Life of the South Insurance Co., et al. v. Carzell, et al.

U.S. Eleventh CIrcuit Court of Appeals, Mar. 29, 2017; 851 F.3d 1341

The Class Action Fairness Act (“CAFA”) was enacted by Congress in 2005 to address what was perceived to be abuse of the class action process in state courts and to ensure that class members with legitimate claims were promptly and fairly remunerated. Congress relied upon the interstate nature of most class actions to determine that the federal courts’ diversity jurisdiction should apply when only a minimal level of diversity could be shown among the parties. The effect of the law was immediate, resulting in multi-district federal litigation, more thorough vetting of class action settlements, and arguably a reduction in the size of awards issued in those class actions that went to trial.


It is well-established that the Plaintiffs’ Bar is not enamored with CAFA; whereas, the Defense Bar relies upon the law whenever it can. Thus, each side has tried its best to restrict or expand, respectively, the scope of CAFA’s diversity jurisdiction. Such is the case in Life of the South Insurance Company v. Carzell, which displays the usual strategic tap dance between plaintiff and defendant. Originally, Carzell and her co-plaintiffs filed in the Superior Court of Fulton County, Georgia, an omnibus class action against Defendants Life of the South Insurance Company and Insurance Company of the South. The causes of action included the typical state law claims of breach of contract, negligence, unjust enrichment, breach of the covenant of good faith and fair dealing, and bad faith. Carzell, 851 F.3d 1341, 1341 (11th Cir. 2017).


Defendants immediately removed the case to the U.S. District Court for the Northern District of Georgia, citing diversity among the parties. See Id. Plaintiffs thereafter dismissed their case and then re-filed the action in the Superior Court on behalf of only “Georgia citizens,” alleging that they “were sold certain insurance policies by defendants, were owed refunds based on relevant insurance policies issued by the defendants, or had purchased insurance policies from the defendants for vehicles that were already insured.” Id. Again the defendants removed the case to the federal district court, citing two bases under CAFA: (i) the defendants maintained their principal place of business in Florida and, therefore, were minimally diverse from the proposed Georgia plaintiffs, and (ii) some of the proposed class members were citizens of foreign countries, thereby establishing minimal diversity. Id. Defendants relied on 28 U.S.C. sections 1332(d)(2)(A) and 1332(d)(2)(B), respectively, for their arguments. Id.


The District Court found that minimal diversity did not exist and remanded the case back to the Fulton County Superior Court. Defendants filed an interlocutory petition to appeal the District Court’s ruling. After reviewing the relevant statutes, the citizenships and domiciles of the parties, and the purposes of diversity jurisdiction, the Eleventh Circuit also found insufficient diversity to keep the case in federal court. Id.


In its ruling, the Appellate Court noted that Section 1332(d)(2)(A) provided federal jurisdiction in a class action when “any member of a class of plaintiffs is a citizen of a State different from any defendant.” Id. at 1344. However, pursuant to 28 U.S.C. section 1332(c)(1), “a corporation shall be deemed to be a citizen of every State and foreign state by which it has been incorporated and of the State or foreign state where it has its principal place of business.” Id. While Defendants indeed maintained their principal place of business in Florida, they had been incorporated in Georgia, making them a “citizen” of the State and precluding diversity with a class of plaintiffs made up entirely of Georgia citizens. Id. at 1344-45. Thus, Defendants were down to their last argument for CAFA diversity; i.e., some of the plaintiffs were citizens of foreign countries, providing diversity pursuant to 28 U.S.C. section 1332(d)(2)(B).


The problem with Defendants’ argument was that the foreign citizens were actually dual-citizens, with the relevant citizenship being that of the United States in general, and the State of Georgia specifically. See Id. at 1346 (citing Molinos Valle Del Cibao, C. por A. v. Lama, 633 F.3d 1330, 1341 (11th Cir. 2011)). In Molinos, the Eleventh Circuit agreed with the Second, Third, Fifth, Sixth, Seventh, and Ninth Circuits that in a dual citizenship scenario, the diversity analysis must rely solely upon the dual national’s citizenship in the United States. Addressing the foreign policy aspect of this analysis, the Appellate Court cited to Sadat v. Mertes, 615 F.2d 1176, which stated that “the risk of entanglements with other sovereigns that might ensue from failure to treat the legal controversies of aliens on a national level is slight when an American citizen is also a citizen of another country and therefore he ordinarily should only be regarded as an American citizen for purposes of 28 U.S.C. section 1332(a).” Id.


Defendants attempted to distinguish Molinos by arguing that it dealt with a different form of diversity jurisdiction. Id. Specifically, Defendants stated that Section 1332(a) – at issue in Molinos and Sadat – dealt with complete diversity jurisdiction; whereas, Section 1332(d)(2)(B) dealt with minimal diversity jurisdiction. Id. at 1346-47. Comparing the text of both sections, Defendants noted that the diversity jurisdiction of Section 1332(a) had an exception that was not present in Section 1332(d)(2)(B), said exception “destroy[ing]” diversity jurisdiction for cases “between citizens of a State and citizens or subjects of a foreign state who are lawfully admitted for permanent residence in the United States and are domiciled in the same State.” Id. According to the Defendants, because Section 1332(d)(2)(B) addressed minimal diversity jurisdiction, Congress intentionally omitted Section 1332(a)’s diversity destroying exception for purposes of determining minimal diversity. But the Appellate Court would not take the bait.


Citing to the Fifth Circuit case of Coury v. Prot, 85 F.3d 244, 250 (5th Cir. 1996), the Appellate Court held that it could not see any reason “to treat dual citizens differently under Section 1332(d)(2)(B) than under Section 1332(a). Id. at 1347. The purpose of diversity jurisdiction, in the case of foreign nationals, is “to promote international relations by assuring other countries that litigation involving their nationals will be treated at the national level, and alienage jurisdiction is also intended to allow foreign subjects to avoid real or perceived bias in the state courts…” Id. (quoting Coury, supra). As approvingly stated by the Fifth Circuit, “the dual citizen should not be allowed to invoke alienage jurisdiction because this would give him an advantage not enjoyed by native-born American citizens.” Id. Thus, joining its sister circuits, the Eleventh Circuit held that “for purposes of diversity jurisdiction, only the American nationality of a dual national is recognized.” Id. at 1347.


Carzell represents more fine tuning of CAFA and provides a brighter line for all parties to recognize the prerequisites for minimal diversity jurisdiction. It should result in quicker discovery and reduced delay in litigation, as parties forego some of the obligatory removal battles that seem to arise in every class action. However, the case also reinforces the theory that CAFA invites forum shopping and duplicative litigation, as the Plaintiffs’ Bar seeks to avoid multi-district litigation in the federal courts. Only time will tell whether CAFA is amended or legislated away to address some of its unintended consequences.