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CAFA Law Blog Information, cases and insights regarding the Class Action Fairness Act of 2005

Seventh Circuit Refuses to Exalt Form Over Substance in Decision Reversing District Court’s Remand Order

Posted in Case Summaries

Addison Automatics, Inc. v. Hartford Cas. Ins. Co., 731 F.3d 740 (7th Cir. 2013).

In this appeal, the Seventh Circuit found that the substance, not form, of a plaintiff’s complaint determined whether the district court had subject matter jurisdiction under CAFA.  Also, the Seventh Circuit held that a class representative’s fiduciary duties extend to separate litigation affecting the class.

This case’s winding procedural history began in Illinois state court, where the plaintiff, Addison Automatics, Inc., filed a class action against Domino Plastics Company, alleging, among other things, that Domino violated the federal Telephone Consumer Protection Act (47 U.S.C. § 227).  Domino’s liability insurer, Hartford Casualty Insurance Company, refused to defend the suit.  Domino, therefore, negotiated a settlement with Addison that would protect Domino’s interests, while leaving Hartford to face the class.  To that end, Addison and Domino negotiated a settlement, whereby the state court would certify the class and enter a judgment against Domino for approximately $18 million, although the class would not recover any of that amount from Domino.  Pursuant to the terms of the settlement, Domino would also assign to Addison – as class representative – any claims that Domino might have against Hartford.  The state court then certified the class and approved the settlement, which explicitly recognized that Domino’s assignment was “to the Class,” not Addison individually.

Addison then filed a second state court action to enforce the certified class’s rights as Domino’s assignees.   In this second action, Addison sought a declaration that Hartford was liable for the $18-million judgment previously entered against Domino.  In the complaint for declaratory relief, Addison alleged it was proceeding “individually and as the representative of the certified class.”  Hartford filed a notice of removal, and Addison voluntarily dismissed the case.

Addison then tied this case into a bizarre procedural knot by filing yet another state court action against Hartford.  This time, though, Addison characterized its lawsuit as “an individual declaratory judgment action” and insisted that it was “not a class action” under Federal Rule of Civil Procedure 23 or any state law equivalent.

Again, Hartford removed the case under CAFA, arguing that, despite Addison’s artful pleading, the new suit was in substance a class action.  In response, Addison moved to remand on the ground that its suit did not comport with CAFA’s statutory definition of a class action. See 28 U.S.C. § 1332(d)(1)(B).  The district court found that the language in Addison’s complaint conclusively showed that the suit did not fit within CAFA’s definition of a class action, and thus the court remanded the case to state court.

On appeal, the Seventh Circuit reversed the remand order.  Specifically, the Seventh Circuit concluded that Addison’s suit was in substance a class action, despite Addison’s artful attempts to disguise the true nature of its claim.  First, the Court found that the terms of the class settlement approved by the state court provided that Addison had standing to pursue relief from Hartford only in its capacity as the class representative.  The settlement gave other class members no right to pursue relief individually against Hartford.  Thus, in the second declaratory judgment action, Addison sought a ruling on Hartford’s duties to Domino on a claim that Domino assigned to the entire class.  Such a ruling would determine not just Hartford’s liability to Addison, but its liability for the entire $18-million judgment that the state court entered in favor of the class.

Next, the Seventh Circuit held that Addison’s second declaratory judgment action was in the nature of a class action because Addison, as a class representative, had fiduciary duties that spilled over into separate litigation affecting the class.  Addison, therefore, owed fiduciary duties to the class in pursuing relief against Hartford, even though the new lawsuit was nominally separate and Addison had tried to disclaim its role as class representative.  The Seventh Circuit remarked that if it were to treat Addison as anything other than a class representative, it would potentially jeopardize the interests of the entire class.

The Seventh Circuit concluded that a ruling in Addison’s favor would exalt form over substance and contravene CAFA’s primary objective, which is to expand federal jurisdiction over national class actions.  Here, by pursuing the rights assigned to it as class representative, Addison was necessarily continuing the class action.  Accordingly, the Seventh Circuit reversed the district court’s remand order.