J. LEON HOLMES, District Judge.
Robert Hall, individually and on behalf of all others similarly situated, commenced this putative class action against Equity National Life Insurance Company, Life Investors Insurance Company of America, and Aegon USA Inc. on November 3, 2009. The defendants have moved this Court to deny class certification and eliminate Hall's class action allegations pursuant to Federal Rule of Civil Procedure 23(d)(1)(D). The defendants argue that Hall's putative class claims are barred by a nationwide class settlement in the Circuit Court of Pulaski County, Arkansas. For the following reasons, the defendants' motion is granted.
This is a dispute over changes to the defendants' supplemental cancer insurance policy. Equity National is the predecessor in interest to Life Investors and Transamerica Life Insurance Company. Robert Hall, an Alabama resident, purchased a supplemental cancer insurance policy, policy number 01E122807, from Equity National on September 17, 1994. The policy provides coverage for "actual charges" incurred for certain services.
According to Hall's complaint, he was diagnosed with cancer in May 2007. After extensive treatment, he submitted proof of loss to Transamerica. Transamerica then paid only the highest amount that Medicare, Hall's primary insurer, allocated for covering the surgery. The complaint alleges that Transamerica's coverage was based on an "arbitrary, wrongful, and bad faith interpretation of the term `actual charges.'" Hall's complaint asserts claims for breach of contract, breach of the implied duty of good faith and fair dealing, unjust enrichment, declaratory judgment and injunctive relief, and bad faith. Hall asserts those claims on behalf of all others similarly situated in the United States who were insureds under similar supplemental cancer insurance policies with Aegon, Equity National, Life Investors, or Transamerica.
Robert Hall's complaint is not the first of its kind. There are at least 15 other cases in federal courts spread over 8 different states asserting the same legal claims against the same defendants. Of those 15 federal cases, one is of particular importance to setting the context of this Court's analysis: Pipes v. Life Investors Ins. Co. of Am., Case No. 1:07CV00035 (E.D.Ark.).
In Pipes, the state action was removed to the Eastern District of Arkansas on July 20, 2007. The plaintiff's counsel in Pipes also filed five other overlapping cases, three of which were class actions, in four different states.
On March 3, 2009, the parties reached an understanding on a class action settlement. On March 13, Pipes's counsel, on behalf of Pipes and the named plaintiffs whom Pipes's counsel represented in the other five related actions, filed a class action complaint in the Circuit Court of Pulaski County, Arkansas. That case included the named plaintiffs whom Pipes's counsel was representing in the other related actions, and was styled Edison Runyan et al. v. Transamerica Life Ins. Co. et al., Case No. 09-2006-3. The Runyan state action essentially consolidated the claims of the plaintiffs in the Pipes, Runyan, Ross, Weidman, Harris, and Nolan federal actions. The six federal actions were then stayed pending final approval of the settlement agreement reached in the Runyan state action.
The defendants filed their answers in the Runyan state action on April 3, 2009. Two weeks later, the parties finalized a class action settlement agreement, which was filed in Pulaski County Circuit Court on April 20, 2009. On April 23, the Circuit Court granted preliminary approval to the Runyan settlement class, which it defined as follows:
The Circuit Court approved as representatives for the settlement class Edison Runyan, Dwight Pipes, Earl Purifoy, John Ross as legal representative of Elizabeth Ross, Mary Weidman, Durain Weidman, Marion Harris, and Van Nolan. The Circuit Court appointed Epiq Systems, Inc., to be the settlement administrator. The parties submitted a proposed written notice, publication notice, and claim forms, and the Circuit Court approved of those. The Circuit Court further approved of a time line for the mail notice, publication notice in the USA Today, and the publication of a settlement internet site. Finally, the Circuit Court found that the notice plan was reasonably calculated to apprise settlement class members of the terms of the settlement and was the best notice practicable under the circumstances. The Circuit Court's order also set a fairness hearing for July 27, 2009, to determine final approval of the settlement. The court noted that any class members who did not opt out could object to the proposed settlement in writing and at the fairness hearing within certain parameters.
Pursuant to the Circuit Court's order, notice of the class settlement was mailed on May 14, 2009, to more than 250,000 class members, including Robert Hall. The notice was then published in the USA Today on May 26 and 28, 2009, and the remaining portions of the notice plan were complied with. Of the more than 250,000 class members who were sent notice, only a few objected. On September 16 and 17
On December 8, 2009, the Pulaski County Circuit Court entered an order disposing of the various pending objections, discovery motions, and motions to intervene. In its 31-page order, the Circuit Court discussed at length the history of the litigation, how the six federal cases came to be consolidated in the Runyan state action,
On December 21, 2009, the Circuit Court entered a final judgment approving of the class action settlement, along with 63 pages of findings of fact and conclusions of law. As part of its findings of fact, the court found that the parties were "represented by experienced class action counsel who worked diligently negotiating the Settlement at arms' length in an adversarial setting to ensure that the Settlement Agreement was fair, reasonable, and adequate.... The Court finds further that the Settlement was negotiated in good faith and there was no collusion or `reverse auction' of any kind in the negotiation of the Settlement. No objector or any other party has submitted any evidence of collusion." The putative intervenors have appealed.
Robert Hall opted out of the Runyan class action settlement. On November 3, 2009—only six days before the fairness
Two days after Hall filed his complaint, his attorney also filed a series of motions in the Pipes litigation on behalf of Daniel Crager, whose objections and motions were also heard and denied by the Runyan court. Crager filed a motion to intervene, emergency motion for injunctive relief, and motion for expedited hearing. He asked the Pipes court to enjoin the state court from granting final approval to the Runyan settlement, pursuant to the All Writs Act. He made the same arguments regarding collusion and fraud that he makes here.
In a November 12, 2009 order, Judge Susan Webber Wright denied those motions. Relying on the Anti-Injunction Act, and recognizing that injunctions enjoining state court proceedings are allowed only under specific circumstances, Judge Wright held that an injunction was neither necessary nor appropriate. Because Judge Wright had not certified a class or conditionally approved a class settlement, the state court proceedings posed no threat to the Pipes court's jurisdiction. Judge Wright also denied Crager's motion to intervene because the remedy he sought was unavailable and he failed to allege a redressable injury in fact.
The defendants ask that this Court deny certification of Robert Hall's putative class and eliminate the class allegations from his complaint. Federal Rule of Civil Procedure 23(c)(1)(A) provides that "[a]t an early practicable time after a person sues or is sued as a class representative, the court must determine by order whether to certify the action as a class action." Rule 23(d)(1)(D) states that a court may issue orders that "require that the pleadings be amended to eliminate allegations about representation of absent persons and that the action proceed accordingly." In some instances, a court can decide on certification before any discovery has yet taken place. See Mantolete v. Bolger, 767 F.2d 1416, 1424 (9th Cir.1985) ("Although in some cases a district court should allow discovery to aid the determination of whether a class action is maintainable, the plaintiff bears the burden of advancing a prima facie showing that the class action requirements of [Rule 23] are satisfied or that discovery is likely to produce substantiation of the class allegations."). Where the class allegations are insufficient to support certification, a district
The Full Faith and Credit Act has been construed by the Supreme Court in a case that appears to be on point. Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 367, 116 S.Ct. 873, 134 L.Ed.2d 6 (1996). In that case, a Delaware federal district court had granted summary judgment to the defendant company, and the plaintiff shareholders appealed. Before their appeal was decided, a Delaware state court approved a settlement that extinguished the plaintiff shareholders' state and federal claims. Thereafter, the Ninth Circuit held that the Full Faith and Credit Act did not operate to bar the shareholders' continued prosecution of their federal claims. The Supreme Court reversed, holding that the settlement in Delaware state court had preclusive effect under the Full Faith and Credit Act.
In Matsushita, the Court stated:
Matsushita, 516 U.S. at 373-75, 116 S.Ct. at 877-78 (internal quotes, cites, and ellipses omitted).
Here, the Runyan judgment is the product of a "judicial proceeding" within the meaning of § 1738. The Runyan judgment contained a comprehensive general release that was binding on class members but not persons who properly and timely chose to opt-out of the class
Because the Runyan judgment is entitled to the same respect in this Court that it would receive in the courts of the State of Arkansas, it is necessary to decide what effect the judgment would be given by the Arkansas courts. Under the doctrine of res judicata or claim preclusion,
Barclay v. Waters, 357 Ark. 386, 394, 182 S.W.3d 91, 95-96 (2004). Res judicata bars relitigation of a suit when: (1) the first suit resulted in a final judgment on the merits; (2) the first suit was based on proper jurisdiction; (3) the first suit was fully contested in good faith; (4) both suits involve the same claim or cause of action; and (5) both suits involve the same parties or their privies. Beebe v. Fountain Lake Sch. Dist., 365 Ark. 536, 544, 231 S.W.3d 628, 635 (2006). The doctrine of collateral estoppel, or issue preclusion, bars relitigation of the same issue in a subsequent suit where four elements are met: (1) the issue sought to be precluded must be the same as that involved in the prior litigation; (2) that issue must have been actually litigated; (3) the issue must have been determined by a valid and final judgment;
Hall argues that the Runyan court did not have subject-matter jurisdiction because there was no justiciable controversy. Hall correctly states the law that res judicata does not apply to bar the subsequent suit where there was fraud or collusion in the procurement of the first judgment, citing McGee v. McGee, 100 Ark.App. 1, 4, 262 S.W.3d 622, 625 (2007). Hall says that the actions of class and defense counsel in Runyan amounted to collusion and fraud and resulted in a "negative auction." As an example of collusion, Hall points the Court to a status report filed in the Harris litigation in the Middle District of Louisiana. Marion Harris was the plaintiff representative in that case, and she is one of the plaintiff representatives in the Runyan state action. On April 23, 2009—several days after the Runyan settlement was finalized, and the same day on which the Pulaski County Circuit Court granted preliminary approval—Harris and the defendants submitted a joint status report to the district court. The status report communicated that (1) the parties had made no effort to settle the case, and (2) the parties wished to have a settlement conference sometime in September
Although a federal district court may have the power and duty to inquire as to a state court's exercise of jurisdiction, where the inquiry discloses that the jurisdictional issues were fully and fairly litigated and finally determined by the state court, further inquiry by the federal court is precluded. See Durfee v. Duke, 375 U.S. 106, 116, 84 S.Ct. 242, 248, 11 L.Ed.2d 186 (1963). The parties have submitted copies of the Circuit Court's rulings, as well as hearing transcripts of the hearings, showing that the Circuit Court's jurisdiction was litigated openly and deliberately. The Circuit Court made a final determination that its jurisdiction was proper. The Pulaski County Circuit Court found that there was no collusion, fraud, or reverse auction of any kind in the procurement of the settlement agreement. The Circuit Court found that the settlement was negotiated at arms' length, and only after several months of contentious litigation and discovery in parallel federal actions. It appears that all the same evidence and arguments on collusion were brought before the Circuit Court, that the Circuit Court thoroughly and deliberately considered those arguments, and that the Circuit Court rejected those arguments. Therefore, this Court is precluded from further inquiry and will not challenge or overturn the Circuit Court's finding that its jurisdiction was proper. Id. at 111, 84 S.Ct. at 245 ("[T]he general rule [of jurisdictional finality is] that a judgment is entitled to full faith and credit—even as to questions of jurisdiction—when the second court's inquiry discloses that those questions have been fully and fairly litigated and finally decided in the court which rendered the original judgment.").
The putative intervenors in Runyan may eventually prevail in an appeal of the Circuit Court's holding,
The release states:
The release also states that all class members who chose not to opt-out of the Runyan settlement class expressly and irrevocably released the defendants from any claims for the following:
Hall opted out of the Runyan class settlement, so his individual claims are not precluded by the Runyan release. However, the Runyan release is broad, and the parties clearly intended it to preclude future class allegations from being made against the defendants on the same claims. Grant County Sav. & Loan Ass'n, Sheridan, Ark. v. Resolution Trust Corp., 968 F.2d 722, 725 (8th Cir.1992) (holding that it was clear from the "broad and all encompassing" release language in a previous settlement agreement that the parties had "intended the settlement and release to end all litigation over claims associated with" the project at issue). Hall's class claims are the same as those litigated and then released in Runyan, so those claims
Because of the Full Faith and Credit Act, res judicata, and collateral estoppel, Hall's class allegations are barred by the Pulaski County Circuit Court's judgment in Edison Runyan et al. v. Transamerica Life Ins. Co. et al., Case No. 09-2006-3. Hall, of course, may proceed on his individual claim against the defendants. Therefore, the defendants' motion to deny class certification and to strike Hall's class allegations is GRANTED. Document #24.
Leading up to the filing of the Runyan state action on April 20, 2009, the parties had engaged in six months of settlement negotiations since October 2008. The Pulaski County Circuit Court then allowed briefing and a hearing before granting preliminary approval to the class action settlement.
On interlocutory appeal, the Sixth Circuit reversed the district court's ruling. The Sixth Circuit said that such an extraordinary move was inappropriate for two reasons. First, because Gooch opted out of the Runyan opt-out class action settlement, it was impossible for that settlement to affect Gooch's rights or claims. Second, the Tennessee district court had not certified a class, meaning that the court had no cause to take extraordinary injunctive measures to protect the interests of a class. Because there was no risk of harm to Gooch's rights and no risk of harm to a non-existent class, the district court should not have used the All Writs Act to enjoin the Arkansas state court from granting final approval to the Runyan settlement. See In re Life Investors Ins. Co. of Am., 589 F.3d 319, 328-32 (6th Cir.2009).
