Island v. The Guarantee Co. of N. America USA, No. 4:11CV00706 JLH, 2011 WL 6153694 (E.D. Ark. Dec. 12, 2011).
In this action, a District Court in Arkansas held that the class recovery cannot be treated as “common fund” because the plaintiffs in a class action do not share a joint interest in the entire amount to be recovered.
The plaintiffs, Carolyn Island and Jeanette Carter, commenced this putative class action in state court alleging that the Guarantee Company of North America USA refused to satisfy its legal obligation as a surety by refusing to make payment in the face amount of the bonds.
The plaintiffs represent a certified class that, in the Pulaski County Circuit Court, has been granted partial summary judgment and damages of nearly $2.8 million against USA Check Cashers of Little Rock, Inc., a company that is insolvent. The plaintiffs alleged that Guarantee is a surety company that issued two surety bonds totaling $100,000 on behalf of Check Cashers and that Guarantee has refused to make payment in the face amount of the bonds.
Guarantee removed the action to the federal district court.
The plaintiffs moved to remand the action, arguing that the amount in controversy did not meet the requirements of 28 U.S.C. § 1332(a) and (d).
The District Court granted the motion to remand.
First, the Court found that as the plaintiffs sought to recover only $100,000 in damages, plus attorneys’ fees and costs, it was clear that they fell far short of meeting the statutory requirement for a class-action amount in controversy under CAFA. (At this point you can hear Homer Simpson say, “D’oh!”)
Next, Guarantee did not argue that an individual plaintiff’s claim exceeded $75,000, which would open the door for all of the plaintiffs to get into federal court under §1332(a). Instead, Guarantee contended that this was a case where multiple individual plaintiffs were asserting a “common and undivided interest,” thus their claims can and should be aggregated, which would make the amount in controversy at least $100,000 and satisfy § 1332(a).
The Court disagreed.
The Court pointed out that when several plaintiffs unite to enforce a single title or right, in which they have a common and undivided interest, it is enough if their interests collectively equal the jurisdictional amount. But this is a narrow exception to the “well-established rule that each of several plaintiffs asserting separate and distinct claims must satisfy the jurisdictional-amount requirement if his claim is to survive a motion to dismiss.” However, in determining whether the broad rule or the narrow “common fund” exception applies to a set of facts, what controls is the nature of the right asserted, not whether successful vindication of the right will lead to a single pool of money that will be allocated among the plaintiffs.”
The plaintiffs share a common and undivided interest only when the defendant owes an obligation to the plaintiffs as a group and not to the individuals severally. Specifically, the paradigm “common fund” cases involve “claims to a piece of land, a trust fund, an estate, an insurance policy, a lien, or an item of collateral, which plaintiffs claim as common owners or in which they share a common interest arising under a single title or right.
The Court found that Guarantee had not shown that the plaintiffs had a common and undivided interest in the funds that they sought. The Court pointed that the plaintiffs in a class action do not share a joint interest in the entire amount to be recovered, nor, in the current action, the entire amount of the surety bonds issued to the company against which judgment was entered.
The Court explained that there is a distinct difference between the “common fund” that results in aggregation and the recovery that results from a successful class action. Specifically, the second circuit in Gilman v. BHC Sec., Inc., 104 F.3d 1418, 1427 (2nd Cir. 1997) explained that, “such a class action “fund” is created to facilitate the litigation process in virtually every class action, and has nothing necessarily to do with whether the plaintiffs shared a pre-existing (pre-litigation) interest in the subject of the litigation. To call any recovery that a class might win a “fund” to which the class plaintiffs are jointly entitled is merely added verbiage. There is no fund. The claim remains one on behalf of separate individuals for the damage suffered by each due to the alleged conduct of defendant”.
Guarantee argued that the claims should be aggregated because they arose from a single class-action judgment and sought the surety bonds in partial satisfaction of that judgment. Guarantee, however, failed to show that the plaintiffs had a common and undivided interest in the funds they sought. The Court thus concluded that the plaintiffs’ individual claims cannot be aggregated to meet the amount-in-controversy requirement.
Accordingly, the Court remanded the action to state court.