Walsh Chiropractic, Ltd. v. StrataCare, Inc., No. 09-1061-MJR, 2010 WL 4780756 (S.D. Ill. Sept. 30, 2010).

A District Court in Illinois found that it had subject matter jurisdiction under CAFA because consumer fraud cases attract punitive damages, which may satisfy the jurisdictional amount for diversity purposes.

The plaintiff, Walsh Chiropractic, Ltd., filed this putative class action in the Third Judicial Circuit in Madison County, Illinois, alleging various breach of contract theories and a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”).The plaintiff then filed its first amended class action complaint, adding two additional counts, one for unjust enrichment and the other alleging violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”). 

The defendant, StrataCare, Inc., removed this action alleging that the District Court had federal question, supplemental, and diversity jurisdiction over the subject matter in dispute. The defendant then filed a motion to dismiss all counts.

At the outset, the Court noted that the defendant asserted federal subject matter jurisdiction on the basis of 28 U.S.C. §1331, which grants federal courts jurisdiction over cases arising under the laws of the United States, because the plaintiff brought claims under RICO. 

Next, the Court remarked that because the plaintiff asserted a claim arising under federal law, its pendent state-law claims were within the Court’s supplemental jurisdiction. However, although the plaintiff’s state-law claims were within the Court’s supplemental jurisdiction, the Court remarked that it was unnecessary for the Court to exercise such jurisdiction because the defendant asserted an additional basis for federal jurisdiction; in this case, diversity of citizenship pursuant to 28 U.S.C. §1332.

The Court found that the defendant was a corporation organized under Delaware law with its principal place of business in California; thus, the defendant was a citizen of Delaware and California for purposes of federal diversity jurisdiction. Also, as the plaintiff was a corporation organized under Illinois law, the Court ruled that this case presented the requisite minimal diversity of citizenship for purposes of federal jurisdiction under CAFA. 

Next, the defendant pointed that as the plaintiff refused to stipulate that its claim was worth less than $75,000. Thus, the plaintiff created an inference that the plaintiff believed the claim was worth more than that sum. The Court, however, remarked that, assuming that the plaintiff’s claim was worth $75,000 or more, then, if the plaintiff’s claim was representative of the claims of the proposed class, the aggregate value of the claims of a proposed class of at least one hundred members more than exceeds the $5 million jurisdictional threshold under CAFA.

The Court found that even a more conservative valuation of the plaintiff’s claim showed that the threshold amount was satisfied. The actual loss that the plaintiff claimed was $4,383.43, however, the Court noted that it was well established that in appropriate cases, punitive damages could be reckoned into the jurisdictional amount for diversity purposes. When punitive damages are required to satisfy the jurisdictional amount in a diversity case, a court has to inquire whether punitive damages are recoverable as a matter of state law. If the answer is ‘yes,’ then the Court has subject matter jurisdiction, unless it is clear beyond a legal certainty that the plaintiff would under no circumstances be entitled to recover the jurisdictional amount.

In this case, the plaintiff asserted a claim under the ICFA, alleging willful and wanton conduct and intentional misrepresentation by the defendant. The Court observed that if these allegations were true, then punitive damages may be available on the plaintiff’s ICFA claim.

Accordingly, the Court concluded that it had jurisdiction in this case pursuant to both 28 U.S.C. §1331, by virtue of the plaintiff’s RICO claim, and under CAFA.