An Illinois federal district court recently remanded an insurance coverage case to state court, ruling that there was no jurisdiction under the Class Action Fairness Act (CAFA) for the simple reason that the plaintiff did not purport to represent a class. Addison Automatics Inc. v. Hartford Casualty Insurance Co., Case No. 1:13-cv-01922 (June 25, 2013).  In 2010, the plaintiff, Addison Automatics Inc., filed a putative class action against Domino Plastics, Inc., claiming that Domino sent unsolicited faxes in violation of the Telephone Consumer Protection Act (TCPA) and the Illinois Consumer Fraud Act. The parties subsequently reached a settlement, whereby Domino agreed to entry of a judgment of $17.7 million.  Domino also agreed to assign “to the Class (as represented by Plaintiff and its attorneys)” its rights to insurance proceeds under policies issued by Hartford Casualty Insurance Company and Twin City Fire Insurance Company.  The Illinois state court approved the settlement and settlement class (the State Class), which had appointed Addison as the class representative and its attorneys as class counsel.

Addison then brought a declaratory judgment action against Domino’s insurers in Illinois state court, alleging that the insurers had a duty to defend and indemnify Domino in connection with the class action.  In its complaint, Addison asserted a claim on its own behalf only and expressly disavowed that it was pursuing a class action.  The insurers removed the case to federal court, alleging jurisdiction under CAFA, and Addison moved to remand the case to state court.

The District Court observed that the “crux of this dispute is whether the present lawsuit constitutes a “class action” removable under CAFA.”  The insurers argued that CAFA jurisdiction was proper and the case should be considered a class action for two reasons: (1) the relief sought would inure to the benefit of the underlying State Class, and (2) Addison did not have standing to assert an individual claim because Domino assigned its rights to the entire State Class.  The court rejected both arguments.

First, although the insurers argued that Addison’s assertion that the case was not a class action was a ruse to avoid federal jurisdiction, the court held that plaintiffs are “masters of the complaint” and can include or omit claims and parties to determine the forum.  “As a result,” the court stated, “jurisdiction does not exist under CAFA for the present action.”

With regard to the insurers’ second argument, the court noted that “Addison’s strategic decision to file a claim only on behalf of itself is not without risks ….. it is entirely unclear whether Addison has standing to bring an individual claim based upon the assignment, which was executed between Domino and the entire State Class.”  The court further observed that even if Addison succeeded in the coverage action, “it is uncertain whether and to what extent any of the other State Class members would be able to enforce the judgment in order to obtain their portion of the indemnification proceeds (for example, if [the insurers] were to settle with Addison in exchange for an agreement not to pursue the judgment). Additionally, as the court-appointed representative of the State Class, whether and to what extent Addison (and its counsel) still owe duties to the State Class is also unclear.”

But because there was no federal jurisdiction, the court stated that those claims “are more properly raised before [the Illinois state court] where jurisdiction lies.”  CAFA jurisdiction eventually could be triggered, the court noted, if the state court determines that Addison lacks standing and Addison then expressly brings the coverage action on behalf of the entire class.

Although the district court’s holding that assertion of class action claims is a prerequisite to CAFA jurisdiction was relatively straightforward, this case raises a number of interesting issues that we will continue to follow.  And as we’ve reported on 6/3/13 and 3/20/13, CAFA jurisdiction remains a hot topic, which we also are closely following.