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A New Challenge for Class Action Defendants: Arguing for Article III Standing After Removal Under CAFA

Posted:
01/07/2022
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Class Actions

Last year, the Eleventh Circuit handed down a ruling that will have ramifications for future class actions in which the plaintiff is purposefully avoiding federal jurisdiction under the Class Action Fairness Act (CAFA) by styling his or her claim as one for declaratory relief. In Mack v. U.S.A.A. Casualty Ins. Co., the plaintiff sued U.S.A.A. in Florida state court on behalf of himself and a putative class, alleging that U.S.A.A.’s use of a third-party valuation tool to calculate the value of his totaled car violated Florida law and breached his insurance policy. The plaintiff asserted separate and additional claims for U.S.A.A.’s alleged failure to pay separate title, license, and dealer fees.

The plaintiff’s underlying claims are not new. A large number of class actions have been filed against insurers in cases involving total loss auto claims across the country making similar claims in the past few years. Because of the high stakes and large number of class members, most of these cases have been removed to federal court under CAFA, with numerous cases pending in Florida federal courts. Richardson, et al. v. Progressive Am. Ins. Co., et al., No. 2:18-cv-715 (M.D. Fla.); South v. Progressive Select Ins. Co., No. 1:19-cv-21760 (S.D. Fla.); Signor v. Safeco Ins. of Ill., No. 0:19-cv-61937 (S.D. Fla.); Sullivan, et al. v. Government Employees Ins. Co., No. 6:17-cv-891 (M.D. Fla.).

What is new, however, is that Mack purposefully styled his claim against U.S.A.A. as one for declaratory relief in order to avoid federal jurisdiction. In his complaint, Mack expressly disclaimed any claim for breach of contract and claimed to only seek a declaration that U.S.A.A. violated Florida law and Mack’s policy. In addition to seeking declaratory relief, Mack sought “supplemental relief” requiring U.S.A.A. to recalculate the class member’s total loss claims under a compliant method and to make new offers based on those recalculations.

U.S.A.A. removed the case to the Southern District of Florida under CAFA. After removal, U.S.A.A. moved to dismiss Mack’s complaint because he failed to comply with his policy’s appraisal provision before filing suit. The district court dismissed the case and Mack appealed. The parties eventually settled the plaintiff’s claim for title, license and dealer fees. The Eleventh Circuit thereafter requested additional briefing on whether Mack had Article III standing to pursue the remaining valuation claim. Because U.S.A.A. invoked federal jurisdiction through removal, it had the burden of establishing that Mack had Article III standing to pursue his claims for declaratory judgment and supplemental relief. The Eleventh Circuit held that, in order for Mack to have Article III standing to pursue prospective relief, his complaint had to allege facts sufficient to demonstrate that there was a substantial likelihood that Mack would suffer injury in the future. Furthermore, the alleged future injury must be real, immediate, and definite.

Mack’s complaint alleged that he and the other class members “are in doubt concerning their rights under” the policy and, because they are still insured by U.S.A.A., they “could reasonably anticipate suffering another total loss in the future.” A previous Eleventh Circuit decision however held that the possibility that a plaintiff may be in another car accident and still be insured under the same or similar policy was too speculative to establish Article III standing for a declaratory judgment claim. Therefore, the court determined that Mack did not have Article III standing to pursue his prospective declaratory judgment claims.

U.S.A.A. argued in response that Mack’s request for supplemental relief was a claim for retrospective relief that should satisfy Article III standing because he sought millions of dollars in damages for himself and the putative class in the form of new insurance coverage payments. The Eleventh Circuit rejected U.S.A.A.’s argument and refused to construe Mack’s claims any differently than how they were framed in his complaint. The court emphasized that at the motion to dismiss stage, a court’s job is to determine whether Mack has standing to pursue the claims he “has chosen to present” in the complaint even though Mack likely presented his claims as seeking only prospective and declaratory relief simply so that he could avoid federal jurisdiction. The court concluded that declaratory judgment claims do not become claims for retrospective relief just because they might ultimately result in the payment of money to policyholders for past claims.

The Eleventh Circuit’s opinion may be read by the plaintiffs’ bar as an invitation to frame their complaints against insurers as claims only seeking prospective declaratory relief in order to avoid removal to federal court. Under this approach, the plaintiffs could then tack on a class claim for millions of dollars in damages in the form of a request for “supplemental relief.” Defendants rightly would argue that this approach frustrates the overriding purposes of CAFA, which was to prevent forum-shopping before plaintiff-friendly state courts in high stakes cases seeking millions of dollars.

In any event, defendants need to be cautious when removing cases that seek primarily declaratory judgement (and supplemental relief) to federal court. After removal, federal courts will shift the burden to the defendant to show that the facts and form of relief sought in the plaintiff’s complaint meet Article III standing requirements. For now, at least in the Eleventh Circuit, a request for supplemental monetary relief, which could result in millions of dollars’ worth of damages, is not sufficient on its own to demonstrate that a plaintiff has Article III standing to pursue a Rule 23(b)(2) class action.

  

About the Authors:

Casey Grabenstein is a partner and Nick Collins is an associate in Saul Ewing Arnstein & Lehr’s Litigation Practice. (The views expressed in this article are personal to the authors and do not reflect the views of Saul Ewing Arnstein & Lehr LLP or its clients.)

The provision and receipt of the information in this publication (a) should not be considered legal advice, (b) does not create a lawyer-client relationship, and (c) should not be acted on without seeking professional counsel who have been informed of the specific facts. Under the rules of certain jurisdictions, this communication may constitute “Attorney Advertising.”