April 14, 2014
In a significant decision for class action litigation, the Seventh Circuit determined that the plaintiffs' representation that recoverable damages fall below $5 million, which is the threshold for federal court jurisdiction under the Class Action Fairness Act ("CAFA"), was insufficient to defeat removal of the class action from state court to federal court. Johnson v. Pushpin Holdings, LLC, et al., No. 14-8006, decided April 9, 2014.
The decision sends a clear message to class action counsel: be prepared to litigate in federal court. Simply stating in the pleadings that a case does not meet the monetary requirements for federal court jurisdiction, $5 million, will not keep the case out of federal court. If it is plausible that recovery could exceed $5 million (and the other statutory requirements are met), a class action will be litigated in federal court under CAFA.
In the case, plaintiff Michael B. Johnson ("Johnson") filed a state court action in Cook County, Illinois against Pushpin Holdings LLC ("Pushpin") and alleged owners and affiliates of Pushpin. Johnson alleges that Pushpin violated the Illinois Consumer Fraud and Deceptive Business Practices Act by, among other things, operating as a debt collector in Illinois without an Illinois license, and that Pushpin committed common law torts of abuse of process and malicious prosecution by fraudulently filing and prosecuting more than 1,000 small claims suits against borrowers.
Pushpin timely removed the case to federal court under CAFA. The Northern District of Illinois remanded the case holding that the case belongs in state court because the federal court was powerless to review state court judgments under the Rooker-Feldman doctrine and that the District Court erroneously relied on Johnson's representation that plaintiffs were seeking only $3.5 million in damages - less than the statutory minimum for federal jurisdiction - rather than Pushpin's contrary representations that damages exceeded $5 million. Pushpin timely sought permission to file an interlocutory appeal pursuant to 28 U.S.C. § 1453(c) and Fed. R. App. P. 5.
Writing for a unanimous panel of the Seventh Circuit, Judge Richard Posner agreed with Pushpin, rejected Johnson's arguments and reversed the District Court's remand order. The Seventh Circuit ruled that Johnson's unsubstantiated commitment (on behalf of absent, putative class members) not to seek damages above an amount specified by him does not render it "legally impossible" that recovery was capped below $5 million. Instead, Johnson's commitment was nothing more than a strategic attempt to keep a case in state court, "class counsel's forum." The Seventh Circuit also found that the Rooker Feldman doctrine did not apply. "The rule does not bar a federal suit that seeks damages for a fraud that resulted in a judgment adverse to the plaintiff."
Arnold N. Bressler, Scott E. Silberfein and John Baranello represent Pushpin and the other defendants. Mr. Silberfein and Mr. Baranello briefed the issues before the Seventh Circuit and are defending the suit.