Chiropractic Neurodiagnostic, P.C. v. Allstate Insurance Co., No. 08-2319, 2009 WL 210866 (E.D. NY 01/26/2009).

What happens when the plaintiff files a “class action” lawsuit touting withheld payments in excess of “One Million Dollars,” but then admits it’s not really a class-action suit and that the plaintiff is only seeking “in excess of” $35,000.00? That’s right, folks, it’s back to state court for this cheap, no-class lawsuit!

[Note: You should imagine that this entire post is being read in the voice of Donald Trump. Or Donald Duck, whatever cracks your back.]

The plaintiff, Chiropractic Neurodiagnostic, P.C. (isn’t that quite a mouthful!), filed what looked like a classy lawsuit against the defendant, Allstate Insurance Company, in New York state court. The plaintiff alleged claims for fraud, breach of contract, and unjust enrichment related to the defendant’s allegedly improper decisions not to pay the plaintiff—and others—for diagnostic testing that the plaintiff had performed on defendant’s insureds, on the grounds of “lack of medical necessity.” The plaintiff alleged that it was the assignee of the policies of the insureds, and so had a right to payment under those policies.

The caption of the lawsuit was very classy: “CHIROPRACTIC NEURODIAGNOSTIC, P.C., a New York corporation, on behalf of itself and all other entities and individuals that are assignees of claims for the payment of diagnostic testing no-fault benefits similarly situated, versus ALLSATE INSURANCE COMPANY.” That looks like class to me, my friend! 

The defendant removed this superficially classy lawsuit to the United States District Court for the Eastern District of New York, asserting that the action was removable pursuant to the Class Action Fairness Act (“CAFA”) and ordinary diversity jurisdiction.

Once in federal court, however, the plaintiff’s classy façade simply fell apart. The complaint went downhill after the classy caption, and the rest of the lawsuit didn’t contain any “substantive class action allegations” whatsoever, revealing its total and complete lack of class. The plaintiff even admitted that it had never intended to prosecute the case as a class action, despite the classy caption. The court, finding this to be very unclassy, granted the defendant’s motion to strike the plaintiff’s class allegations.

Now revealed to be just another no-class lawsuit, the defendants’ CAFA basis for removal got rejected even faster than the plaintiff’s alleged invoices. Citing a number of cases that held that the denial of class certification necessarily results in an absence of CAFA jurisdiction (Editors’ Note: See the CAFA Law Blog analysis of Ronat v. Martha Stewart Living Omnimedia, Inc., posted on December 29, 2008), the court found that the action was not a “class action” within the meaning of CAFA, and so CAFA did not provide a basis for jurisdiction. 

But, insisted the defendant, there is diversity jurisdiction! The complaint alleges that the defendants wrongfully kept back more than “One Million dollars,” and the parties are completely diverse. Surely, there is ordinary diversity jurisdiction? 

Not so, said the court. For, although the plaintiff referenced “One Million dollars” in the allegations of the complaint, the plaintiff only sought damages “in excess of” $35,000. Moreover, even though the lawsuit attempted to seek attorney’s fees and punitive damages, the court found that the plaintiff’s claims were purely in the nature of an insurance-contract dispute. That meant that, under New York state law, the plaintiff couldn’t get punitives and couldn’t get attorneys fees.

That is, first the court said the lawsuit had no class (allegations), and then the court said the lawsuit had no money (at issue). Things were looking pretty tough for this lawsuit’s chances of staying in the bigtime—federal court.

Since there was nothing else in the pleadings to indicate that even a measly $75,000 was in play, the court therefore held that the defendant had failed to show the necessary amount in controversy for diversity removal, and so there was no ordinary diversity jurisdiction, either.

Thus diminished, and with its pretensions of classiness in tatters, the plaintiff’s lawsuit was remanded back to New York state court.

So, the defendant may have won the war—the lawsuit shrank from a classy “One Million dollar” action down to a no-class $35,000 individual suit—but it definitely lost the removal battle.

And that just shows how important it is to keep it expensive, and keep it classy.

–Lucky Day