Insurance Exchange v. Erie Indemnity Company, 722 F.3d 154 (3d Cir. 2013).

In this appeal, a majority of a Third Circuit panel held that an action brought by an insurance exchange – an entity, not a conglomerate of individuals – was not class action under CAFA. 

The plaintiff, a reciprocal insurance exchange (the "Exchange"), brought suit in Pennsylvania state court, asserting claims for breach of contract, breach of fiduciary duty, and equitable relief arising out of the defendant Erie Indemnity Company's alleged misappropriation of funds.

Members of the Exchange purchased insurance policies and received indemnification for losses out of the Exchange's pool of funds.  To receive insurance, exchange members signed identical subscriber agreements, which appointed the defendant as attorney-in-fact for the Exchange.  These agreements gave the defendant broad managerial power over the Exchange's business affairs, including issuing policies, collecting premiums, and investing the Exchange's funds.  Exchange members who paid their insurance premiums in installments also paid service charges, as well as late payment and policy reinstatement fees.

The state court complaint alleged that, beginning in 1997, the defendant retained for itself the service charges that exchange members paid to the Exchange.  Additionally, the complaint stated that, starting in 1998, the defendant misappropriated more than $300 million in late payment and policy reinstatement fees.  The complaint named the Exchange as plaintiff and stated that four exchange members, as trustees ad litem, were prosecuting the suit on behalf of all exchange members.

The defendant filed a notice of removal in the United States District Court for the Western District of Pennsylvania on the basis that this suit was a class action within the meaning of CAFA.  The Exchange moved to remand, and the district court granted the Exchange's motion.  On appeal, a Third Circuit majority affirmed.

The Third Circuit majority began its analysis by noting that CAFA defines a "class action" as any civil action filed under Federal Rule 23 or a similar state statute authorizing an action by one or more representative persons as a class action. 28 U.S.C. § 1332(d)(1)(B).  Here, the defendant did not argue that this dispute satisfied CAFA's statutory definition.  Instead, this action was originally brought pursuant to Pennsylvania Rule of Civil Procedure 2152, which allows members of an unincorporated association to prosecute suit on behalf of the association. Rule 2152, however, lacks the defining characteristics of Rule 23, namely Rule 23's numerosity and commonality requirements.  For its part, the defendant noted that Pennsylvania Rule 2177, not Rule 2152, was the proper procedural mechanism for filing a lawsuit on behalf of an insurance exchange, and Rule 2177 requires suits by an exchange to be filed in its corporate name.  The Third Circuit remarked that, even if this were the case, Rule 2177 was even less like Rule 23, as it contained none of Rule 23's class-action requirements.  The Third Circuit further remarked that, in contrast to Rules 2152 and 2177, Rules 1701 through 1704 of the Pennsylvania Rules of Civil Procedure contained specific procedural requirement for filing class actions.  Based on its reading of these Pennsylvania rules, the Third Circuit concluded this was a suit by an entity, not a class of individuals.

The majority refused to sift through the complaint for magic words invoking a class action.  The plain, unambiguous language of CAFA instead requires a court to look to the procedural rule under which a case is filed.  In sum, "no amount of pleading will change the statute or rule under which the case is filed.  If this is a formalistic outcome, it is a formalism dictated by Congress." 722 F.3d at 160 (quoting In re Vioxx Prods. Liab. Litig., 843 F. Supp. 2d 654, 664 (E.D. La. 2012)). 

Unable to prove this case was a class action as defined under CAFA, the defendant unsuccessfully resorted CAFA's legislative history to satisfy its burden of establishing removal.  In this regard, the defendant argued that CAFA's legislative history indicated that diversity jurisdiction over class actions should not be confined to lawsuits that are labeled class actions.  But the Third Circuit rejected this argument, stating its decision did not hinge on whether the class-action label was missing from the complaint; rather, the dispositive factor in the Court's analysis was that this case was not brought under any rule sufficiently similar to Rule 23.  Accordingly, the Third Circuit affirmed the district court's remand order.  

Judge Jane R. Roth dissented.  Importantly, Judge Roth emphasized that CAFA's primary objective is to ensure interstate class actions of national importance remain in federal court.  In Judge Roth's view, the majority opinion contravenes Congress's express intent that CAFA broadly confer jurisdiction on federal courts to adjudicate class actions.  According to Judge Roth, the majority's formalistic approach opens the door for plaintiffs to forum shop and strategically avoid CAFA jurisdiction by disguising their class claims using inaccurate filings under non-class action procedural rules.  To avoid these undesirable consequences, a civil suit should be considered a class action for purposes of CAFA if the complaint states sufficient facts to satisfy the four prerequisites of a class action under Rule 23 or an equivalent state law.  A close examination of the complaint in this case reveals that the Exchange pled sufficient facts to satisfy Rule 23's numerosity, commonality, typicality, and adequacy requirements.  As such, Judge Roth would find that CAFA jurisdiction exists and reverse the district court's order remanding this case to state court.  

While the Third Circuit ultimately ruled that the Exchange's complaint did not meet the statutory definition of a "class action" under CAFA, this decision nonetheless highlights a possible tension between the majority's formalism and Judge Roth's reliance on congressional intent that may surface again in future cases.

Cafa Law Blog.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions