WASHINGTON (Legal Newsline) – Washington Legal Foundation has filed a brief in the U.S. Supreme Court urging it to review and overturn a Montana Supreme Court decision that certified a massive class action against Allstate Insurance Co.
The lawsuit was filed by a man who was unhappy with the way his insurance claim was handled, and the Montana Supreme Court named him as the representative of a class consisting of every Montana resident who settled a claim with Allstate without the assistance of an attorney at any time in the past 20 years.
WLF argued that the certification order violates Allstate’s Fourteenth Amendment rights to due process of law because by permitting a jury to issue a single ruling covering all class members, it prevents the defendant from asserting individual defenses to the claims of each class member.
WLF argues that the Supreme Court’s 2011 Wal-Mart v. Dukes decision prohibited federal courts from certifying classes of this sort.
The Wal-Mart decision recognized significant limits on the certification of class action lawsuits in federal courts, WLF argues, and that should be extended to state courts.
The Montana Supreme Court brushed aside Allstate’s insistence that all claims settlements turn on unique sets of facts, according to a WLF press release.
If a jury finds against Allstate, then every class member would be entitled to seek both compensatory and punitive damages.
“Lawsuits of this sort—in which the claims of each policyholder turn on facts specific to him—are virtually never appropriate for class-action treatment because they could never be brought to trial; yet they serve the purposes of the plaintiffs’ bar by exerting tremendous settlement pressure on defendants,” WLF Chief Counsel Richard Samp said.
“The Montana Supreme Court erred here, and the U.S. Supreme Court ought to correct this injustice and hold state courts to the same standards it applies to federal courts.”
Wal-Mart held that federal rules do not permit federal courts to certify class actions in this manner because it unfairly deprives defendants of the right to raise all available defenses, WLF says.
The U.S. Supreme Court held that because a jury finds that a defendant treated one plaintiff unfairly is no reason to prevent the defendant from submitting evidence it did not treat other plaintiffs unfairly, WLF argues.
WLF’s brief argues that the Wal-Mart rule is essential to any concept of procedural fairness and thus should bind state courts as well.
WLF argues that class-certification orders like the one issued by the Montana Supreme Court are all too common and essentially force defendants to settle even the most frivolous lawsuits.
After Robert Jacobsen suffered bodily injuries and property damage in an automobile accident caused by Allstate’s insured in 2001, Allstate admitted liability and negotiated a settlement with Jacobsen while he was unrepresented by counsel.
Allstate’s adjuster, Chuck Conners, used Allstate’s Claim Core Process Redesign program to process Jacobsen’s claim. The CCPR program is a system of claims adjusting guidelines that Allstate implemented in 1995 to fast track settlements.
Conners utilized the general outlines of the CCPR in settling Jacobsen’s claim, and the program facilitated a settlement six days after the accident for $3,500 and 45 days of “open” medical payment. As part of the settlement, Jacobsen signed a release.
Roughly three weeks later, Jacobsen says he began experiencing significant pain, contacted Conners and asked him to reconsider the release and provide additional assistance. Conners refused because Jacobsen had signed the release and Jacobsen retained counsel, who successfully persuaded Allstate to rescind the release and re-open the claim.
Due to the efforts of Jacobsen’s attorney, Allstate then settled Jacobsen’s claim for $200,000 on Nov. 27, 2002, approximately 18 months after his initial, unrepresented settlement of $3,500.
Soon after, Jacobsen retained new counsel and filed a complaint against Allstate for various violations of the Montana Unfair Trade Practices Act, common law bad faith, intentional and negligent infliction of emotional distress and compensatory and punitive damages.
The jury returned a verdict in favor of Jacobsen on Oct. 19, 2006, finding Allstate liable for common law and statutory bad faith and awarded Jacobsen $68,372.38 in compensatory damages and $350,000 in punitive damages.
Following the verdict, Jacobsen and Allstate appealed various rulings by the district court.
An opinion was filed Aug. 29 in the Supreme Court of Montana in which Justice Michael E. Wheat said one issue under consideration concerned the discovery of what were termed the “McKinsey documents.”
The McKinsey documents consisted of approximately 12,500 PowerPoint slides produced by McKinsey & Company, a management consulting firm, for Allstate. The CCPR program is a distillation of the studies and recommendations contained in the McKinsey documents and they consequently provide a more complete understanding of the program.
However, according to the opinion, Jacobsen was unaware of the existence of the documents at the time of his initial discovery request or motion to compel production of the CCPR. When he became aware of them, he sought leave of the court to assert new individual and class action claims against Allstate and to pursue additional discovery.
The district court denied these requests, finding that they would “cause substantial prejudice and undue delay, burden and expense.”
In his pre-remand appeal, Jacobsen argued that the district court erred by denying his request for further discovery.
The Montana Supreme Court found that because the issue before the district court was not whether to re-open discovery, but whether to compel Allstate to produce documents that were within Jacobsen’s original discovery request, it was unnecessary to determine whether Jacobsen demonstrated due diligence or excusable neglect.
“We concluded ‘the McKinsey documents were indeed critical to Jacobsen’s theory that Allstate’s policies regarding unrepresented claimants constituted bad faith’ and reversed the district court’s decision,” Wheat’s opinion states.
“We ultimately remanded the case for a new trial, finding that the jury’s award of compensatory damages could not be based solely on Jacobsen’s incurred attorney costs and fees and that there could be no punitive damages following this reversal of the compensatory damages reward. We also ordered the court to allow the jury to consider Jacobsen’s emotional distress damages and direct the district court to compel the production of the McKinsey documents.”
On remand, bolstered by the production of the McKinsey documents, Jacobsen filed a motion for leave to file a Fourth Amendment complaint that added class action claims concerning Allstate’s CCPR program. The fourth amended complaint was filed on May 6, 2010.
“We accordingly conclude that the district court did not abuse its discretion by certifying a Rule 23(b)(2) class action. We do, however, conclude that the certification of class-wide punitive damages was inappropriate in the context of a Rule 23(b)(2) class,” Wheat’s opinion states.
Justices Wheat, Mike McGrath, Patricia Cotter and Brian Morris remanded for a class trial to determine whether the application of the CCPR to the class violated the UTPA and, if so, to determine whether the district court should enter an order requiring Allstate to provide notice to the class members of their right to re-open and re-adjust their claims.
“The trier of fact in the class trial will also make a determination as to whether Allstate’s implementation of the CCPR program involved actual fraud or actual malice, such as could justify the entry of punitive damages following a finding of actual damages in the ensuing individual cases,” the opinion states.
“If the trier of fact determines that Allstate did not engage in either actual fraud or actual malice, the class members would be entitled to only compensatory damages they can provide in the individual cases. Following the class trial, the court shall determine whether there should be a common fund recovery of class-action attorney fees and costs.”
The justices concluded that the district court did not err in its determination that class certification proceedings do not require evidence to be in “trial admissible” form and they affirmed the class certification.
Justices Beth Baker and Laurie McKinnon, in their dissenting opinion believed the court wrongly remade the case into an action for damages under UTPA and, in doing so, distorted the rules for certifying a class under Rule 23(b)(2) and jeopardized class members’ due process rights.
Baker and McKinnon held that Jacobsen’s claims were not typical and that he was not an adequate representative of the class.
Original Story: WLF says Mont. Supreme Court made error in certifying class