Addison Automatics, Inc. v. Hartford Cas. Ins. Co.

• Decision Date: 02 October 2013
• Docket Number: No. 13–2729.,13–2729.
• Citation: 731 F.3d 740
• Parties: ADDISON AUTOMATICS, INCORPORATED, Plaintiff–Appellee, v. HARTFORD CASUALTY INSURANCE COMPANY, Defendant–Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

731 F.3d 740

ADDISON AUTOMATICS, INCORPORATED, Plaintiff–Appellee,

v.HARTFORD CASUALTY INSURANCE COMPANY, Defendant–Appellant.

No. 13–2729.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 10, 2013.

Decided Oct. 2, 2013.

David M. Oppenheim, Anderson & Wanca, Rolling Meadows, IL, for Plaintiff–Appellee.

James K. Borcia, Ashley L. Conaghan, Michael J. Duffy, Tressler LLP, Steven M. Levy, Dentons U.S. LLP, Chicago, IL, for Defendant–Appellant.

Before EASTERBROOK, ROVNER, and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge.

This is an appeal from a district court's decision remanding a case to state court. See 28 U.S.C. § 1453(c) (court of appeals may accept appeal from order remanding class action). Plaintiff Addison Automatics, Inc. filed a complaint in state court seeking a declaratory judgment that defendant Hartford Casualty Insurance Company owed a duty to defend and indemnify a third party against whom Addison had earlier brought and settled a class action on terms that included an assignment to the class of the third party's rights against its insurers. Addison's complaint stated that it intended to proceed solely in its individual capacity rather than on behalf of the previously certified class.

The question before us is whether Addison's follow-on suit is a class action removable under the Class Action Fairness Act, 28 U.S.C. §§ 1332(d) and 1453. The district court thought not, concluding that it should not look past Addison's assertion that it was suing only as an individual. We accepted the appeal, see § 1453(c), and we reverse the remand to state court. Despite Addison's disclaimer of its status and duties as class representative, it has standing to pursue relief against Hartford only as class representative. The declaratory judgment action is in substance a class action that was properly removed to federal court.

I. Procedural Background

The case now before us has its origins in state court, where Addison filed a class action against Domino Plastics Company. The complaint alleged that Domino had sent thousands of “junk faxes” in violation of the federal Telephone Consumer Protection Act, 47 U.S.C. § 227, and the Illinois Consumer Fraud Act, 815 ILCS 505/2, and had committed the tort of conversion. Domino's liability insurers refused to defend the suit. Left to its own devices and checkbook, Domino negotiated a settlement that would protect its own interests and leave its insurers to face the plaintiff class. Addison and Domino agreed that the state court should certify a class and then enter a nominal judgment against Domino for nearly $18 million. We say “nominal” because Addison agreed that the class would not recover a single dollar of that amount from Domino itself.

Instead, Domino assigned to Addison—as class representative—whatever claims Domino might have against its absent liability insurers. The settlement made clear that Addison's status as assignee depended on its continuing role as class representative. Domino assigned its claims against its insurers “to the Class (as represented by Plaintiff and its attorneys).” After notice and a fairness hearing, the state court certified a class of all recipients of Domino's faxed advertisements between January 2007 and October 2008 and approved the settlement in an order that also recognized that Domino's assignment was “to the Class” and not to Addison individually.

Addison then filed a new state court action against Hartford seeking a declaratory judgment holding Hartford liable for the $18 million judgment against Domino. In the new complaint, Addison alleged that it was suing both “individually and as the representative of a certified class.” Hartford removed the case to federal court under 28 U.S.C. § 1453. Addison responded by immediately dismissing the case voluntarily, notwithstanding Federal Rule of Civil Procedure 23(e), which requires court approval to dismiss a claim by a certified class.

The new twist in this case comes from Addison's and class counsel's next move. Addison quickly filed yet another state court lawsuit against Hartford. That complaint, which is now before us in this appeal, names Addison as the only plaintiff, describes the suit as “an individual declaratory judgment action,” and insists that it is “not a class action” under Federal Rule of Civil Procedure 23 or any state equivalent.

Hartford removed this new action to federal court under 28 U.S.C. § 1453, asserting that the case is in substance a class action. Addison moved to remand, arguing that its suit does not fit CAFA's statutory definition of 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).

The district court granted Addison's motion to remand. The court found that the complaint's language asserting that Addison was suing only as an individual plaintiff showed conclusively that the suit did not fit CAFA's definition of a class action. Hartford argued that under the terms of the assignment in the underlying settlement agreement, Addison had standing only as a class representative. The district court did not address the merits of that argument, reasoning that the standing question should be decided in state court because there was no federal jurisdiction under CAFA. Hartford sought permission to appeal the remand order under 28 U.S.C. § 1453(c). We granted Hartford's request, thereby binding ourselves to the statute's 60–day time limit for decision.

II. Analysis

The question before us is whether this new action is a class action removable under CAFA. We conclude that it is in substance a class action and was properly removed to federal court, notwithstanding Addison's artificial attempt to disguise the true nature of the suit. We base our conclusion on two closely related grounds.

First, the terms of the class settlement approved in state court make clear that Addison has standing to pursue relief from Hartford only in its capacity as class representative. Unlike the district court, we reach the question of standing because it goes directly to the characterization of Addison's claim as a class action, a threshold inquiry for deciding federal jurisdiction under CAFA. See generally United States v. Ruiz, 536 U.S. 622, 628, 122 S.Ct. 2450, 153 L.Ed.2d 586 (2002) (“it is familiar law that a federal court always has jurisdiction to determine its own jurisdiction.”). Despite Addison's artful pleading, its complaint seeks a ruling on Hartford's duties to Domino on a claim that Domino assigned “to the Class (as represented by Plaintiff and its attorneys).” Such a ruling will determine Hartford's liability not just to Addison but for the entire $18 million judgment that the state court entered “in favor of the Class.” Moreover, only Addison has standing to pursue this relief on behalf of the class certified by the state court. If any other members of the class sought similar relief from Hartford, they would encounter an insurmountable roadblock. The settlement gave other class members no right to pursue such relief on their own because it assigned Domino's claims against its insurers only to “the Class (as represented by [Addison] and its attorneys).”

Second, as Addison correctly conceded at oral argument, in pursuing this action against Hartford, Addison owes continuing fiduciary obligations to the class it represents. See Fed.R.Civ.P. 23(a)(4); 735 ILCS 5/2–801(3); Back Doctors Ltd. v. Metropolitan Property & Cas. Ins. Co., 637 F.3d 827, 830 (7th Cir.2011) (named plaintiff “has a fiduciary duty to its fellow class members”); CIGNA HealthCare of St. Louis, Inc. v. Kaiser, 181 F.Supp.2d 914, 922 (N.D.Ill.2002) (“We agree that a class representative's fiduciary duty to class members carries over to separate litigation affecting the class.”), aff'd as modified on other grounds,294 F.3d 849 (7th Cir.2002). In a similar context, the Eighth Circuit held that where representatives of a class in a federal case under federal law pursued individual relief in a separate but parallel action in state court under state law, the class representatives still owed fiduciary duties to the members of the federal class when pursuing the state court action. As a result, the Eighth Circuit held that a state court judgment against the class representatives in their individual capacities was binding as res judicata against the parallel federal claims of the certified class. See Sondel v. Northwest Airlines, Inc., 56 F.3d 934, 938–39 (8th Cir.1995).

We agree with Sondel and CIGNA HealthCare on this point. Addison owes fiduciary duties to the class in pursuing relief against Hartford, and this is true even though the new lawsuit is nominally separate and even though Addison has tried to disclaim its role as class representative. If we were to treat Addison as anything other than a class representative here, the interests of the class would be in danger. If a class representative could seek such relief on its own, relieved of its fiduciary duties, it could be induced to sell out the interests of other class members in a lucrative settlement. The risk is analogous to the one we have recognized in the context of class counsel who may be in a position to sacrifice the interests of the class to obtain more generous compensation for themselves. See Creative Montessori...