Amendment of Class Action Complaint to Add Party-Defendant Years after Plaintiff Learned Defendant’s Identity Constituted a New Action Under Class Action Fairness Act of 2005 (CAFA) thereby Creating CAFA Removal Jurisdiction over Class Action Seventh Circuit Holds
In July 2003, plaintiff file a putative class action in Illinois state court against AIG Claim Services and Illinois National Insurance Company for violations of state fraud and consumer protection laws; the class action complaint alleged that AIG Claim Services, in processing claims under Illinois National insurance policies, systematically underpaid accident insurance benefits. Springman v. AIG Marketing, Inc., 523 F.3d 685, 686 (7th Cir. 2008). In December 2003, defense attorneys disclosed that AIG had not adjusted plaintiff’s claim; plaintiff did not inquire further until October 2004, at which time he learned that at affiliate, AIG Marketing, had handled the claim underlying the class action. Id. Nonetheless, plaintiff waited another three years before seeking leave to file an amended class action complaint to sue AIG Marketing in place of AIG Claim Services, id. The state court granted the motion, and defense attorney removed the class action to federal court under the Class Action Fairness Act of 2005 (CAFA). Id. AIG Claim Services could not have removed the class action itself because the class action complaint had been filed well before CAFA’s effective date, id. Plaintiff’s lawyer moved to remand the class action to state court, but the motion was denied, id. The Seventh Circuit affirmed.
The question before the Circuit Court was whether the substitution of AIG Marketing for AIG Claim Services constituted “the commencement of a suit against AIG[ Marketing] within the meaning of the Class Action Fairness Act, thus enabling removal of the entire suit.” Springman, at 686-87 (citing 28 U.S.C. § 1453(b)). After reaffirming the Seventh Circuit’s law, adoption by all but one other circuit courts, that post-filing acts may affect whether a class action complaint is removable under CAFA, see id., at 687 (citations omitted), the Court reiterated the federal removal doctrine, which permits removal based on post-filings acts if, inter alia, the amended complaint “adds a new defendant.” Id. (citation omitted).
The central issue on appeal, then, is whether the adding of AIG Marketing “relates back” to the filing of the original class action complaint. Id. In this regard, the Seventh Circuit found compelling the fact that plaintiff “[knew] he had sued the wrong party, yet he waited almost three years to substitute the right one” and “offers no excuse for having waited so long to correct his mistake.” Id., at 688. The Court found unpersuasive plaintiff’s response that he is under no duty to exercise diligence in amending his complaint, explaining that the purpose of the relation-back doctrine supports its holding. Id., at 688-89. The Circuit Court reasoned at page 689, “The relation-back doctrine would give him the time he needed to find out whom he should have sued, and sue him, provided that the new defendant knew about the suit and was not prejudiced by the delay in naming him as a defendant. But it doesn’t give the plaintiff forever. It is implicit that he must proceed diligently.” At bottom, the years of inexplicable delay in naming AIG Marketing supported a finding that the amendment did not relate back to the filing of the original class action complaint, id.
Finally, the Seventh Circuit found that while requests to allow amendments to a complaint lie within the sound discretion of the trial court, the state court’s decision in this case constituted an abuse of discretion. Springman, at 690. As the Circuit Court explained at page 690, “The plaintiff’s delay in seeking leave to amend was gross, unjustified, and not even explained; the maintenance for years of a suit against a party known by the plaintiff to be the wrong one to sue was an abuse of legal process; and the amendment changed not only the defendants but the claimants, since the insurance claims of some of the class members were processed by AIGC and of others by AIGM. If as seems likely AIGM would not have known how substituting it in as a defendant would alter the composition of the class, that is an independent ground for denying relation back.” (Citation omitted.) The Court recognized that it could not reverse the order granting leave to amend the class action complaint, but reasoned that “the arbitrariness of that action supports an interpretation of the Class Action Fairness Act under which the suit against AIGM is deemed to have been commenced when it was added as a defendant, and not years earlier when AIGC was sued.” Id. Accordingly, it affirmed the district court order denying plaintiff’s motion to remand the class action to state court. Id.
NOTE: The Circuit Court explained in some detail why it rejected the Ninth Circuit’s view on the removability of a class action complaint based post-filing amendments. See Springman, at 687.