Kaltenbronn v. Liberty Mutual Insurance Co., 07-0052-MJR (S.D. Ill. September 24, 2007).

Liberty Mutual briefs another CAFA case, but this time “commencement” and burden of proof are against them. The Southern District of Illinois sends Liberty back to state court.

On September 24, 2007, the United States District Judge Michael J. Reagan issued a Memorandum and Order for the United States District Court for the Southern District of Illinois granting the Plaintiffs’ Motion to Remand and remanding the case to the Circuit Court of Madison County, Illinois.

This class action was originally filed in Illinois state court on December 27, 2004 by the Plaintiff, Thomas L. Kaltenbronn, alleging three causes of action: violation of the Illinois Consumer Fraud Act, civil conspiracy and unjust enrichment. On May 19, 2006, the plaintiff filed his First Amended Complaint adding three new plaintiffs. Other than the addition of the three new plaintiffs, the First Amended Complaint was identical to the original Complaint. On December 20, 2006, the plaintiffs filed their Second Amended Complaint which added a count for breach of contract along with new allegations of fraudulent concealment.

The complaint alleged that the Defendant, Liberty, systematically takes an improper preferred provider organization (“PPO”) reimbursement reduction on its payments for medical treatment without any valid right to do so. The plaintiffs alleged that Liberty wrongfully and deceptively reduced payments to them and other licensed healthcare providers by claiming the benefits from purported PPO agreements without any evidence that valid PPO agreements existed. The plaintiffs asserted that Liberty illegally reeked huge savings while giving no considerations to healthcare providers for the right to apply these discounts. The plaintiffs’ Complaint states that the improper practice employed by Liberty is known in the insurance industry as a “silent PPO.”

On January 19, 2007, Liberty removed this action from Illinois state court pursuant to CAFA jurisdiction. The plaintiffs responded with a Motion to Remand arguing that the court lacked jurisdiction because CAFA does not apply to cases commenced before its enactment. According to the plaintiffs, the Second Amended Complaint added an additional theory of recovery arising from the same conduct, but did not commence a civil action for purposes of CAFA jurisdiction.

Liberty responded that the addition of a new claim for breach of contract in the plaintiffs’ Second Amended Complaint commenced a new, removable cause of action. Additionally, Liberty stated that plaintiffs alleged for the first time that Liberty had fraudulently concealed its practices from plaintiffs and that this fraudulent concealment tolled the statute of limitations with respect to any claims that the plaintiffs had against Liberty.

The Court began its analysis of the issues citing Brill v. Countrywide Home Loans for the proposition that the defendant has the burden of establishing that an action is removable, and doubts concerning removal must be resolved in favor of remand to the State Court. (Editors’ Note: See the CAFA Law Blog analysis of Brill posted on November 2, 2005. You avid readers know our position on who bears the burden of proof, but if you have forgotten or if you are new, see our law review article on the subject.) 

The Court then turned to the commencement issue. As we all know, CAFA only applies to class actions which are commenced on or after the date of enactment which was February 18, 2005. Citing Knundsen v. Liberty Mutual Insurance Company, the Court stated that generally, a class action is commenced for purposes of removal under CAFA on the date it is was originally filed in State Court. (Editors’ Note: See the CAFA Law Blog analysis of Knudsen posted on January 30, 2006 and for you folks that are truly interested in the issue, see analysis of Knudsen I posted on September 3, 2005). 

There are some instances, however, where an amended complaint commences a new action. An amended complaint kicks off a new action only if, under the procedural law of the state in which the suit was filed, it does not relate back to the original complaint. Under Illinois law, as under federal law, an amendment relates back when it arises out of the same transaction or occurrence set up in the original pleading.

The Court examined the pleadings filed by Liberty and noticed that Liberty had conceded in its Notice of Removal that it had knowledge that the gravamen of the plaintiffs’ Complaint was breach of contract. As such, Liberty was aware of the occurrence or transaction which was the basis of the plaintiffs’ claim so that it would be able to defend against whatever theory it may have been predicated on. The Court held that Liberty was well aware of the nature and scope of the plaintiffs’ Complaint and that Liberty had not identified any basis for the Court to conclude that the addition of the breach of contract claim commenced a new, removable action.

As to the plaintiffs’ claim of fraudulent concealment, the Court held that the plaintiffs had not by the addition of this claim, propounded a claim sufficiently distinct such that the Court would treat it as a new piece of litigation. 

After examining the two new claims, the Court held that the plaintiffs’ Second Amended Complaint related back to the First Amended Complaint filed prior to the enactment of CAFA and, accordingly, the Court lacked subject matter jurisdiction over the case. The Court granted the plaintiffs’ Motion to Remand the case back to Illinois State Court.