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Tuesday, August 9, 2011

Back Doctors Ltd. v. Metropolitan Prop. & Cas. Ins. Co.: Seventh Circuit Reverses Remand Under The CAFA Where Punitive Damages Not Disclaimed

A chiropractic clinic filed a putative statewide class action in state court which included a claim under the Illinois Consumer Fraud Act. While the plaintiff did not seek punitive damages, the plaintiff never disclaimed them, and never filed a binding stipulation or affidavit to that effect. It was undisputed potential actual damages exceeded $2.9 million. Defendant removed on the basis that even a 1:1 ratio of punitive damages meant the jurisdictional stakes exceeded the $5 million threshold under the Class Action Fairness Act.

The trial court remanded, finding it was not reasonably probable for the plaintiff to recover above $5 million. The Seventh Circuit accepted the defendant's petition for leave to appeal and reversed. The Seventh Circuit reasoned as follows:

(1) the reasonable probability language has been abandoned; the proper standard for the amount in controversy is that "unless recovery of an amount exceeding the jurisdictional minimum is legally impossible, the case belongs in federal court"

(2) there is no presumption against federal jurisdiction or removal, and the CAFA must be implemented according to its terms, not to disfavor removal of large-stakes class actions

(3) a plaintiff's post-removal statement in a case alleging fraud that it does not "now" want punitive damages is insufficient to make such damages legally impossible where the plaintiff neither disclaimed punitive damages in the complaint nor filed a binding affidavit or stipulation doing so

(4) it is questionable whether a named plaintiff, which has a fiduciary responsiblity to class members, can "throw away" punitive damages even if the plaintiff is willing to disclaim them to remain in state court

637 F.3d 827 (7th Cir. 2011)

(Please note that Westlaw mistakenly lists Lisa M. Lilly as representing both the defendant and plaintiff - Lisa M. Lilly, along with SNR Dentron US LLP and Hepler Broom, represented the defendant)