Progressive West Ins. Co. v. Preciado, No. 06-17367, 2007 WL 725717 (9^th Cir. March 6, 2007)

Shamrocks were not needed for luck in this decision handed down in March, but Shamrock did help Simon Preciado keep his class action in state court.  Editors’ Query:  If Chicago can dye the river green on St. Patrick’s Day, why can’t it dye it blue the other 364 days of the year?

The Ninth Circuit Court of Appeals upheld a District Court remand following an amended cross-complaint which occurred after February 18, 2005. 

Progressive initially filed suit against Simon Preciado for breach of contract seeking $5,000.00 in reimbursement for medical payments it made on Preciado’s behalf. Seemed like a pretty simple case, but it wasn’t. 

On February 17, 2005, Preciado filed a cross-complaint against Progressive alleging that Progressive’s policy to recoup medical payments was an unfair business practice under California’s unfair competition law. Preciado brought his claim on behalf of “the general public,” but did not allege the elements necessary to bring a representative claim under California’s unfair competition law. The state trial court granted Preciado leave to amend his cross-complaint to allege the necessary elements. He did this sometime after August 7, 2006, and Progressive immediately removed to the federal district court under section 5 of CAFA, 28 U.S.C §1453(c)(1). The Ninth Circuit heard the appeal from the district court remand. 

The Ninth Circuit analyzed whether CAFA authorized Progressive’s removal of the class action. The court initially focused on the relation back of amendments in connection with CAFA’s application to actions “commenced on or after” February 18, 2005. Both the Progressive complaint and Preciado’s cross-complaint occurred before February 18, 2005. Therefore, the court began its analysis by determining if either the original complaint or cross-complaint “commenced” the action for purposes of CAFA.

An action “commences” for purposes of CAFA when a suit becomes “a cognizable legal action in state court” under “a state’s own laws and rules of procedure.” Bush v. Cheaptickets, Inc., 425 F.3d 683, 686 (9^th Cir. 2005). (Editors’ Note:  See the CAFA Law Blog analysis of Bush posted on August 29, 2005). Under California law, an action commences when either a complaint or cross-complaint is filed. The court determined that Preciado’s class action against Progressive commenced when Preciado filed his original cross-complaint, February 17, 2005.

Progressive argued that the amended cross-complaint did not relate back to the original cross-complaint, but commenced a new action because it substantially changed the nature of the action. Basically, Progressive could not have removed based on the original cross-complaint, because the essential class elements were not present. The same argument was adopted by the Seventh Circuit in Knudsen v. Liberty Mut. Ins. Co., 411 F.3d 805 (7^th Cir. 2005). (Editors’ Note: see the CAFA Law Blog analysis of Knudsen posted on January 30, 2006).

Strictly applying California law, the Ninth Circuit ruled that the amended cross-complaint relates back to the original. No argument under California law was raised to allow CAFA to extend the relation-back rule.

Ultimately, the Ninth Circuit determined that its relation-back exercise was unnecessary. The original remand was based on Progressive’s non-defendant status. Progressive initiated the complaint and ultimately became a cross-defendant. Progressive was not a defendant for purposes of removal according U.S. Supreme Court precedent. See Shamrock Oil & Gas v. Sheets, 313 U.S. 100 (1941). According to the Ninth Circuit, CAFA does not create an exception to the Shamrock rule. Specifically, the court held “[t]he interpretation of ‘defendant or defendants’ for purposes of federal removal jurisdiction continues to be controlled by Shamrock, which excludes plaintiff/cross-defendants from qualifying ‘defendants.’” Accordingly, the court affirmed the district court removal.