Kaufman v. Allstate New Jersey Ins. Co.

• Citation: 561 F.3d 144
• Decision Date: 26 March 2009
• Docket Number: No. 08-4912.,No. 08-4911.,No. 08-4913.,08-4911.,08-4912.,08-4913.
• Parties: Lauren KAUFMAN; Bettina Freeland; Phillip T. Burrus; Vanga Stoilov; Anthony Rossetti; Tamesha Brown; Axa & Eduardo Kieffer; Sandra Kozusko v. ALLSTATE NEW JERSEY INSURANCE COMPANY; Liberty Mutual Fire Insurance Company; Geico Insurance Company; First Trenton Indemnity Company; High Point Insurance Company; New Jersey Manufacturers Insurance Company. Liberty Mutual Fire Insurance Company, Appellant in No. 08-4911. Allstate New Jersey Insurance Company, Appellant in No. 08-4912 Geico Insurance Company, Appellant in No. 08-4913.
• Court: U.S. Court of Appeals — Third Circuit

561 F.3d 144

Lauren KAUFMAN; Bettina Freeland; Phillip T. Burrus; Vanga Stoilov; Anthony Rossetti; Tamesha Brown; Axa & Eduardo Kieffer; Sandra Kozusko v. ALLSTATE NEW JERSEY INSURANCE COMPANY; Liberty Mutual Fire Insurance Company; Geico Insurance Company; First Trenton Indemnity Company; High Point Insurance Company; New Jersey Manufacturers Insurance Company Liberty Mutual Fire Insurance Company, Appellant in No. 08-4911 Allstate New Jersey Insurance Company, Appellant in No. 08-4912 Geico Insurance Company, Appellant in No. 08-4913.

No. 08-4911.

No. 08-4912.

No. 08-4913.

United States Court of Appeals, Third Circuit.

Argued January 27, 2009.

Filed: March 26, 2009.

Eric D. Katz, (Argued), Mazie, Slater, Katz & Freeman, Roseland, NJ, for Appellees.

John E. Keefe, Jr., Keefe Bartel, Shrewsbury, NJ, for Appellees.

John J. Calkins, Sonnenschein, Nath & Rosenthal, Washington, DC, DanaLynn T. Colao, Saiber, Newark, NJ, for Allstate NJ Insurance Company.

Mark G. Arnold, (Argued), Husch Blackwell Sanders, St. Louis, MO, for Liberty Mutual Fire.

Meloney C. Perry, (Argued), Meckler Bugler Tilson Marick & Pearson, Dallas, TX, David F. Swerdlow, Windels, Marx, Lane & Mittendorf, Princeton, NJ, for Geico Insurance Company.

Stephen R. Katzman, Methfessel & Werbel, Edison, NJ, for First Trenton Indemnity Company.

Joseph J. DePalma, Bruce D. Greenberg, Lite, De Palma, Greenberg & Rivas, Newark, NJ, for High Point Insurance Company and NJ Manufacturing Insurance Company.

Daniel J. Pomeroy, Mortenson & Pomeroy, Springfield, NJ, for High Point Insurance Company and NJ Manufacturing Insurance Company.

Before: McKEE, RENDELL, and SMITH, Circuit Judges.

OPINION

SMITH, Circuit Judge.

The Class Action Fairness Act of 2005 (CAFA)¹ confers jurisdiction on federal courts over certain class actions in which any defendant and any class member are citizens of different states. 28 U.S.C. § 1332(d)(2). CAFA further enables any defendant to remove a qualifying class action to federal court. Id. § 1453(b). Under CAFA's "local controversy" exception, however, a federal court must decline jurisdiction if certain conditions are met, including that a super-majority of the members of the putative class and at least one significant defendant are from the state in which the class action was originally filed. 28 U.S.C. § 1332(d)(4)(A). This appeal addresses, as issues of first impression, the meaning of two provisions within CAFA's local controversy exception.

Plaintiffs in this case originally filed their class action complaint in the Superior Court of New Jersey, Monmouth County, against six automobile insurance providers. After the case was removed to the United States District Court for the District of New Jersey pursuant to CAFA, the District Court granted Plaintiffs' motion to remand based on CAFA's local controversy exception, 28 U.S.C. § 1332(d)(4)(A). Government Employees Insurance Company (GEICO), Allstate New Jersey Insurance Company (Allstate NJ), and Liberty Mutual Fire Insurance Company (Liberty) (collectively, the Defendants), petitioned for permission to appeal under 28 U.S.C. § 1453(c)(1). The Defendants challenge the District Court's interpretation of two provisions in CAFA's local controversy exception—specifically, the significant basis provision, 28 U.S.C. § 1332(d)(4)(A)(i)(II)(bb), and the principal injuries provision, 28 U.S.C. § 1332(d)(4)(A)(i)(III). For the reasons set forth below, we reject Defendants' interpretations of these provisions. Nevertheless, we will vacate in part the judgment of the District Court and remand the case for the District Court to reconsider its significant basis analysis, which erroneously relied on generic market share numbers instead of focusing on the conduct alleged in the complaint.

I.

A.

Prior to Congress's enactment of CAFA in 2005, many class actions were excluded from federal courts even if those actions implicated matters of national importance affecting millions of parties from many different states. This was the result of the complete-diversity rule, which requires that no plaintiff be a citizen of the same state as any defendant,² and the rule against aggregating claims, which requires that each plaintiff individually seek at least the jurisdictional amount in controversy.³

One purpose of CAFA was to provide for "[f]ederal court consideration of interstate cases of national importance under diversity jurisdiction." CAFA § 2, Pub.L. 109-2, 119 Stat. 4. Pursuant to CAFA, federal courts have jurisdiction over class actions in which the amount in controversy exceeds $5,000,000 in the aggregate, §§ 1332(d)(2) & (6), any class member and any defendant are citizens of different states, § 1332(d)(2)(A), and there are at least 100 members in the putative class, § 1332(d)(5)(B).

CAFA also contains two mandatory exceptions from federal jurisdiction, §§ 1332(d)(4)(A) & (B). These two exceptions require a district court to decline jurisdiction when the controversy is uniquely local⁴ and does not reach into multiple states. Subsection (A), the "local controversy" exception, may apply when at least one significant defendant and more than two-thirds of the members of the putative classes are local. Subsection (B), the "home-state" exception, may apply when the primary defendants and at least two-thirds of the members of the putative classes are local. Specifically, 28 U.S.C. § 1332(d)(4) provides:

A district court shall decline to exercise jurisdiction under paragraph (2)—

(A)(i) over a class action in which—

(I) greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed;

(II) at least 1 defendant is a defendant—

(aa) from whom significant relief is sought by members of the plaintiff class;

(bb) whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class; and

(cc) who is a citizen of the State in which the action was originally filed; and

(III) principal injuries resulting from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was originally filed; and

(ii) during the 3-year period preceding the filing of that class action, no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same persons; or

(B) two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed.

28 U.S.C. § 1332(d)(4).

In this appeal, we consider two questions: first, whether the significant basis provision, § 1332(d)(4)(A)(i)(II)(bb), requires that every class member must assert a claim against the local defendant; and second, whether the principal injuries provision, § 1332(d)(4)(A)(i)(III), requires that principal injuries resulting from the alleged conduct and any related conduct of each defendant must be incurred in the state in which the action was originally filed. No other court of appeals has yet considered these two questions.

B.

On November 30, 2007, nine representative plaintiffs (Plaintiffs) filed a class action complaint against six insurance companies in the Superior Court of New Jersey. Plaintiffs voluntarily dismissed three New Jersey insurers in July 2008 so that, presently, only Allstate NJ, GEICO, and Liberty remain in the action. Allstate NJ⁵ is a New Jersey citizen, but GEICO and Liberty are not.⁶

Plaintiffs allege that they purchased automobile insurance from Defendants and plead three causes of action: 1) breach of contract; 2) breach of an implied duty of good faith and fair dealing; and 3) violation of the New Jersey Consumer Fraud Act, N.J. Stat. Ann. § 56:8-1 et seq. The crux of Plaintiffs' claims is that an automobile loses value if it is damaged in an accident, notwithstanding its complete repair. This loss in value is known in the insurance business as "diminished value." Plaintiffs allege that Defendants do not pay their insureds for diminished value insurance claims. They assert that Defendants either expressly exclude diminished value from coverage, or their insurance policies are silent as to such coverage. In any event, Plaintiffs contend that Defendants' practices violate New Jersey law and the insurance contracts.

In addition to compensatory and punitive damages, Plaintiffs seek reformation of the insurance contracts to establish coverage and an injunction that would 1) compel Defendants to cover diminished value claims; 2) require Defendants to notify their insureds of the coverage and claims processing procedures; and 3) require Defendants to adhere to these contractual obligations in the future.

The complaint also seeks class action status. Without specifying the type of class action Plaintiffs seek to maintain, their complaint includes language that might support a(b)(1), (b)(2), or (b)(3) class action. See Fed. R. Civ. Pro. 23(b). Plaintiffs define the putative "Equitable Relief Class" to include all persons currently insured by Defendants under a policy issued in New Jersey and the "Damages Sub-Class" to include all persons currently or previously insured by Defendants and who submitted, at any time within six years prior to the complaint, a claim for damage and who did not receive compensation for diminished value. Significantly, in Defendants' view, each class member would assert claims against only one Defendant—the Defendant that underwrote the class member's automobile insurance. Thus, the putative class and sub-class would actually be comprised of three separate and distinct groups of members: 1) GEICO insureds; 2) Liberty insureds; and 3) Allstate NJ insureds.

After GEICO timely removed the action to the District Court pursuant to CAFA, 28 U.S.C. §§ 1332(d)(2) and 1453, Plaintiffs filed a motion to remand based on CAFA's local controversy exception, §...