Progressive West Ins. Co. v. Preciado
__ F.3d __ (9th Cir. 2007), Docket No. 06-17367

The Class Action Fairness Act Does Not Authorize A Plaintiff/Cross-Defendant Insurer's Removal Of A Class Action To Federal Court

The Ninth Circuit Court of Appeals affirmed an order in the United States District Court for the Eastern District of California remanding a class action back to state court. The Court of Appeals found the Class Action Fairness Act ("CAFA"), Pub. L. No. 109-2, § 5, 119 Stat. 4 (2005), does not give the district court removal jurisdiction over the class action because the action was "commenced" prior to CAFA's effective date, regardless of the relation-back doctrine, and, in any event, a plaintiff/cross-defendant cannot remove an action to federal court.

Progressive West Insurance Company ("Progressive") filed a breach of contract action in California state court against its insured, Simon Preciado. Progressive sought $5,000 in reimbursement for medical payments it made on behalf of Preciado. Preciado filed a cross-complaint against Progressive, which alleged (among other things) that Progressive's policy of claiming such reimbursements was an unfair business practice under California's unfair competition law. See Cal. Bus. & Prof. Code § 17200 et seq. Preciado sought remedies "on behalf of the general public" but failed to allege the necessary elements of a class action.

After Preciado filed an amended cross-complaint, Progressive removed the action to federal district court, asserting federal jurisdiction under CAFA. The federal district court remanded the action to state court, and Progressive appealed.

Signed into law on February 18, 2005, "CAFA amends, inter alia, the federal diversity statute, 28 U.S.C. § 1332, and now vests original jurisdiction for class actions in federal court where there is minimal diversity and the amount in controversy exceeds $ 5,000,000." Bush v. Cheaptickets, Inc., 425 F.3d 683, 684 (9th Cir. 2005) (citing 28 U.S.C. § 1332(d)). CAFA makes it easier for litigants to remove class actions to federal district courts. It also gives appellate courts jurisdiction over appeals from orders remanding class actions to state court by creating an exception from the general rule in 28 U.S.C. § 1447(d) that such orders are not reviewable.

The question on appeal was whether CAFA authorized Progressive's removal of the class action. CAFA applies only to actions "commenced on or after" February 18, 2005. The original complaint and the original cross-complaint in this action were filed before February 18, 2005. On appeal, the Court reasoned that if either of these pleadings "commenced" the action for purposes of CAFA, CAFA does not authorize the removal of the action to federal court.

The Ninth Circuit Court of Appeals has held that an action commences for purposes of CAFA when a suit becomes "a cognizable legal action in State Court" under "[a] state's own laws and rules of procedure." Bush, 425 F.3d at 686. Under California law, an action commences when the "complaint" is filed with the court. Cal. Civ. Proc. Code §§ 350, 411.10. The Court found that based on these statutes, the class action was commenced when Preciado filed his original cross-complaint on February 17, 2005, the day before CAFA became effective.

Progressive did not dispute this analysis on appeal. Rather, Progressive argued that under California's "relation-back" doctrine, Preciado's amended cross-complaint commenced a new action because it substantially changed the nature of the action from an individual action to a representative action. Progressive urged the Court to follow the Seventh Circuit's reasoning that an amended action may commence a new action for purposes of removal under CAFA if it does not "relate back" to an earlier filing. See Knudsen v. Liberty Mut. Ins. Co., 411 F.3d 805 (7th Cir. 2005).

The Court rejected Progressive's argument, finding that under California's "laws and rules of procedure," the relation-back doctrine does not apply. California courts have applied the relation-back doctrine in only two contexts. See Barrington v. A. H. Robins Co., 39 Cal. 3d 146, 702 P.2d 563, 566, 216 Cal. Rptr. 405 (Cal. 1985).

First, California courts have applied the relation-back doctrine "to determine the time of commencement of an action for the purpose of the statute of limitations." In this context, "an amended complaint is not barred by the statute of limitations…if the amended complaint relates back to a timely original complaint."

Second, the California Supreme Court has applied the doctrine to a statute requiring dismissal of an action for failure to serve a summons within three years of its commencement. In Barrington, the California Supreme Court held the trial court erred in not applying the doctrine because the nature and purpose of the statute of limitations and the failure-to-serve statute are "virtually identical." Both statutes "were designed to move suits expeditiously toward trial," and both "conflict with the strong public policy that seeks to dispose of litigation on the merits rather than on procedural grounds."

The Court refused to apply Barrington here: "CAFA is not 'virtually identical' to these statutes. CAFA's effective date does not bar any class actions that might otherwise be litigated on the merits; it merely deprives litigants of one basis for removing the actions to federal court." The Court concluded that California's relation-back doctrine does not apply in this context.

Progressive also argued on appeal that given CAFA's purpose to increase class action litigants' access to federal courts, the Court should interpret CAFA as allowing a plaintiff forced to defend a class action on the basis of a cross-complaint to have the same right to remove the class action as a defendant.

The Court rejected Progressive's argument: "Although CAFA does eliminate three significant barriers to removal for qualifying actions, CAFA does not create an exception to Shamrock's longstanding rule that a plaintiff/cross-defendant cannot remove an action to federal court." See Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 61 S. Ct. 868, 85 L. Ed. 1214 (1941). The Court concluded Progressive lacked statutory authority to remove the action pursuant to CAFA even if the action had commenced after CAFA's effective date.

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