Cantu v. Ken Nelson Auto Mall, Inc., No. 09 C 50256 (N.D. Ill. Sept. 29, 2010).
Here’s a twist: Guess what happens when there are class allegations against one defendant, but not the other? One defendant gets remanded. So says the Northern District of Illinois.
In this case, Judge Philip G. Reinhard, writing for the Northern District of Illinois found that in a properly removed action under CAFA, individual claims against separate defendants can be severed and remanded to state court, if the severed claims are discrete and separate, and that one claim is capable of resolution despite the outcome of the other claim.
The plaintiffs, Illinois citizens, brought their individual claims in state court against Ken Nelson Auto Mall, Inc. alleging breach of implied warranty of merchantability in violation of § 2310(d) of the Magnuson-Moss Warranty Act, breach of the Illinois Consumer Fraud Act, common law fraud, and revocation of acceptance under Magnuson-Moss and the Illinois Uniform Commercial Code. The plaintiffs also made individual claims against First Automotive Service Corporation for breach of contract and class claims for violation of the Illinois Consumer Fraud Act.
The matter was removed pursuant to CAFA.
Naturally, the plaintiffs moved to remand.
Interestingly, Nelson moved to sever the claims against it from the claims against First Automotive and sought remand of those claims to state court as outside the subject matter jurisdiction conferred by CAFA.
The plaintiffs alleged that defendant First Automotive had a pattern and practice of giving non-contractual, pretextual reasons for persons who purchased its contracts in order to deny them coverage and make more money. First Automotives’ business records indicated that the amount of denied claims for Illinois residents for the last four years were approximately $5.5 million. Thus, the Court found that the amount for the class period–three years was $4,125,000.
The Court stated that this amount including the punitive damages the plaintiffs sought met the $5 million jurisdictional amount. The Court noted that punitive damages are allowable under the Fraud Act when the defendant’s conduct is outrageous or when the defendant disregards others’ rights. Here, the plaintiffs alleged that First Automotive had a pattern and practice of giving pretextual reasons to deny coverage. The Court found that such a pattern and practice, if proven, could certainly result in a substantial award of punitive damages. Accordingly, the Court declined to remand the action to state court.
Next, defendant Nelson moved pursuant to Fed. R. Civ. P. 21, to sever the claims against it from the claims against First Automotive and to remand those claims to state court as outside the subject matter jurisdiction conferred by CAFA. There were no class claims against Nelson because the plaintiffs asserted only their individual claims against Nelson.
The Court noted that it may sever claims under Rule 21, creating two separate proceedings, so long as the two claims are discrete and separate, and that one claim is capable of resolution despite the outcome of the other claim.
The Court stated that while the vehicle purchased by plaintiffs from Nelson was the same vehicle that was the subject of the extended warranty purchased from First Automotive, the claims were substantially different. Nelson was alleged to have made misrepresentations concerning the vehicle and breached its duties concerning implied warranties and acceptance of revocation of the vehicle sales contract. These claims are distinct from the claims against First Automotive for refusing to honor the extended warranty contract. Under these circumstances, the fact that the purchase of the extended warranty occurred as part of the transaction buying the vehicle and that some of the facts relating to this transaction would be common to claims against each defendant did not carry much weight in deciding the severance issue.
Further, the Court stated that severance would serve judicial economy and avoid prejudice to Nelson as the case against Nelson would be able to proceed more expeditiously to resolution. The case against Nelson would not be subject to the delays inherent in a class action where class certification itself is time consuming and either settlement or trial is more complicated than the non-class case. In addition, the witnesses and documentary proof of the claims against First Automotive would differ from those against Nelson. The evidence against First Automotive would concern its practices in denying claims under the extended warranty, and the case against Nelson would require evidence of Nelson’s dealings with the named plaintiffs-mostly in the pre-sale period. Weighing all of the factors, the Court concluded that severance was appropriate.
Finally, while this action was properly removed under CAFA, after severance of these claims from the class action claim, the Court declined to exercise supplemental jurisdiction over the claims against Nelson as the court did not have original jurisdiction over any claims pending in the severed matters.
Accordingly, the Court remanded to the state court the action severed against Nelson, and retained the action against First Automotive.