Class Action

CAFA Class Action Defense Cases--Ava Acupuncture v. State Farm: New York Federal Court Denies Motion To Remand Class Action To State Court Holding "Reasonably Probable" $5,000,000 Was At Stake And Plaintiffs Failed To Establish Local Controversy Exception

By Michael J. Hassen

Class Action Properly Removed to Federal Court under CAFA (Class Action Fairness Act) because State Farm Declaration Established “Reasonable Probability” that Amount in Controversy Exceeded $5 Million and Plaintiffs Failed to Establish Relief Sought Against “Significant” Local Defendant New York Federal Court Holds

Plaintiffs, medical providers who had “been assigned No-Fault medical reimbursement claims by eligible injured persons (‘EIPs’),” filed a class action in New York state court against various defendants, including State Farm, alleging “that defendant insurers have fraudulently failed to pay statutorily mandated medical benefits under New York's No-Fault Insurance Law” and that, together with “their legal counsel and special investigation units (‘SIUs’),” violated various New York state laws. Ava Acupuncture P.C. v. State Farm Mutual Auto. Ins. Co., ___ F.Supp.2d ___, 2008 WL 5170186, *1 (S.D.N.Y. December 9, 2008). According to the allegations underlying the class action, the defendants engaged in “harassing, abusive verification and litigation tactics” and used “preset numeric targets to limit claim payouts,” and allegedly bribed individuals at the Suffolk County District Attorney's office. Id. Defense attorneys for State Farm and two other defendants removed the class action to federal court, asserting removal jurisdiction existed under the Class Action Fairness Act of 2005 (CAFA), id. In response, plaintiffs voluntarily dismissed their class action claims against the two other removing defendants, leaving State Farm as “the only remaining removing defendant,” and then filed a motion to remand the class action back to state court. Id. The district court denied the motion.

Plaintiffs argued that the class action should be remanded to state court for two reasons: (1) because State Farm failed to establish that the amount in controversy exceeded $5,000,000, and (2) because the class action falls within the scope of CAFA’s “local controversy” exception. Ava Acupuncture, at *1. After summarizing New York’s no-fault insurance law and federal subject matter jurisdiction requirements of CAFA, see id., at *2, as well as the general rules for calculating the amount in controversy and summarizing the “local controversy” exception to CAFA removal jurisdiction and the burden of the party opposing removal to establish the applicability of exceptions to CAFA removal, see id., at *3, the district court turned to whether the removing parties had met their burden of establishing federal court jurisdiction within a “reasonable probability,” id., at *2. While the class action complaint outlined damages “in only the most general terms, indicating that the exact number of class members will be ascertained through discovery and review of defendants' records.,” and while the class action failed to “plac[e] a value on the object of the litigation,” the complaint did allege that “thousands” of individuals would be covered by the class action and attacked every denial of insurance coverage by State Farm over a 6-year period. Id., at *4. To meet its burden, State Farm submitted as evidence a declaration stating that “over the last six years State Farm has denied $40,265,558 worth of claims arising out of investigations conducted by its SIU investigators” and that “the amount of unpaid denied claims since 2003 far exceeds $5,000,000.” Id. The district court rejected plaintiffs’ objections to this declaration and concluded that the $5 million threshold was “easily” met. Id., at *4-*5. The federal court therefore turned to the local controversy exception.

Full post as published by Class Action Defense Blog on February 12, 2009 (boomark / email).