District of Maine Weighs in on Wal-Mart and CAFA Jurisdiction

Practice area:

Just before the holidays, Judge Singal issued an order de-certifying a class in Loef v. First American Title Insurance Company. The Loef decision both provides an excellent example of the changed legal landscape after Wal-Mart Stores, Inc. v. Dukes, and highlights the continued uncertainty that exists in the First Circuit over the existence of subject matter jurisdiction under the Class Action Fairness Act (CAFA) when a class is decertified.

Loef involved a putative class of individuals who had paid premiums for the purchase of title insurance in connection with refinance transactions.  The Loef plaintiffs asserted that they, and others similarly situated, qualified for discounted refinance rates but did not receive them. According to the plaintiffs, agents for the insurance company were obligated to ascertain any borrower’s eligibility for its discounted refinance rates and offer those rates if available, but did not do so. 

Initially, in Campbell v. First American Title Ins. Co., the court had concluded that the putative class satisfied the requirements of Rule 23(a); specifically, with regard to Rule 23(a)(2), the court had held that the questions regarding the insurance company’s ascertainment and disclosure obligations constituted “common” questions.  Accordingly, after also concluding that the class satisfied the requirements of Rule 23(b)(3), the court granted certification.    

As discovery and motion practice developed, however, it became clear that there were significant factual disputes regarding whether individual transactions qualified for the refinance rate.  Experts disputed whether many of the policies identified as overcharges in fact received the discounted rate, whether the policies were eligible for the refinance rate, and even whether it was possible to determine the eligibility of some policies absent additional individual information.  On this developed record, First American moved for decertification of the class based on the Supreme Court’s decision in Wal-Mart.   

In reviewing the decertification motion, the court expressly relied on the Supreme Court’s interpretation of the commonality requirement of Rule 23(a)(2) set forth in Wal-Mart:  “The Supreme Court’s recent decision in Wal-Mart has transformed the Rule 23(a)(2) commonality standard from a ‘low bar,’ . . . to a far more searching inquiry.”  Although Judge Singal had identified common questions when he originally certified the class, he now found that there were no common answers to these questions, either with respect to liability or damages.  As the court explained, “liability would require an assessment of each transaction to determine if the absent class member qualified for the discount rate” and therefore “could not be established in one stroke.”  He found it fatal that there was neither a “common answer[] to the question of liability” nor a “common method for resolving the liability question.”  He therefore granted the motion for decertification, finding that neither Rule 23(a)(2) commonality nor 23(b)(3) predominance had been satisfied.

Judge Singal’s opinion is notable not only because of its application of Wal-Mart, but also because it raised another issue – namely, whether the court continued to have subject matter jurisdiction after the class was decertified. In Loef, the sole basis for jurisdiction was CAFA.  The court noted that whether CAFA “would allow the Court to maintain jurisdiction after decertification is a question yet to be resolved by the First Circuit.”  The court retained jurisdiction, but granted the parties additional time to object to its continued exercise of jurisdiction over the case. 

Judge Singal’s decision flags an important issue that remains unresolved in the First Circuit.  As Judge Singal observed, the First Circuit in College of Dental Surgeons of Puerto Rico v. Connecticut General Life Insurance Company, had expressly refrained from answering the issue of “whether a later denial of class certification will divest the district court of CAFA jurisdiction.”  According to the First Circuit, this remained “an open question.”  Previously, in In re TJX Cos. Retail Security Breach Litigation, the First Circuit had suggested in dictum that final denial of class certification “would . . . defeat [CAFA] jurisdiction.”  

The First Circuit’s uncertain stance on CAFA jurisdiction has left practitioners bereft of the clear rule that other circuits have adopted.  While there is some conflict among district courts on the question of continuing CAFA jurisdiction after denial of class certification, the developing majority rule at the appellate level, espoused by the Sixth Circuit in Metz v. Unizan Bank, the Seventh in Cunningham Charter Corp. v. Learjet, Inc., the Ninth in United Steel v. Shell Oil Co., and the Eleventh in Vega v. T-Mobile USA, Inc., is that CAFA jurisdiction is measured at the time of removal and is not affected by subsequent developments (including non- or de-certification as well as transfer or dismissal).  These cases reflect the proposition that jurisdiction attaches at filing or removal and, if proper then, remains good for all time.  As the Ninth Circuit said in United Steel, “a putative class action, once properly removed, stays removed.”  Whether the First Circuit will adopt this holding, however, remains to be seen.

To top