Greenberger v. GEICO Gen. Ins. Co., No. 09-1603, 2011 WL 62809 (7th Cir. Ill. Jan. 10, 2011).

Rounds 1 and 2 go to the Gecko in his fight with a law professor.  In this case, the Seventh Circuit found that federal jurisdiction was intact under CAFA even though the District Court bypassed the issue of class certification.

The plaintiff, Steven Greenberger, brought a class action against GEICO General Insurance Co., in state court alleging breach of contract, consumer fraud in violation of 815 Ill. Comp. Stat. 505/1 et seq., and common-law fraud. 

In July 2002, Greenberger, a professor and administrator at a Chicago law school, was involved in an automobile accident, and his 1994 Acura sustained damage to its bumper, steering box, suspension, and lower body. The next day, a GEICO adjuster (who looked like a gecko) inspected the car at Greenberger’s home and wrote him a check for $3,284.69 ($3,784.69 minus a $500 deductible).  Greenberger cashed the check but did not repair his car.  

Five months later, a stranger approached Greenberger in a parking lot and expressed interest in buying the car.  Greenberger permitted this prospective buyer to take the Acura to a friend’s body shop for an estimate of what it would cost to repair it.  The buyer’s mechanic delivered an estimate of $4,938.65, about $1,150 higher than GEICO’s estimate.  The sale was not made, however, and in December 2002 Greenberger donated the car to charity without making any repairs.

Exactly three years after accepting GEICO’s payment on his claim, Greenberger filed this proposed class action lawsuit in Cook County Circuit Court alleging that GEICO systematically omits necessary repairs from its collision-damage estimates in violation of the promise to restore the policyholder’s vehicle to its pre-loss condition.

GEICO removed the action to federal court under the CAFA, 28 U.S.C. § 1332(d). The District Court sidestepped the class certification question, dismissed the statutory consumer-fraud claim, and then entered summary judgment for GEICO on the breach-of-contract and common-law fraud counts. 

Upon Greenberger’s appeal (remember…he is a law professor), the Seventh Circuit affirmed the order. 

At the very outset, the Seventh Circuit raised the question of subject-matter jurisdiction from the bench and ordered supplemental briefing on whether the District Court’s failure to certify a class had any effect on federal jurisdiction. In supplemental briefing, GEICO argued that federal jurisdiction was intact under CAFA even though the District Court bypassed the issue of class certification.  Naturally, Greenberger argued the opposite.

The Seventh Circuit stated that because it resolved the jurisdictional issue in Cunningham Charter Corp. v. Learjet, Inc., 592 F.3d 805, 806-07 (7th Cir. 2010), its jurisdiction was secure. (Editors’ Note: See the CAFA Law Blog analysis of Cunningham Charter posted on February 3, 2010). In Cunningham Charter, the Seventh Circuit held that federal jurisdiction under CAFA does not depend on class certification; specifically, that a district court’s denial of class certification does not oust the court’s subject-matter jurisdiction.

The Seventh Circuit noted that CAFA confers federal jurisdiction over certain qualifying class actions. “Class action” is defined as “any civil action filed under [Fed. R. Civ. P. 23]or similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action, 28 U.S.C. § 1332(d)(1)(B).  This language, the Seventh Circuit said in Cunningham, means that federal jurisdiction does not depend on whether the district court actually certifies a class.  Instead, jurisdiction is determined based on the facts at the time of filing or removal and is not lost by subsequent developments in the case. This understanding of CAFA comports with the general principle that (with immaterial exceptions) “jurisdiction once obtained normally is secure.”  

Applying Cunningham here, the Seventh Circuit found that the District Court’s failure to certify a class has no effect on federal jurisdiction.  At the time of removal, Greenberger’s suit was a qualifying class action under CAFA; therefore, the fact that the District Court side-stepped the issue of class certification did not undermine subject matter jurisdiction.

Upon the merits of the case, the Seventh Circuit found that all of Greenberger’s claims were foreclosed by the Illinois Supreme Court’s comprehensive decision in Avery v. State Farm Mutual Automobile Insurance Co., 216 Ill. 2d 100 (Ill. 2005). The Seventh Circuit noted that although legally distinct, Greenberger’s contract and fraud claims were all premised on the same basic factual allegation: that GEICO systematically omits necessary repairs from its collision-damage estimates in violation of the promise to restore the policyholder’s vehicle to its pre-loss condition. The Seventh Circuit found that common-sense proposition is that such a suit cannot succeed without an examination of the car.  Greenberger gave away his car, and without it, he could not prove that what GEICO paid him was inadequate to restore the car to its pre-loss condition.

Avery also made clear that fraud claims must contain something more than reformulated allegations of a contractual breach.  Greenberger alleged that GEICO never intended to restore his car to its pre-loss condition and failed to disclose that it regularly breaches this contractual promise.  These are breach-of-contract allegations dressed up in the language of fraud.  Thus, the Seventh Circuit concluded that they cannot support statutory or common-law fraud claims.