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Class Action Defense Cases: Knudsen v. Liberty Mutual

Changing Class Definition in Class Action Does Not Constitute New Case Permitting Removal Under CAFA (Class Action Fairness Act) Seventh Circuit Holds

Congress enacted CAFA (Class Action Fairness Act of 2005) for the purpose of expanding defense access to federal courts in class action cases. CAFA applies only to class actions filed after its effective date (February 18, 2005), but federal courts have held that certain pleading amendments – such as adding a new party-defendant – constitutes the commencement of a “new case” thus permitting removal by defense attorneys to federal court. Class action defendants often benefit if they can remove the case to federal court, and many have tested the limits of CAFA by removing class action cases on the grounds that different actions by the plaintiffs’ lawyer commenced a new suit.

The Seventh Circuit addressed a variation on that theme in Knudsen v. Liberty Mutual Ins. Co., 411 F.3d 805 (7th Cir. 2005). Knudsen filed a putative class action against Liberty Mutual Insurance in March 2000 – five full years before CAFA’s effective date. On February 25, 2005 (one week after CAFA became effective), plaintiffs’ lawyer proposed to amend the class definition in such a way as to include insureds of Liberty Mutual Insurance and Liberty Fire Insurance Company. Id., at 806-07. As the Seventh Circuit observed, “This is an odd revision – and not simply because ‘Liberty Fire Insurance Company’ does not exist. The fatal problem is that Liberty Mutual Fire Insurance Company is not a party to the suit, so no relief could be entered against it.Id., at 807 (italics added). Defense attorneys removed the class action to federal court contending that the new class definition commenced a new action under CAFA. The district court remanded the action – “observing that March 2000 precedes February 2005 – and defendant petitioned for leave to appeal. Id., at 806.

The Seventh Circuit summarily denied the petition. The Court recognized that “an amendment to the pleadings that adds a claim under federal law (where only state claims had been framed before), or adds a new defendant, opens a new window of removal.” Id., at 807 (citations omitted). The Court held, however, that “the change in class definition does not present a novel claim for relief or add a new party.” Id.

NOTE: The Seventh Circuit warned plaintiffs’ lawyer of the consequences of seeking to take advantage of the new class definition: “If in the future Liberty Mutual Fire Insurance Company should be added as a defendant, it could enjoy a right to remove under the 2005 Act, for suit against it would have been commenced after February 18, 2005. But Liberty Mutual Insurance Company cannot remove five years after this suit was commenced just because a nonparty corporate sibling has been mentioned in plaintiffs’ latest papers.” Id., at 807-08 (second italics added).

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