The Seventh Circuit recently addressed the applicability of the home state exception under the Class Action Fairness Act (“CAFA”).  The case arose from health insurer Right Choice Insurance Company’s withdrawal from the Illinois market and cancellation of its insurance policies.  Former policyholders filed a putative class action lawsuit in the United States District Court for the Southern District of Illinois alleging that cancellation of their policies violated Illinois law.  The District Court declined to certify a class and later ruled against plaintiffs on the merits.

Instead of filing an appeal, the law firm representing plaintiffs found new former policyholders to serve as putative class representatives and filed suit in state court based on the same allegations – noting that the federal court’s denial of certification under Rule 23 did not bar certification under the Illinois rules.  Defendants removed the case to the Southern District of Illinois under CAFA, and plaintiffs moved to remand under CAFA’s home state exception, 28 U.S.C. § 1332(d)(4), noting that plaintiffs sought significant relief against Right Choice Insurance Company – an Illinois defendant – and arguing that at least two-thirds of the putative class members were from Illinois.  The District Court denied plaintiffs’ motion to remand, denied their class certification motion, and subsequently ruled against them on the merits.  Plaintiffs appealed.

Upholding the lower court’s denial of the motion to remand, the Seventh Circuit found that plaintiffs had not met their burden of persuasion that CAFA’s home state exception applied, as required by Hart v. FedEx Ground Package System, Inc., 457 F.3d 675 (7th Cir. 2006).  In so holding, the Seventh Circuit reasoned that plaintiffs seeking remand under the home state exception must rely on more than assumptions as to the citizenship of putative class members, and may resort to statistical sampling as one way of meeting their burden of proof:

Counsel for the proposed class assumed that there were only two options: determine the citizenship of every policyholder (expensive) or rely on assumptions (cheap). But there’s at least one more option: take a random sample of policyholders (100, say), ascertain the citizenship of each of these on the date the case was removed, and extrapolate to the class as a whole. If the sample yields a lopsided result (say, 90% Illinois citizens or only 50% Illinois citizens) then the outcome is clear without the need for more evidence.  … If the result is close to the statutory two-thirds line, then do more sampling and hire a statistician to ensure that the larger sample produces a reliable result.

Given that no such sampling or other evidence was provided, the district court “on an empty record” was “entitled to conclude that § 1332(d)(4) has not been satisfied.”

The Seventh Circuit expressly declined to consider whether the plaintiffs could have met the requirements for class certification under Rule 23, reasoning that:

… [Class] counsel’s insouciance toward the need for proof of the class members’ citizenship is only one illustration of plaintiffs’ (and counsel’s) inadequacy as representatives. The very fact that counsel have asked us to direct the district court to certify this suit as a class action is another.  Plaintiffs have already lost on the merits; that counsel want to take the rest of the putative class down in flames with them shows what a slapdash approach they have adopted to this litigation.

In affirming the $39,000 award of costs to the insurer defendants, the Court reasoned that such an award was within the Court’s discretion, and that: “[c]ounsel should thank their lucky stars that the district court did not sanction them under 28 U.S.C. § 1927 for filing a second suit rather than pursuing the first through appeal.”

Myrick v. Wellpoint, Inc., Nos. 12-3882, 13-2230 (7th Cir. Aug. 19, 2014).