Today’s case, Thatcher v. Hanover Insurance Group (8th Cir. 2011) is another short one that nonetheless raises important issues for class action defendants. Allen Thatcher (or, rather, his attorneys) filed a class-action complaint in Arkansas state court against his insurance company. He alleged that the defendants did not pay insureds properly under the terms of their insurance policies. (The specifics had to do with insurance for general contractors.) And he alleged the standard wide spectrum of claims: unjust enrichment, fraud, constructive fraud, and breach of contract.
It’s what happened next that makes the case really interesting. The defendants removed the case to federal court under CAFA. And then:
Thatcher sought permission to voluntarily dismiss his case without prejudice [under Rule 41(a)(2)] so that he could refile an amended complaint in state court that would avoid federal jurisdiction. The district court granted Thatcher’s voluntary motion to dismiss without prejudice.
Now, it’s not surprising that a class-action plaintiff would want to stay in Arkansas state court. Arkansas class action law differs from federal law; most importantly, it does not require a "rigorous analysis" of whether a class action should be certified. What is surprising is that a plaintiff would be so brazen about forum-shopping. And, since the Eighth Circuit has held that forum-shopping is not a valid reason to dismiss a complaint, it was also surprising that the trial court granted the motion.
Not surprisingly, the defendants appealed. And the Eighth Circuit pretty quickly reversed the voluntary dismissal in reviewing the remand.
In addressing whether a district court should allow voluntary dismissal, we have repeatedly stated that it is inappropriate for a plaintiff to use voluntary dismissal as an avenue for seeking a more favorable forum.
The Eighth Circuit also briefly took the trial court to task for not looking harder at what Thatcher’s motives were, in part because his tactic, while good for his attorneys, was not nearly as good for the class he sought to represent:
Thatcher was dismissing so he could return to the more favorable state forum. Thatcher’s expressed intent was to amend his complaint in order to avoid federal jurisdiction. … This reading of Thatcher’s purpose is supported by his failure to consider the effects of his actions on the putative class that he purportedly represents. In the original complaint, Thatcher included claims for unjust enrichment, fraud, constructive fraud, and breach of contract. In his motion to dismiss without prejudice, Thatcher set forth his intention to refile this matter in state court as a breach of contract claim only. Thatcher set forth no adequate reason why it would benefit the class to abandon these additional claims.
(Emphasis added.) In other words, the Eighth Circuit was unimpressed with the fact that Thatcher (or more likely, his attorneys) were willing to jettison a number of causes of action specifically to keep the case out of federal court.
If I were a betting man, I’d say it’s unlikely that a plaintiff will specifically ask to refine his claim to avoid federal jurisdiction. (And frankly, it’s a little surprising that a plaintiff did this time.)
But more importantly, this opinion offers two important reminders for class action defense counsel. First, it is often worth raising whether the purpose for a plaintiff’s tactic is a proper one. It actually does matter in the long run. Second, and as important, no matter how many times it draws comments about foxes and henhouses, it is always worth asking whether the plaintiffs’ tactic is good for the proposed class. Too often, they’re not. And far too often, the defendant is the only one sticking up for the absent class members.