Charles Hooks, et al  v. American Medical Security Life Insurance Company, et al., United District Court for the Western District of North Carolina, No. 3:06-CV-00071 (Aug. 29, 2006).

Plaintiffs’ counsel, John Gresham, could have entitled this case "The CAFA" or "The Removal" or "The Technicality" or some other catchy title that begins with "The."  After all, "The Client" has already been used.  This case, sure to be on the New York Times bestseller list, has all the right ingredients:  the South, big insurance companies, little plaintiffs, and the Class Action Fairness Act.  We can’t wait for the movie.  (Our apologies to plaintiffs’ counsel, John Gresham.  Your name is just too similar to a lawyer turned famous author for us to ignore.)

Hooks v. American Medical Security presents a searing courtroom drama that probes the savage depths of CAFA, and delivers a compelling tale of uncertain justice in a small southern town. Little did unsuspecting class counsel John Gresham realize, when he filed an air-tight remand motion in response to the defendants’ removal notice, that the North Carolina district court would pull a “technicality” like a rabbit out of a hat, and give the defendants a “second bite at the removal apple” under CAFA’s special aggregation rule for diversity jurisdiction, 28 U.S.C. § 1332(d)(6).

Don’t Take Our Word For It!  See What the CAFA Pundits are Raving About!!!

“SUSPENSE BUILDS WITH EVERY PAGE!   CAFA Assumes a New and Terrifying Magnitude to Class Action Plaintiffs’ Bar.”

       —– The Home Forum Shopping  Network

“PAGE TURNER READING, START TO FINISH!  It is a Look at the Struggle of the Human Spirit  to Overcome Whatever is Tossed in its Path, Including a Surprising CAFA Decision.”

          —– Author  of “CAFA: A Bad Bill Whose Time Has Come”

“AN ABSOLUTE HEARTPOUNDER! THE MOST GRIPPING CAFA REMOVAL CASE SINCE BUSH V. CHEAPTICKETS!  Readers May Be Forgiven If They Forget to Do Certain Basic Things. Such As Breathe . . . . Cases Like Hooks Should Probably Carry a Surgeon General’s Warning About Being So Exciting That They Are Hazardous To Your Health!”

          —– The “CAFA SCHMAFA”  Newsletter: Home of  “Whatever Happened to State  Sovereignty?”     

The plot and characters of this Southern potboiler seem deceptively simple. In December 2005, plaintiffs’ counsel, John Gresham, filed a putative class action in Mecklenberg, North Carolina state court, on behalf of consumers who complained that they had been gouged by the defendants’ exorbitant health insurance premiums. To compensate for their suffering, the plaintiffs demanded actual damages, punitive damages, injunctive relief, and attorney’s fees based on alleged fraud, breach of fiduciary duties, unjust enrichment, and for violations of the North Carolina unfair trade practices law. Although the named plaintiffs are all citizens of North Carolina, the corporate defendants are citizens of Wisconsin and Ohio.

In February 2006, the defendants timely removed under 28 U.S.C. § 1332(a), the general diversity statute. Although CAFA had been in effect since February 2005, oddly enough, the removal notice did not mention CAFA, or allege facts that would even suggest CAFA as an alternative basis for removal. Instead, the defendants’ removal depended upon the aggregation of the plaintiffs’ claims to surpass the $75,000 amount in controversy. 

The motion to remand included an affidavit stating that no individual plaintiff was eligible to receive actual damages more than $15,000. Defendants struck back with an affidavit stating that more than 10,000 health insurance policies had been sold in North Carolina, thereby intimating – but never stating – that the amount in controversy could easily exceed $150 million.

The district court had to decide whether the defendants could aggregate the plaintiffs’ claims for punitive damages and/or attorney’s fees to meet the $75,000 amount-in-controversy requirement under § 1332(a). Noting that the Fourth Circuit had not decided this issue, the district court followed the “general national trend,” and concluded that the plaintiffs’ punitive damages and attorney’s fees could not be aggregated for purposes of establishing the amount in controversy. Because no single plaintiff had more than $75,000 in damages, the district court noted that a remand, based solely on § 1332(a), was appropriate.

Then, the court uttered the single word that left the plaintiffs feeling as though they had fallen off the wagon like a frozen turkey from a Goodwill helicopter:


In an epiphany, the Court realized that, under CAFA, the claims of individual class members could be aggregated to meet the $5 million amount in controversy. Even though the defendants had utterly failed to cite CAFA or provide any facts supporting diversity jurisdiction under CAFA § 1332(d)(6), the Court called it a mere “technicality,” and not a “substantive” defect. Relying on 28 U.S.C. § 1653, which permits amendments to cure “defective allegations of jurisdiction,” the big-hearted court allowed the defendants to amend their defective Notice of Removal, even after the expiration of the initial 30-day removal deadline. The ever-grateful defendants promptly filed an Amended Notice of Removal that alleged facts supporting CAFA jurisdiction.

At first glance, the district court’s magnanimous gesture appears contrary to seemingly fundamental principles adopted by numerous district courts and commentators that have interpreted Section 1653. Simply put: (1) removal notices may be amended only to set out more specifically the grounds for removal that already have been stated, albeit imperfectly, in the original notice; and (2) completely new grounds for removal may not be added and missing allegations may not be furnished. See 14C Wright, Miller & Cooper, Federal Practice & Procedure § 3733, at 357-61 (3d ed. 1998) (collecting cases).

Yet the U.S. Supreme Court’s ruminations on the meaning of the term “jurisdictional defects,” used in Section 1653, appear to uphold the district court’s KO decision. In Willingham v. Morgan, 395 U.S. 402 (1969), the Supreme Court casually noted that, when reviewing a removal notice for diversity jurisdiction, “it is proper to treat the removal petition as if it has been amended to include the relevant information in the later-filed affidavits.” Id. at 407 n.2. Later, in Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826 (1989), the Court announced that the “correct reading of the statute” was that it permits amendment of “incorrect statements about jurisdiction that actually exists,” and “not defects in the jurisdictional facts themselves.” Id. at 831. Thus, the Court adopted the “longstanding interpretation” of Section 1653 as permitting courts to “remedy inadequate jurisdictional allegations, but not defective jurisdictional facts.” Id. at 832.

In light of Willingham and Newman Green, the district court’s apparent “low blow” to the belt of the plaintiffs’ bar, which let the defendants amend their removal notice to add allegations of CAFA jurisdiction, was entirely proper.   Hooks did not present a case where the defendants were allowed to fix defective jurisdictional facts. Instead the defendants were allowed to remedy their inadequate jurisdictional allegations, which omitted CAFA jurisdiction that, in fact, existed, but that was inadequately pled.

Given the intense spotlight now placed on CAFA, it is unlikely that a class action defendant will ever again “forget” to mention CAFA in its notice of removal.  Hooks is a reminder to attorneys everywhere that, in the new world of CAFA, oftentimes “it ain’t over ‘til the fat lady sings,” and this new fat lady is going to sing loud and long.