## In the



# U n ited S ta tes Co urt o f Ap p ea ls

F o rth eS e v e n th C ir cu it
N o. 09

- 8002 L ORIE J. M AR S HAL L AND D EB RA R AMIRE Z, i nd i vi du al l y a nd o n behal fo f a l l o t he r s s i mi l a r l y s i t ua t e d, P laint if fs -Respondents , v.
H&R B LOC K T AX S ERVICES, I NC ., D efend a nt-P etitio ner .

A pp eal from the United S t ates Di strictC our t fo r the S outhernDi stricto f Illino is. No . 08- CV-591- MJ R

—Mi ch ael J . Reagan, Judge

.
S UB MI TT ED F EB RU AR Y 21, 2009

— D ECI DE D A PRI L 30, 2009

Befo re E AST E RB R OO K, Chie f Judg e, a nd P O SNER an d T INDER, C ircu it Judges . P OSNER, Cir cu i tJudg e . H & RB loc k T ax S er vic es , In c . (TS I) re m oved thi s s uitto federa l co urt und erthe Clas s Acti on Fai rnes s Act of20 05, but the di st ric t cour t co ncl ud ed that it w as not re m ovabl e a nd so r em anded the case to st ate c o ur t
. T S I h a s a s k e d o url e a v e t o a pp e a l, 2 8 U. S
. C. § 1 453( c) , wh i ch w e g ra nt.2 N o. 09

- 8002 The sui t was o ri gi nal l y fi led in st ate co urt aga i nst a de f e nd a ntc l a s s o fr e l a t e d c o mpa ni e s . T he s ui tnam ed H & R Blo ck, I nc. and H & R Blo ck Group, I nc. as r epres entati ves ofthe cl ass . The sui t cha rg ed t hat i n vi ol ati on o f I l l i no i s’ s Con su m erF r au d Act, the de f en dan ts a nd the m em ber s o fthei r cl ass , al l o fwh i ch w er e a ffi l i ate s o r f r a nc hi s e e s o fthe cla s s r e pr e s e nt a t i v e s , h a d u s e d d e c e pti ve pract i ces to sel l “Pea ce o fM i nd ” i ns u ra n ce a gai nst m i sta kes by H & R Blo ck that i ncre ase d c ustom er s’ ta x l i a b i l i t i e s . A n ame n d e d c o mpl a i n ta d d e d T S Ia n d H&R Blo ck Easter n Tax S er vi ces, I nc. as addit i onalnam ed defe nd ants and cl ass r epres entat i ves. The co urt dism i sse d th e two o r i g i na l na m ed defen dan ts , H& R Bl o ck, I nc . a nd H & R Bl ockGroup, I nc. f orl ack ofper sonalj uri sdic ti on and gra nted the pla i nti ffs’ m oti on t o vol untari l y di sm i ss H & R Blo ck Easter n Tax Se rv i ces, I nc. That l eft TSI as the o nl y r epres entat i ve ofthe defe nd ant c l ass . Eventual l y the st ate cour t cer ti fi ed thre e pl ai nti ffcl ass es, com pri si ng al l peopl e i n the 50 sta tes and the D istr i ct o f Col um bi a who ha d b ee n v i ct i m i zed bymem be r s o fthe defe nd ant c l ass

— w h ich t h e c ou rta lso ce rt ified , d efin in g it to i ncl ud e “ any e nti ty w i th t h e n am es ‘ H & R Blo ck’ o r
‘ H RB ’ i n i ts nam e, o r othe rwis e a ffi l i ate d oras soc i ate d wi t h [ TS I ] , a nd wh i c h sol d or s e l l s the [ Pe a c e o fMi nd ] product. ” S ubsequentl y, however, the court decer ti fi ed the defe n d an t cl ass atTSI ’ s r equest, l eaving TSI, wh i ch al re ady was the onl y defe nd ant, with no cl ass - re prese ntati ve sta tus s i nce there was no l onge r a d efe n dant cl ass . TSI h ad a sked the co urt to decert i fy the pl ai nti ffcl ass es as w el l, and w hi l e the co urt re fused to do s o, i t d id narr ow the cl ass es to re si dents o f13 st ate s.N o. 09

- 8002 3 TSIthen re m ove d the ca se to fe deraldi str i ct c ourto n the g ro u n d t h at the dece rt i fi cati on o fthe defe nd ant cl ass had m ade the case r em ovabl e under the C lass A cti on F ai r ne ss Act be ca us e th e dec er ti fi ca ti o n o cc ur r ed afte r the A c t ’ s e f f e c t i v e da t e , a nd h a d inc r e a s e d T S I ’ s p o t enti al l i abi l i ty notwiths tand in g the e l i m i nati on o fcl ai m s by resid en ts of37st ate s. Despi te the del eti on o ftho se cl ai m s, TS I may f ac e g r ea te r l i ab il i tya s a r es ul t o fthe decert i fi cati on o fthe defe nd ant cl ass

— unl es s, a s th e pl aint i f f s ar g ue , T SI w as f r o m the o ut se t j o i nt l y a nd se ve ra lly liab le for all th e a lleg ed m isc on d u c t o f its affiliate s a nd o ther“a sso ci ate s” ( f ra nchisee s ei thero fTSIo r of a n y a ffiliat e o f T SI)

— and hence f or t h e a l l ege d m i sconduct ofal l the m em ber s o fthe defe nd ant c l ass . TSIi s the fra nchis oro f the H & R Blo ck f ra nchis ed ( as opposed to o w ned) ret ai l ta x offi ces, but i t doe s no t o perat e any of them

. A s the so l e defendant aga i nst c er ti fi ed p lai nt iff classes th at includ e victim s of all eged statu tory vi ol ati ons by any e nti ty affi l i ate d oras soc i ate d w i th i t, TS I c om pla i ns thati t i s no w pote nti al l y l i abl e f orvi ol ati o ns f o r whi ch i t ha d no t be en po te nt i al l y l i ab l e before decert i fi cati on. I t e sti m ate s i ts add i ti onalpote nti al l i abi l i ty at ap proxi m ate l y $ 60 m i l l i on, and note s that a rul i ng tha t i n c re ase s a defendant’s pote nti all i abi l i ty m ay m ak e a ca se o r i g i na l l y fi l ed be f o r e th e eff ec ti ve da te o fthe Clas s Acti on F ai rnes s Act re m ovabl e i fthe rul i ng co m es afte r tha t dat e, unl es s th e al te r ati on in the s co pe o fthe p l a i n t i f f’ s c l a i m “ r e l a t e s b a c k ” t o th e o r i g i n a l c l a i m. San t am ar i na v. Se ars , Roe b uc k & C o. , 46 6 F
. 3d 570, 57 3 ( 7th C ir. 20 06 ); Knuds e n v . Li b e r ty M utua l Ins . Co. , 43 5 F
. 3d 755 ( 7th Ci r. 20 06) , 41 1 F
. 3d 805 ( 7th C ir. 2005)
. The di str i ct4 N o. 09

- 8002 j udg e th o ug httha t o nl y a f o r m ala m en dm en t o fthe c o m p lai nt cou ld com m en ce a ne w action for CA FA pu rp o s e s , b u tth a tw o u l d pl a c e t o o mu c h w e i g h to n f o r m; i fdecer ti fyi ng the defendant cl ass al tered the pla i nti ff s’ cl ai m s adv er se l y to th e defen dan t ( th e sh r i nk ag e of th e p lai nt iff clas s e s d id n ot), i t is a d etail th at th e plaintiff s d id n ot file an am en d ed c o m p l ain t w ith a su ita b ly al te r ed ca pti o n. I f, wh en i t was a cl ass r ep resenta ti ve, TSIwould have been j oi ntl y a nd se ver al l y l i abl e f orthe unlaw ful acts o f al l mem be r s o fthe de f en dan t cl as s, de ce r ti fy i ngthe cl ass and l eavi n g TSIas the sol e defendant did not i nc r ea se i ts po te nt i all i abi l i ty
. W e do no t unde r st an d the pl aintiff s to b e co nt en di ng, ho wev er( o r t o b e su g g es ting that th e st ate co urt had everr ule d), thatm er el y b y b ein g n am ed a s a d efe n d an t T SI w ou ld h av e b ee n j oin tly and seve ra l l y l i abl e fo r the a cts ofi ts codefendants. Fo r al th o ug h many o fthe m a r e i ts c o r po r at e affi l i at es , the doctr i ne o fl i m i ted li abi l i ty or dinar i l y i nsul ate s a co rpor ation fr om the tor t o r othe r l i abi l i ti es ofi ts affi l i ate s. Browni ng- Fe r r i s Indu s t r i e s of Il l i noi s , Inc . v. Te rM aat, 19 5 F.3d 953 , 959-60 (7th C ir. 1999). N o r would TS I ’ s st atus a s th e r epr es en ta ti ve o fthe defe nd ant cl ass hav e crea ted such der i vati ve l i abi l i ty. Def en d ant cl as se s ar e ce r ti fi ed i n o r dert o f ac i l i ta te the eco nom i calr es oluti on o fco m m on i ssues r atherthan to al terthe substa nti ve rig hts o fpart i es orcl ass m em ber s. 2 Alba Conte & H erber t B. N ew ber g, N ew berg o n C l a ss A ctio ns § 4 : 50 ( 4th e d. 200 8)
. C l ass act i ons i n federa l co urts ar e a u th or ize d by R u le 2 3 o fth e F ed er al R u les of C ivilN o. 09

- 8002 5 Pro cedure, and thos e r ules “shallnotabr i dge, enl ar ge or m od ify any sub stan tive ri gh t.” 28 U
. S. C
. § 2072(b); see O rtiz v. Fibrebo a rd C o rp . , 527 U
. S. 815, 845 ( 1999 )
. True, th at is th e fe d er al ru le, an d th e c las s a c tio n su it in th is case w as bro ught i n sta te cour t. Bu t the I l l i nois statute that author i zes cl ass act i ons i n I l l i noi s, 73 5 I LC S 5/2- 801 et seq
. , i s s i m i l ar t o Rule 23 and contai ns no hi nt thata cl ass act i on a l ter s s ubstanti ve ri ghts. The o r i g i na l a nd am en ded co m pl ai nt s do a ss er t “j o i nt an d se ve r al, i fnotul ti m at e, l i ab i l i ty ” by“ Bl o ck ” f o r a l l the viol ations alleged i n th e com p lai nt s, m an y of w hich w ere c om m itt ed by affiliat es or fra n c h ise es . B u t “ B loc k” is defi ne d a s th e two ( o r, i n the a m ended co m pl ai nt, the f our) defendants nam ed i n the c om p l ai nts, o ne o fwh i ch i s TSI and the othe rs ar e affi l i ate s of i t. For all th at appears, wh i l e those f our m ay, am ong them , be l i abl e f or th e a c ts of st ill o t h e r a ffiliat es an d of th e fra n c h ise es , i t cannot be a ssum ed that, with three o f t hem go ne fro m the c ase , TSI ’ s s tatus i s unchanged. I l l i noi s l aw req uir es that conspi ra cy oro therco ncer ted act i on be pl eaded sp ec ifica lly. O li veira-B rooks v. R e/ M ax Int’ l Inc. , 86 5 N
. E.2 d 25 2, 26 0 (Ill. A p p . 200 7); Conni ckv. Su zukiM o to r Co. , 675 N
. E
. 2d 584, 592 (I ll

. A p p . 1996). Suppose that o ne o fthe origi nal H & R Blo ck defe nd ants w as liab le for th e m isc on d u c t o f its affili a t e s an d fran c h ise es b uto th er s, inc ludi ngTS I, whi chmay ha ve ha d no deal i ngs with thos e a ffi l i ate s an d fr anchi see s a nd ther ef o r e ne ve r c r ea te d a s i tu at i o n tha t woul d pe rm it pi er ci ng th e cor pora te vei l, were not l i abl e. Then TSI ’ s pot enti al l i abi l i ty w oul d have be en l im ite d

. But now, havi ng l ost6 N o. 09

- 8002 th e o th erde f en dan ts , the p la i nt i ff s wantt o pi n the en ti r e l i ab i l i tyo fa l l the f o r m ermem be r s o fthe de f en dan t c l a s s o n TS I
. The y ma y , f o r a l l we k no w, b e ab l e t o do so, b u t that wil l, so f aras appears , enl ar ge TSI ’ s l i abi l i ty; the pl ai nti f f s hav e pr ese nted no e vi dence to the contr ar y. Bu twe mus tde c i de wh e the r the c ha ng e i n the s c o pe o fth e pl a i n t i f f s ’ c l a i m r e l a t e s b a c kt o th e o r i g i n a l c l a i m, for on ly if it d oe s n ot m ay th e d efe n d an t r e m o v e. In f edera l l aw “the cr i ter i on o f r elat i on ba ck i s whether the o ri gi nal co m pla i nt ga ve th e defe nd ant e nough not i ce o fthe na tu r e an d s co pe o fthe pl ai nt i ff’ s cl ai m tha t he sh o ul dn’ t ha ve b ee n s ur pr i se d b y the a m pl i fi ca ti o n o fthe alle ga tio n s of th e origin al com p lain t in th e a m en d ed on e.” San t am ar i na v. Se ars , Roe b uc k & C o. , sup ra , 46 6 F
. 3d at 573. T h e p l a i n t i f f s d o no tc l a i m th a tI l l i n o i s ’ c r i t e r i o n ( r e me mbe r tha t th is is a st at e ca se tha t th e defen dan t i s tr y i ng to re m ove ) i s a ny di ff er ent; theyare ri ght no t do so. Port e r v. D e ca t urM e m or i al Hos pi t al, 882 N
. E.2 d 583, 59 1- 93 ( Ill. 20 08 ) (ad op tin g t h e fe d er al a p p ro ac h ); Fr igo v . Si lver C ross H o s p i t a l & M edic a l C enter, 87 6 N
. E.2 d 697, 71 2- 14 ( I l l

. A pp . 20 07)
. A nd i fwe are r i ght that the l i abi l i ty as se r te d i n the o r i g i na l c l ai m was s i g ni fi ca nt l y l es s ex te ns i ve tha n the l i ab i l i tyno w cl ai m ed as a r es ul t o fthe decert i fi cati on o fthe defe nd ant cl ass , ther e is n o re l ati o n back ; fr o m the s ta ndpo i nto fthe o r i g i na l c l ai m , the expansi on o fpote nti all i abi l i ty w as a s urpri se. The pl ai nt i f f s pl ace gr ea t wei g hto n TS I ’ s ha vi ng m ove d to decert i fy the d efendant clas s. B ut TSIm ade that m oti on a s par t o fa packag e i n w h i ch i t s ought to decert i fy the plain ti ffcl ass es as w el l

. I t f ai l ed i n thatN o. 09

- 8002 7 endeavor, and so ended up worse o ff, a s f aras pote nti al l i a b i l i t y wa s c o n c e r n e d , th a n b e f o r e . O r s o a t l e a s t th e r ec o r d s ug g ests
. W e ca n i m ag i ne a s i tu at i o n i n whi cha d efe n d an t d elib er at ely inc re as es its p o t e n tia l liab ility in ana tt emp t t o b e al l o wed t o r emov e th e ca se unde r the Cl a s s Ac t i o n F a i r ne s s Ac t ; b uttha ti s n o ta r g ue d. The c as e sh o ul d n ot be s en t ba ckt o s ta te c o ur t. The d istri ct cou rt’s order is therefore R EVER S ED .

4- 30- 09