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Ark. jurisdiction battle an interesting one, professor says

By Michael P. Tremoglie | Apr 12, 2012


TEXARKANA, Ark. (Legal Newsline) - The dispute over which court has jurisdiction over an Arkansas class action lawsuit is an intriguing one, according to a Mississippi law professor, and two appellate decisions might provide some insight.

A federal judge in Arkansas' western district is tasked with determining if a plaintiff can circumvent the Class Action Fairness of Act of 2005 if it asserts that it is seeking less than the $5 million CAFA threshold while still maintaining the possibility of demanding and being awarded more than $5 million if the case is returned to state court.

A class action lawsuit filed Dec. 7 in the state circuit court of Miller County, Arkansas and subsequently removed Jan. 17 to the federal district court has become a jurisdictional controversy. The plaintiffs' lawyers have made a motion to remand the case back to state court.

The plaintiffs aren't asking for more than $5 million, but the defendants say any settlement or jury award would exceed that amount.

Professor Ronald Rychlak, the Associate Dean of Academic Affairs for the University of Mississippi School of Law, said it is not unusual for attorneys to structure their pleadings with jurisdiction in mind. If an attorney does not want to be in federal court, the attorney will find a reason not to be, he said.

He does find the issue of whether the case should be within the CAFA guidelines interesting. He said the questions are issues that should have been legislated.

"This is an interesting case. This strikes me as one of those legal questions that should have been taken care of when the law was drafted but perhaps was not," Rychlak said.

He opined that the method of placing a value for injunctive relief and whether to count attorneys fees probably should have been addressed when the law was made.

"This seems to be a case of first impression under this statute. I guess if I were a judge, I would have a hearing to figure the value of the requested injunctive relief, and I would put that towards the $5 million."

The litigation involves an alleged conspiracy by the defendants - insurance companies - to pay uninsured and under-insured motorist claims at a rate less than purportedly deserved. The method to conduct this alleged conspiracy was a claims-paying software program called "Colossus."

The case was removed to federal court after the defendants argued that this was a federal case per the terms of CAFA. Once the case went to federal court, the defense filed motions to dismiss.

According to court documents, the Travelers Insurance company and Infinity filed motions to dismiss on Jan. 18; the 21st Century and Erie filed theirs on Jan. 23; and the Farm Bureau Mutual Group, ANPAC and Pacific Defendants filed Jan. 24. All the other defendants have either filed an answer or motions to extend the time to file an answer.

The plaintiffs filed a motion Jan. 19 to stay responses to these motions to dismiss. The plaintiffs asked the court to grant a stay to the response deadline for the defendants' pending dismissal motions.

Two defendants - 21st Century and ANPAC - responded by requesting the court address the personal jurisdiction arguments contained in their motions to dismiss. They wanted this ruling before deciding any future question concerning subject matter jurisdiction posed by a remand motion.

The court granted the plaintiffs' motion to stay responses to the multiple defendants' dismissal motions. The plaintiffs' deadline to respond to any dismissal motion "before the Court addresses remand is stayed until the Court issues its remand ruling."

CAFA permits, with some narrow exceptions, class actions exceeding the sum of $5 million to be tried in federal court. If the class asks for less than $5 million, it can remain in state court.

The defendants want to keep the case in federal court where they believe they will have an equitable proceeding. They say they will be unable to defend themselves in state court against a flood of discovery requests designed to force a settlement because they will be unable to appeal any of them.

Another legal scholar said that this is an issue that has come up in a number of circuits. He said one consideration is state procedural law. If the plaintiff can receive more than $5 million from a state trial, the federal courts are unlikely to accept that the plaintiffs are willing to accept only $5 million to have the case returned there.

Recently a federal court ruled that a plaintiff can make a binding commitment for an award. Then the question of the wording of the stipulation becomes an important issue.

"To determine jurisdiction before trial, the court will rely on the facts as pleaded and discovered," said Michael I. Krauss, a law professor at George Mason University School of Law, Arlington, Va.

Nonetheless, plaintiffs have attempted extraordinary measures to avoid CAFA. The U.S. Court of Appeals for the Sixth District's decision in the 2008 case of Freeman v. Blue Ridge Paper Products is an example.

The plaintiffs wanted their litigation remanded to state court. The appeals court ruled the plaintiffs separated their suit into five different actions for distinct time periods and limited the total damages for each to less than CAFA's $5 million threshold.

The appeals court said, "Because no colorable basis for dividing the claims has been identified by the plaintiffs other than to avoid the clear purpose of CAFA, remand was not proper."

More recently, a March ruling by the Eighth Circuit in the case of Hargis v. Access Capital Funding, LLC, et al., denied a remand motion because the plaintiff did not stipulate her class size was limited to Missouri residents.

The court said, "The district court correctly denied Hargis's motion to remand to state court. Hargis argues that her putative class consists only of Missouri plaintiffs, because she is alleging a violation of Missouri's statute prohibiting the unlicensed practice of law.

"When only Missouri plaintiffs are considered, she contends, the amount in controversy does not reach the $5 million threshold required by CAFA. Defendants counter that Hargis's original complaint did not restrict her class to Missouri plaintiffs, and so consideration of a nationwide class was appropriate. When a nationwide class of plaintiffs is contemplated, the amount in controversy exceeds the $5 million mark."

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