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27 January 2006

Seventh Circuit Allows Removal of Pre-CAFA Class Action

27 January 2006, Chicago - The United States Court of Appeals for the Seventh Circuit has for the first time permitted removal from state to federal court of a class action lawsuit that was originally filed prior to the enactment of the Class Action Fairness Act of 2005 ("CAFA"). The ruling, announced in an opinion by Judge Frank H. Easterbrook, came in response to a petition filed by Mayer, Brown, Rowe & Maw LLP and Vinson & Elkins LLP on behalf of Liberty Mutual Insurance Company.

The case involves a consumer fraud class action filed against Liberty Mutual in state court in Chicago in 2000, long before CAFA's effective date of February 18, 2005. That statute by its terms applies only to cases "commenced" after that date. In the summer of 2005 the state court judge certified a nationwide class of plaintiffs and, without trial, entered a default judgment in favor of the class. The only remaining issue was determination of the nationwide class damages, potentially in the hundreds of millions of dollars.

In response to broad changes in the class definition that had been proposed by the plaintiffs and accepted by the state court judge, Liberty Mutual removed the case to federal court in Chicago under CAFA, arguing that a new action had been commenced by these changes. Citing three previous Seventh Circuit opinions that had ordered remand of CAFA removals when the underlying case had been filed before the CAFA effective date, the federal district court remanded the case back to state court.

On appeal the Seventh Circuit reversed and ordered that the case remain in federal court. The appellate panel held that removal was proper because "a novel claim tacked on to an existing case commences new litigation for purposes of the Class Action Fairness Act." The Seventh Circuit went on to observe that "the conduct of plaintiffs and the state judge in this litigation . . . illustrates why Congress enacted the Class Action Fairness Act." The opinion specifically directed that the federal district court "need not (and should not) give any weight to the state judge's order of default and the scope of the class certification" and that "these and all other questions are open to an independent resolution in the federal forum."

Mayer, Brown, Rowe & Maw LLP lawyers working on the case included Steven M. Shapiro, Howard J. Roin, Joel D. Bertocchi, John R. Schmidt and Stephen J. Kane. The case is Knudsen v. Liberty Mutual Insurance Co., No. 05-8037 (January 27, 2006).

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