One challenge defendants and their counsel face early in defending a putative class action filed in state court, assuming they would prefer to litigate in federal court, is how to show that the $5 million amount in controversy requirement is satisfied.  This must be done quickly so that the removal can be timely filed within 30 days, and it often takes considerable time to find the right people to do the analysis, figure out what the relevant data is, analyze various iterations of data and then decide how best to present this issue to the court.  The courts of appeals have agreed that the burden of proof is on the defendant to show that the amount in controversy is satisfied, although there is some variation in how the applicable standard is articulated.

A recent Northern District of Ohio decision demonstrates the importance of tailoring the defendants’ data to the definition of the proposed class, where possible, as opposed to using more generic data that may be more easily retrievable but is not specific to the proposed class.  Andrews v. Nationwide Mutual Insurance Co., 2011 U.S. Dist. LEXIS 124737 (N.D. Ohio Oct. 26, 2011) is one of a series of class actions recently filed seeking to require life insurance companies to search for information about whether their insureds have died (typically by using the Social Security Administration’s Death Master File) and then make more proactive efforts to pay proceeds where a claim has not been submitted.  (For more about these kinds of cases, see the prior posts I did on June 2, 2011 and July 13, 2011.)  The complaint sought injunctive and declaratory relief, and also asserted claims for breach of the implied covenant of good faith and fair dealing and unjust enrichment.  The only issue in dispute on jurisdiction was the amount in controversy. 

Nationwide’s notice of removal alleged “three components of damages: (1) $826,000, which constitutes the face value of active life insurance policies for which the insured has been determined to be deceased, (2) $1,228,000, which constitutes the value of lapsed insurance policies during the past 15 years for which the insured has been determined to be deceased; and (3) the $10,200 annual cost to conduct yearly searches of the Death Master File (‘DMF’) for active life insurance policyholders and monthly searches for all lapsed policies.”  Id. at *3-4.  Nationwide argued that “the injunction plaintiffs seek is indefinite and perpetual and, as such, the amount in controversy is satisfied by category three alone.”  Id. at *4.

The court found this showing insufficient in large part because the data was not adequately tailored to the putative class as defined in the complaint:

Upon review, the Court finds that defendants have not established a $5 million amount in controversy by a preponderance of the evidence. Defendants provide the affidavit of Jeffrey Stein, who avers that defendants ran searches of their active and lapsed policies against the DMF. The results of these searches indicated that there are approximately 230 active policies worth $826,000 for which defendants received an “exact or near exact match” and for which defendants could not locate the policy beneficiary. In addition, there are approximately 17 lapsed policies worth $1,228,000 that fit the same criteria. Defendants ask the Court to include these dollar figures in the amount in controversy. These dollar figures, however, are derived from searches of defendants’ entire book of business. Thus, these figures do not accurately represent the interests at stake in this case, as the number of policies at issue is far less than defendants’ entire book of business. For example, there is no indication as to how many of the 230 active policies and 17 lapsed polices were held by class members. Nor is there any indication as to the value of the class members’ policies.

In addition, the Court rejects defendants’ argument that the cost of running searches ad infinitum would itself exceed the jurisdictional amount. Defendants provide evidence that the cost to run the searches is $10,200 per year. Defendants’ argument ignores the simple fact that the injunction could not, by definition, run ad infinitum. Count one, which seeks mandatory injunctive relief, asks the Court to order defendants to make reasonable inquiries as to the “life-status of the Class Members.” Similarly, count two asks that the Court declare that defendants must pay death benefits to “Class Members … without first requiring further notice of death.” On the face of the complaint, the injunctive and declaratory relief is requested only on behalf of “Class Members.” The class is defined generally as individuals who have policies that are “currently in force” or have been “wrongfully canceled” and who held such policies “within the period of time that commenced 15 years prior to the filing” of this lawsuit Construing the class definition as broadly as possible, the injunction could only last as long as the youngest person in the class is alive. Once the youngest person is deceased, the injunction would necessarily expire as there would be no more records to search or benefits to pay.

Id. at *7-10 (footnotes omitted).

It seems likely here that at least some of Nationwide’s data could have been tailored more closely to the proposed class.  But it may very well be that if the data had been tailored specifically to the proposed class, Nationwide would have had no hope of reaching the $5 million threshold, and thus they may have just been giving this the old college try.  What I think is critical here is for insurers and their counsel to understand that thoroughly developing the amount in controversy data to be used in a CAFA removal requires substantial time and effort.  In some cases it is simply not possible to tailor the data to the proposed class as defined in the complaint because the insurance company simply does not maintain the right kind of data, but you can probably get pretty close.  That may take several meetings with the right people knowledgeable about the company’s data, and working through several different iterations of data that you might want to use, in order to get the best possible data and accompanying argument to present to the court.  From the outside (and in-house) counsel perspective, gaining a deep understanding of how the client maintains the data can be essential.  Don’t underestimate the amount of time and effort that is required for this, and don’t assume that a judge will accept some kind of rough, back of the envelope calculation.  That might fly where it is clear that the case involves much more than $5 million, but it might not where, as in this case, it was a closer call.

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Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career at Skadden.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and I was fortunate to have the opportunity to work on some prominent class actions arising from the 2004 hurricanes in Florida and later Hurricane Katrina, including cases involving the applicability of the flood exclusion, statutes known as valued policy laws, and various other issues.  My interest and experience in class actions gradually led me to focus on that area.

In Connecticut courts I’ve defended various kinds of class actions that go beyond insurance, including cases involving products liability, securities, financial services and consumer contracts.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at my desk or flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation (for more on those, see the Seminars/Programs page of this blog), I often can be found playing or reading with my young daughter, helping my wife with her real estate and mortgage businesses, reading a book about history or politics, or watching the Boston Red Sox (I managed to find bleacher seats for Game 2 of the 2004 World Series when Curt Schilling pitched with the bloody sock).  When the weather is good I also love to take the ferry to Block Island, Rhode Island and ride a bike or walk the trails there. If you go, I highly recommend the Clay Head Trail.