Seventh Circuit holds declaratory judgment coverage action removable under the Class Action Fairness Act

In a decision confirming the broad jurisdictional reach of the Class Action Fairness Act of 2005 (CAFA), the Seventh Circuit held that a single-plaintiff coverage dispute was removable under CAFA where the underlying claim related to indemnification arising from a class action lawsuit. By allowing insurers to remove such actions to more defendant-friendly federal courts, the decision further limits the plaintiffs’ ability to escape CAFA’s jurisdictional reach through creative pleading.

Addison Automatics, Inc. v. Hartford Cas. Ins. Co. arose from a class action brought in Illinois state court against a glass making company alleging conversion and violations of the federal Telephone Consumer Protection Act and the state’s Consumer Fraud Act. The glass maker’s liability carrier refused to defend and indemnify the insured in the action. Ultimately, a class settlement was approved and a $17.8 million judgment was entered against the glass maker. It was agreed, however, that the glass maker was not responsible for paying any of the damages. Instead, the glass maker agreed to assign its rights against the absent liability carrier to the class representative.

The procedural history of this case was complex, but integral to understanding the court’s final holding. To enforce the judgment:

• Plaintiff first filed a state court declaratory judgment action as a putative class representative against the liability carrier, who subsequently removed the case to federal court under CAFA.
• Upon removal, the plaintiff immediately dismissed the case and filed the Addison action against the liability carrier in an individual capacity.
• The liability carrier removed the action to federal court under CAFA, arguing that even though the plaintiff filed in an individual capacity, it still sought damages on behalf of a class.
• The district court remanded, finding that the suit was a single-plaintiff action on its face and thus CAFA did not apply.

On appeal, the Seventh Circuit reversed the district court, holding that despite the plaintiff’s “artful pleading,” it only had standing to seek relief in its capacity as a class representative. The Seventh Circuit reasoned that because the plaintiff was, in essence, still acting as a class representative, CAFA applied and the case belonged in federal court. The Addison case reinforces CAFA’s intent of expanding federal jurisdiction over class actions even in the face of increasingly creative pleading by the plaintiffs’ attorneys.