Seventh Circuit Rejects Attempt To Turn Breach of Contract Case Into an Injunctive Relief Class
My friends in the plaintiffs' bar are extraordinarily creative individuals. I think this is great, as it makes my job much more interesting and has the added benefit of keeping me employed. One of the creative trends that I have seen from my friends in the plaintiffs' bar in recent years is the attempt to alternatively plead damages claims as claims for injunctive relief. Indeed, as it becomes obvious that a claim for breach of warranty or contract cannot be certified as a Rule 23(b)(3) class because of individual issues involving breach, one can expect to see an alternative "declaratory and injunctive relief" count in the complaint asking for a class to be certified under Rule 23(b)(2) for a classwide declaration that the contract has been breached and an injunction directing the defendant to perform what it purportedly is contractually obligated to do.
Plaintiffs do this, of course, because there is no "predominance" and "superiority" requirement explicitly written into Rule 23(b)(2). But courts have seen through this ruse, holding that 23(b)(2) has an inherent "cohesiveness" requirement that serves the same function as predominance and superiority. See, e.g., Compaq Computer Corporation v. LaPray, 135 S.W.3d 657 (Tex. 2004).
Of course the irony of plaintiffs' ruse is that it would allow a court that could not certify an opt-out class for damages to instead certify a mandatory class that would bind all class members.
The Seventh Circuit recently gave State Farm a Valentine, flatly rejecting the 23(b)(2) dodge and providing important guidance on why courts must not let a claim for damages be recast as one for equitable relief. See Kartman v. State farm Mutual Auto. Ins. Co., 2011 WL 488879 (7th Cir. Feb. 14, 2011). In Kartman, plaintiffs brought a putative class action of roughly 7,000 policyholders against State Farm for failing to adequately compensate them for hail damage to their homes. The trial court refused to certify a Rule 23(b)(3) class, recognizing that individual issues predominated over any common ones. But it certified a Rule 23(b)(2) class of "all State Farm policyholders who filed insurance claims for damage resulting from the April 2006 hailstorm and did not receive 'an entirely new roof.'" Id. at *7. The theory was that by inspecting roofs on an ad hoc basis, State Farm had somehow breached an obligation to apply a uniform and objective standard in assessing roof damage.
The Seventh Circuit flatly rejected plaintiffs' argument and the trial court's theory. To begin with, the court recognized that this was merely a claim for damages -- nothing more. The "injunctive relief" theory was merely a set up to a claim for damages; even if State Farm reevaluated everyone's roof according to a uniform standard, it would only be laying a foundation for some class members to argue that they had been undercompensated under their policies -- which is a claim for damages:
[C]ertification under Rule 23(b)(2) is permissible only when class plaintiffs seek 'final injunctive relief' that is 'appropriate respecting the class as a whole.' Here, the requested injunction is neither 'appropriate' nor 'final.' The relief is not appropriate for several reasons, not hte least of which is that the normal remedy for wrongful denial of insurance benefits is damages, not equitable relief. Moreover, the injunction envisioned by plaintiffs would in no sense be a final remedy. A class-wide roof reinspection would only lay the evidentiary foundation for subsequent individual determinations of liability and damages.
Id. at *1 (citation omitted).
The court admonished that:
This technique of recasting a straightforward claim for damages as a claim for damages and injunctive relief runs into trouble on some basic principles of common law -- most fundamentally that a claim of injury is not cognizable unless it results from the breach of a recognized legal duty owed to the plaintiff. Simply put, State Farm has no independent duty -- whether sounding in contract or tort -- to use a particular method to evaluate hail damage claims. . . . [T]he method it uses to adjust claims is not independently actionable.
Id. at *5 (citations omitted).
The court noted that the basic elements of an injunctive relief class could not be met here. First, there was no irreparable injury -- plaintiffs could be fully compensated by money damages for any alleged underpayment of their insurance claims. Id. at *7. The court also noted that the injunctive relief, as described by the plaintiffs, would be impractical and overly burdensome on State Farm, and -- importantly -- would simply amount to shifting the burden to State Farm to prove the elements of the plaintiffs' claims. Id. at *8-*9.
Notably, in deciding the class certification question, the court was unafraid to look to the merits of the claims. Indeed, it even recognized that there could be no unjust enrichment claim as a matter of law because there was an underlying contract. Id. at *6.
Kartman is a strong opinion recognizing that where damages will remedy the plaintiffs' claimed injury, one cannot plead around the claim's Rule 23(b)(3) problems by recasting the relief sought as equitable in nature.
