Hepler Broom, LLC

Seventh Circuit Rejects Class Plaintiff’s Attempt to Avoid CAFA Removal by Limiting Damages Sought in Complaint

April 23, 2014

On April 9, 2014, the Seventh Circuit issued its opinion in Johnson v. Pushpin Holdings, LLC, No. 14-8006 (7th Cir. April 9, 2014). In Pushpin, the Seventh Circuit held that before a class is certified, a statement by the named plaintiff in the complaint does not limit the amount of potential damages that the class would be able to recover and, therefore, that named plaintiff could not thereby avoid removal under the Class Action Fairness Act (“CAFA”) by indicating that the complaint sought less than $5 million. In so ruling, the Seventh Circuit followed the binding precedent set by the United States Supreme Court a year ago in Standard Fire Ins. Co. v. Knowles, 133 S. Ct. 1345 (2013) (holding that a putative class action complaint’s damages disclaimer does not preclude federal jurisdiction).

In Pushpin, plaintiffs filed a class-action suit in Illinois state court accusing the defendants of violating the Illinois Consumer Fraud Act by operating as a debt collector in Illinois without an Illinois license, in addition to committing common law torts of abuse of process and malicious prosecution. The complaint specifically stated, “the total amount of compensatory damages plus punitive damages plus attorney’s fees requested on behalf of all class members is no more than $3,500,000.” Pg. 2 (internal citations omitted). Pushpin removed the case to the Northern District of Illinois under the removal provision of CAFA and argued that removal was proper under CAFA because plaintiffs underestimated the number of small claims actions related to the litigation and these claims had the potential for damages in excess of $5 million. The District Court remanded, reasoning that if more than ninety percent of the small claims suits that comprise the class claims are barred by the Rooker-Feldman doctrine, as asserted by plaintiffs, it would be highly unlikely that the amount in controversy would satisfy the CAFA jurisdictional threshold.

Pursuant to the Rooker-Feldman doctrine, federal district and appellate courts cannot review decisions of state courts or claims inextricably intertwined with a state court decision.  See Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923); District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983) (same) (together the Rooker-Feldman doctrine).  The determination of whether a federal claim is “inextricably intertwined” hinges on whether it alleges that the supposed injury was caused by the state court judgment, or, alternatively, whether the federal claim alleges an independent prior injury that the state court failed to remedy.  Brown v. Bowman, 668 F.3d 437, 442 (7th Cir. 2012).  If the court determines that a claim is inextricably intertwined, the court must then inquire whether the party seeking federal jurisdiction over the claim did or did not have a reasonable opportunity to raise the issue in state court proceedings.  Id. (citing Brokaw v. Weaver, 305 F.3d 660, 667 (7th Cir. 2002)).  If the party could have raised the issue in state court, the claim is barred under Rooker-FeldmanBrown, 668 F.3d at 442. Pushpin sought and was granted leave to appeal from the remand ruling.

The Seventh Circuit first noted that it had held previously that under Illinois law, in order for a commitment limiting damages to be effective, the plaintiffs needed to file a binding stipulation or affidavit with the complaint. However, even if a proper binding statement or affidavit had been filed, Judge Posner noted that “there would remain a question whether a named plaintiff (class representative) should be allowed to discard, without explanation or notice to the other members of the class, what could be a major component of the class’s recovery, merely to ensure that the stakes fall under $5 million.” Pg. 4 (citations omitted). Judge Posner also questioned whether these class members could truly make an informed decision about whether to litigate a case in state or federal court and indicated that question was best left to class counsel in many situations. The Court reasoned that, in any event, the Supreme Court had resolved the issue in Standard Fire and therefore held that plaintiffs did not irrevocably commit to obtaining less than $5 million for the class. Further, the Court noted that Pushpin’s estimate that the damages recoverable by the class if it prevails could meet the CAFA jurisdictional threshold could possibly prevent a remand, although the Court did not have sufficient information to make that assessment.

The Seventh Circuit reversed and remanded to the District Court, reasoning that the only basis on which the District Court rejected Pushpin’s damages estimate and remanded the case was that most of the class claims were barred by the Rooker-Feldman doctrine. However, the Seventh Circuit found the Rooker-Feldman rule inapplicable because it does not bar a federal suit that seeks damages for “the unlawful conduct that misled the [state] court into issuing the judgment.” Pg. 7. Therefore, the Seventh Circuit reversed and remanded with instructions that the District Court judge “determine anew” whether the amount in controversy reaches the statutory minimum, thus barring remand.

The Seventh Circuit’s opinion demonstrates that the Court is not likely to endorse any attempts by class plaintiffs to distinguish Standard Fire to avoid CAFA jurisdiction. Indeed, the Court reiterated that “there is no strong presumption in favor of remand” in a case removed under CAFA.