“I’m Bad. I’m Nationwide”: Nationwide attempts to use the commencement of one class action in state court to count as the commencement of a later filed identical action in federal court under the Class Action Fairness Act.

By McGlinchey Stafford on June 22, 2006

Steinberg v. Nationwide Mutual Ins. Co., 418 F. Supp. 2d 215 (E.D.N.Y. 2006).

In an interesting case of a role reversal, the unique posture of this post-February 18, 2005, filed class action complaint had the plaintiff scrambling to stay in New York federal court while the defendant Nationwide was attempting to dismiss the action completely. Stephen Steinberg, a one time proud owner of a 1999 BMW 740i, filed a claim with his insurance carrier Nationwide Insurance after his Beamer’s engine was damaged by water entering the engine and causing a “hydraulic lock.” He could no longer go "rollin down the road in some cold blue steel." Apparently, Steinberg should have followed the lead of ZZ Top and gone "movin’ down the road in my V-8 Ford." After Nationwide consented to a replacement of the engine and agreed to a sum, the reimbursement check arrived with an expected deduction for Steinberg’s deductible, but also a deduction for a “betterment charge.” Steinberg claimed the “betterment charge” was not present in the insurance contract between the parties and thus alleged breach of contract. He initially filed suit in New York state court asserting claims against Nationwide on behalf of all individuals who entered into contracts with Nationwide since January 1, 1993, and have had a loss for which Nationwide paid the amount necessary for repair minus a deduction of a “betterment charge.”(Which sounds a bit like something Dr. Phil may charge, but that’s just us.)

In the normal dance of class action practice, Nationwide removed the action to federal court and Steinberg contested the removal with a motion to remand the action. We have no doubt that Nationwide was humming "I’m Bad. I’m Nationwide." as it filed its notice.

The district court determined the action had federal diversity jurisdiction as the jurisdiction requirements of section 1332 were satisfied. After an amendment to the complaint and a certification of the class by the district court, Nationwide appealed the certification to the Second Circuit. The circuit court declined to hear the appeal, but sua sponte issued an order that the $75,000 amount in controversy was not satisfied, directing the district court to remand the case. On March 16, 2005, the district court followed instructions and remanded the case to New York state court where that action is currently pending. You can almost hear ZZ Top’s Deguello album skipping in the background.

On July 15, 2005, Steinberg apparently had a change of heart and filed the instant action, mirroring the state court action in form and substance, in federal court asserting federal jurisdiction under the Class Action Fairness Act. It is refreshing when a plaintiff asserts federal jurisdiction based on CAFA. Continuing with the role reversal, on August 18, 2005, Nationwide filed a motion to dismiss the action, arguing the case did not enjoy federal jurisdiction under CAFA due to the state action’s pre-CAFA commencement; that dismissal was proper because the plaintiff engaged in claim splitting; and, if the action was properly in federal court, the district court should stay the federal action under Colorado River Abstention. Cue the song again.

First addressing the commencement issue, District Judge Arthur Spatt began by characterizing Nationwide’s argument as “this action was technically ‘commenced,’ for purposes of CAFA, on October 13, 1999, the date that Steinberg I was first filed.” Thus, framing the issue, Judge Spatt stated that the court must determine whether the action commenced “at the time the first lawsuit was filed on October 13, 1999, or when this complaint was filed on July 15, 2005.”

The court cruised through CAFA commencement law, recognizing certain opinions as guideposts. Such as the tenet promulgated by the Ninth Circuit in Bush v. Cheaptickets, Inc., that the filing of removal post-CAFA commences an action for the purposes of triggering the provisions of CAFA. (Editors’ Note: See the CAFA Law Blog summary of Cheaptickets posted on October 23, 2005.) Spatt also referenced the Tenth Circuit’s opinion in Pritchett v. Office Depot, Inc., where the court consulted CAFA’s legislative history in determining that CAFA was not retroactive given that the original version of the bill passed by the House of Representatives allowed retroactive application, but was amended in CAFA’s final form. (Editors’ Note: See the CAFA Law Blog summary of Pritchett posted on October 23, 2005.) Judge Spatt also recognized the case law of the Seventh Circuit in Knudsen v. Liberty Mutual, that certain post-CAFA amendments to the complaint may commence a new action allowing a window of removal. (Editors’ Note: See the CAFA Law Blog summary of Knudsen II posted on January 30, 2006.) However, the judge recognized that the issues analyzed in those cases were “not entirely relevant to the issue presented here where the Plaintiff has filed a new federal complaint . . . .”

Judge Spatt did find one case, however, that was on point. In Price v. Berkeley Nutraceuticals, Inc., the plaintiffs filed suit in Michigan state court, from which the defendants timely removed to the Eastern District of Michigan. (Editors’ Note: See the CAFA Law Blog summary of Price posted on November 1, 2005.) Unhappy with the course the litigation was taking, the plaintiffs voluntarily dismissed their case, and the next day filed a complaint alleging the same claims in the prior dismissed case and asserting jurisdiction under CAFA. The defendants argued that the plaintiffs’ new action should be deemed as commenced on the date the plaintiffs filed their original state court action – just as Nationwide argued against Steinberg. However, the Price court disagreed, stating that the “date of the new complaint must control, particularly under the circumstances ‘where the original case should not have been filed in federal court in the first place.”

Well, you can only guess what Judge Spatt concluded…. Finding the Price court’s reasoning to be “persuasive,” Judge Spatt found that the plaintiffs properly commenced a new and independent action upon their filing of the complaint in federal court on July 15, 2005. The court reasoned, “[t]he mere fact that the plaintiffs have a similar suit pending in state court may be grounds, based on principals of comity, for this Court to refrain from proceeding or to dismiss the action based on the doctrine of abstention, but it is not a separate ground for dismissal, either under CAFA or for lack of subject matter jurisdiction.” Thus, the action was held to commence in July of 2005, months after CAFA took effect on February 18, 2005.

After quickly dismissing Nationwide’s argument regarding claim splitting as a misinterpretation of the rule, Judge Spatt considered the abstention issue. He first noted that only under exceptional circumstances could a federal court decline to hear the case before it, and then set out the pertinent factors to consider as prescribed by the US Supreme Court. The court concluded after the appropriate analysis that the exceptional circumstances required for the judicially created doctrine of abstention were not present in this case, and refused to stay the case until the state court proceeding was concluded. Thus, the court denied Nationwide’s motion for dismissal and its motion to abstain, thus allowing the plaintiffs to proceed with their claims in federal court under CAFA. See, it really is a double edged sword.