Class action counsel have a lot at stake, including recovering their own fees. Their choice of forum to resolve the claims of the class and the insurance coverage that might be available for any stipulated judgment or settlement can be critical to the outcome. As a result, class action counsel has been very proactive in “securing” where the class action dispute will be resolved and what court addresses the availability of coverage. Some of their procedural and substantive machinations, however, have recently been struck down by the United States Supreme Court and the Illinois Appellate Court.
Let’s take the Supreme Court decision first: the Standard Fire Insurance v. Knowles, No. 11-1450 (Mar. 19, 2013) decision
The Issue: Can the Plaintiff Class representative avoid federal court removal under Class Action Fairness Act (“CAFA”) by stipulating that he will not seek damages for the class in excess of $5 million?
Rationale: CAFA directs that jurisdiction be determined by adding up the value of each person in the proposed class and assessing if the resulting sum exceeds $5 million. A plaintiff who files a proposed class action "cannot legally bind members of the proposed class before the class is certified" by stipulating that he will seek less than $ 5 million. The class counsel lacked authority to concede the amount in controversy for absent class members.
Impact: Class action counsel cannot defeat federal court jurisdiction by filing stipulations seeking to lessen the true amount in controversy. The Standard Fire ruling prevents the state court class action abuses that Congress intended to prohibit by its enactment of CAFA.
Now, let’s look at the Illinois Appellate Court decision in: Byer Clinic and Chiropractic Ltd v. State Farm Fire and Cas. Co., 2013 IL App (1st) 113038
Issue: Does a class action TCPA plaintiff have standing to seek a declaration of rights over an insurer’s coverage when the insurer is defending its insured under a reservation of rights?
Rationale: A declaratory judgment action is not intended to permit moot or hypothetical cases, or to enable parties to secure advisory opinions or legal advice from the court with respect to anticipated future difficulties. The claim must contain an actual controversy capable of judicial determination. No actual controversy presently exists regarding State Farm’s duty to defend Kapraun, as State Farm is providing Kapraun with a defense.
Impact: Interestingly, State Farm, while providing a defense to its insured in the IL TCPA class action suit, had filed its own declaratory judgment action against its insured in Michigan, where its insured maintained its place of business. The class plaintiff’s filing of a declaratory judgment action in IL appears to be an ill-faited race to the courthouse and unsuccessful attempt to have an IL court resolve the coverage issues.