A federal judge has remanded a case involving an insurance dispute to a county court of common pleas because it is not a class action.
The choice of venue turned on whether or not the suit could be considered a class action, and U.S. District Judge Terrence McVerry of the Western District of Pennsylvania held that, especially in light of the plaintiff’s amended complaint, it didn’t qualify.
“The amended complaint does not merely state the same facts, it clarifies the nature on which the claims of Exchange against Erie Indemnity are premised and clearly identifies that Exchange is the party on whose behalf the claims are brought,” McVerry said in Erie Insurance Exchange v. Erie Indemnity.
Initially filed in the Fayette County Court of Common Pleas, the case was removed to federal court because the indemnity company had argued that it fell under the Class Action Fairness Act.
The complaint filed by the insurance exchange alleged state law claims for breach of contract, breach of fiduciary duty and equitable relief.
“Distilled to its essence, the complaint alleges that Erie Indemnity, acting as a fiduciary and agent for the exchange, misappropriated significant sums over a period of 15 years, involving service charges, late payments, and policy reinstatement fees,” McVerry said.
The indemnity company argued that, although the case wasn’t designated as a class action, it ultimately sought to represent the interests of the exchange’s two million members across 10 states. That, it argued, meant that the suit is a class action that should be handled in federal court under the rules of the CAFA.
The indemnity company pointed to three paragraphs in the insurance exchange’s original complaint where it says that it is acting on behalf of “all members” of the Erie Insurance Exchange.
The indemnity company argued that those phrases “clearly reflect that the complaint ‘not only “resembles” a class action — it is a class action,’” McVerry said.
It bolstered its argument by noting that the Pennsylvania Rules do not allow for trustees ad litem to bring claims on behalf of an insurance exchange, as is the case in this suit.
Lawyers for the insurance exchange had relied on Pennsylvania’s Rule of Civil Procedure 2152, which allows trustees ad litem to bring a suit for an association, according to the opinion. However, an insurance exchange is among the types of organizations that is excluded from participation in 2152.
“Accordingly, it appears that Erie Indemnity is correct and that, under the Pennsylvania Rules, members of an insurance exchange cannot sue on behalf of the exchange as trustees ad litem,” McVerry said.
The insurance exchange responded by noting that Pennsylvania’s Rule 2177 requires a corporation that files an action to bring it under its corporate name. The exchange also filed its amended complaint, in which it clarified its language to say, “on behalf of exchange,” rather than, “all members.”
“Erie Indemnity argues that Exchange amended its complaint in a ‘hope to divest the court of the obvious federal jurisdiction that attached as a result of their original complaint,’” McVerry said, adding that the company also cited several cases in which courts held that a plaintiff can’t avoid CAFA jurisdiction by filing an amended complaint eliminating previously stated class claims.
“However, each of those cases can be distinguished from the instant lawsuit for the simple reason that this case as originally filed never alleged class claims,” McVerry said.
He agreed with the insurance exchange’s argument that it submitted the amended complaint in order to clarify its claims for the legitimate purpose of making clear that it wasn’t bringing a class action.
Because he agreed that the suit isn’t a class action, McVerry remanded it to the court from whence it came.
William Radcliffe of Radcliffe & DeHaas in Unionville, Pa., represented Erie Insurance Exchange and said of the opinion, “The judge recognized what clear Pennsylvania law is and applied it.”
Ira Podheiser of Burns White in Pittsburgh represented Erie Indemnity Co. and couldn’t be reached for comment.
(Copies of the nine-page opinion in Erie Insurance Exchange v. Erie Indemnity, PICS No. 12-1946, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •