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.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.