Erie Ins. Exch. v. Erie Indem. Co.
| Decision Date | 28 June 2013 |
| Docket Number | No. 13–1415.,13–1415. |
| Citation | 722 F.3d 154 |
| Parties | ERIE INSURANCE EXCHANGE, an unincorporated association; Joseph S. Sullivan; Anita Sullivan; Patricia R. Beltz; Jenna L. Debord v. ERIE INDEMNITY COMPANY, Appellant. |
| Court | U.S. Court of Appeals — Third Circuit |
OPINION TEXT STARTS HERE
Steven B. Feirson [Argued], Michael L. Kichline, Donald C. Le Gower, Dechert LLP, Philadelphia, PA, Ira L. Podheiser, Burns White LLC, Pittsburg, PA, for Appellant, Erie Indemnity Company.
William M. Radcliffe, III [Argued], William M. Martin, Radcliffe & DeHaas LLP, Uniontown, PA, for Appellees, Erie Insurance Exchange, Joseph S. Sullivan, Patricia R. Beltz, Jenna L. Debord, and Anita Sullivan.
Before: FUENTES, CHAGARES and ROTH, Circuit Judges.
We are asked to determine whether this case is a class action that belongs in federal court under the Class Action Fairness Act of 2005, Pub.L. No. 109–2, 119 Stat. 4 (“CAFA”). Erie Insurance Exchange (“Exchange”) filed suit against its attorney-in-fact, Erie Indemnity Co. (“Indemnity”), in Pennsylvania state court, alleging that Indemnity misappropriated over $300 million in fees that belonged to Exchange. The complaint was filed for Exchange “by” certain of its members as trustees ad litem, and by those members “on behalf of” all other members. Contending that the words “on behalf of” convert this case into a class action, Indemnity removed the case to federal court but the District Court remanded the case to state court on Exchange's motion. Because this case was brought under state rules that bear no resemblance to Rule 23 in that they allow for suits by entities, not a conglomerate of individuals, we conclude that it does not meet the statutory definition of “class action.” We therefore affirm the District Court's order.
The parties do not dispute that Exchange is a reciprocal insurance exchange organized under Pennsylvania law. Since at least 1921, Pennsylvania has authorized the aggregation of resources for the purpose of covering most losses that may otherwise be insured against under Pennsylvania's laws. See40 Pa. Stat. Ann.. § 961 (2012). Thus, Exchange's members purchase insurance policies and receive indemnification for losses out of Exchange's pool of funds. The pool is comprised of fees, including insurance premiums and other charges, paid by Exchange's members. Importantly, the legal association of these individuals exists independent of this suit.
The original complaint, filed in the Court of Common Pleas of Fayette County, Pennsylvania on August 1, 2012 (the “Complaint”), alleges that Exchange is owned by its subscribers and has no independent officers or governing body. It also alleges that Indemnity is a public corporation organized under Pennsylvania law, and that it serves as attorney-in-fact for Exchange. According to the Complaint, to receive insurance, each Exchange member is required to sign an identical agreement appointing Indemnity as attorney-in-fact on behalf of Exchange (the “Subscriber's Agreement”). The Subscriber's Agreement gives Indemnity broad powers to “manage and conduct the business and affairs of” Exchange, including the ability to issue policies for Exchange, collect premiums, and invest Exchange's funds. Joint Appendix (“J.A.”) 35. In exchange for these services, Indemnity is permitted to retain up to 25% of all premiums written or assumed by Exchange. The balance of the premiums is to be used for insurance losses and other operational costs of Exchange and may be distributed to its members as dividends at the discretion of Indemnity.
The Complaint alleges that members of Exchange who pay their insurance premiums in installments must also pay service charges, and that members are also subject to late payment and policy reinstatement fees. The Complaint also claims that, beginning in 1997, Indemnity began to retain for itself the service charges that certain members paid to Exchange, which monies belonged to Exchange, and that, beginning in 2008, Indemnity misappropriatedthe late payment and policy reinstatement fees, totaling over $300 million dollars.
The Complaint names Exchange as plaintiff, and states that Exchange brings the suit “by” four of its individual members as “trustees ad litem” (“Individual Members”). J.A. 28. Further, each Individual Member is said to bring the suit “on behalf of all members of Exchange.” Compl. ¶¶ 1–4. The action was purportedly brought “pursuant to Pa. R. Civ. P. 2152,” id. ¶ 4, which provides that Pa. R. Civ. P. 2152.
The Complaint pleads three counts under state law: (1) breach of contract, alleging that the “plaintiffs herein sustained damages” as a result of Indemnity's breach of the Subscriber's Agreement in retaining services charges, and seeking relief “on behalf of” all members of Exchange; (2) breach of fiduciary duty, also seeking relief on behalf of the members of Exchange; and (3) “equity,” requesting relief in the amount of misappropriated funds “on behalf of Exchange.” Id. ¶¶ 30–47.
Indemnity filed a notice of removal, arguing that this case constitutes a “class action within the meaning of the Class Action Fairness Act.” J.A. 21. After the case was transferred to the District Court for the Western District of Pennsylvania, plaintiffs moved to remand, arguing that this case does not constitute a “class action” as that term is used in CAFA, and that, in the alternative, CAFA's diversity of citizenship requirement is not met. Indemnity responded that, among other arguments, the suit was improperly brought under Rule 2152 of the Pennsylvania Rules of Civil Procedure. As noted, Rule 2152 sets forth how suits on behalf of “associations” are to be prosecuted under Pennsylvania law. However, the Pennsylvania rules define “associations” to exclude entities that are “corporations or similar entit[ies],” such as “insurance association[s] or exchange[s].” Pa. R. Civ. P. 2176; see alsoPa. R. Civ. P. 2151. Pennsylvania law provides that actions on behalf of such “a corporation or similar entity” instead “shall be prosecuted ... in its corporate name.” Pa. R. Civ. P. 2177. Thus, the Original Complaint would not seem to fit under Rule 2152.
An amended complaint was filed while the motion for remand was pending (the “Amended Complaint”). The Amended Complaint contains no references to Rule 2152, no longer requests relief “on behalf of” individual members of Exchange, and asserts that it is brought by individual members “on behalf of Exchange.” J.A. 72, ¶¶ 1–4.
In October 2012, the District Court granted plaintiffs' motion to remand the case, concluding that it does not constitute a “class action” under CAFA. Indemnity filed a timely petition for leave to appeal, which we granted on February 14, 2013.
While the petition for appeal was pending, three of the four Individual Members filed a lawsuit in the District Court for the Western District of Pennsylvania (the “Federal Lawsuit”). The complaint in that case stated two alternative causes of action—one styled as a class action by the individual members on behalf of all the members of Exchange, and the other a non-class action on behalf of Exchange by its members. See Compl. at 2, Erie Ins. Exch. v. Stover, No. 1:13–cv–37 (W.D.Pa. Feb. 6, 2013). The Federal Lawsuit names as defendants certain trustees of Exchange, allegedly appointed by Indemnity and responsible for permitting Indemnity to take funds from Exchange, the same funds that are at issue in this lawsuit.
CAFA grants us appellate jurisdiction to review the District Court's remand order. 28 U.S.C. § 1453(c). But the basic question we must resolve is whether a federal court has subject matter jurisdiction to hear this case in the first instance. Indemnity, as the party seeking removal, bears the burden of establishing that federal subject matter jurisdiction exists. Kaufman v. Allstate New Jersey Ins. Co., 561 F.3d 144, 151 (3d Cir.2009). To evaluate whether removal is proper, we generally focus on the allegations in the Complaint and the notice of removal. Id.1
CAFA gives federal courts subject matter jurisdiction over “class actions” if the suit meets certain requirements, such as involving an amount in controversy over $5 million in the aggregate and involving at least one plaintiff who is a resident of a jurisdiction different than that of at least one defendant. 28 U.S.C. § 1332(d)(2)(A). The principal dispute here, however, is whether this case even constitutes a “class action.”
We begin, of course, with CAFA's language, which defines a “class action” as “any civil action filed under rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action.” 28 U.S.C. § 1332(d)(1)(B). Like the other Courts of Appeals to have construed CAFA's definition of “class action,” we find “no ambiguity” in the text of the law and Indemnity points to none. Washington v. Chimei Innolux Corp., 659 F.3d 842, 848 (9th Cir.2011). The statute directs us to inquire whether this action was brought under a “state statute or rule” that is “similar” to Rule 23 or, in other words, “whether the state statute authorizes the suit ‘as a class action.’ ” Id.2
Indemnity has made no attempt to argue that this dispute meets the statutory definition of class action. Notably, Indemnity does not contend that the Complaint was filed pursuant to Rule 23 of the Federal Rules of Civil Procedure, or under any state statute or rule that is “similar” to Rule 23 or that otherwise authorizes an action to be brought by a representative as a class...
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