Court Opinion

ID: 3002980
Source: CourtListenerOpinion
Date Created: 2015-09-24 20:37:00.793986+00
Date Added: 2024-06-11T12:52:11.273372
License: Public Domain

In the

United States Court of Appeals
              For the Seventh Circuit

No. 09-8002

L ORIE J. M ARSHALL AND D EBRA R AMIREZ,
    individually and on behalf of
    all others similarly situated,
                                    Plaintiffs-Respondents,
                              v.

H&R B LOCK T AX S ERVICES, INC.,
                                           Defendant-Petitioner.

           Appeal from the United States District Court
                for the Southern District of Illinois.
          No. 08-CV-591-MJR—Michael J. Reagan, Judge.

   S UBMITTED F EBRUARY 21, 2009—D ECIDED A PRIL 30, 2009

   Before E ASTERBROOK, Chief Judge, and P OSNER and
T INDER, Circuit Judges.
   P OSNER, Circuit Judge. H&R Block Tax Services, Inc. (TSI)
removed this suit to federal court under the Class Action
Fairness Act of 2005, but the district court concluded that
it was not removable and so remanded the case to state
court. TSI has asked our leave to appeal, 28 U.S.C.
§ 1453(c), which we grant.
2                                                 No. 09-8002

   The suit was originally filed in state court against a
defendant class of related companies. The suit named
H&R Block, Inc. and H&R Block Group, Inc. as representa-
tives of the class. The suit charged that in violation of
Illinois’s Consumer Fraud Act, the defendants and the
members of their class, all of which were affiliates or
franchisees of the class representatives, had used decep-
tive practices to sell “Peace of Mind” insurance against
mistakes by H&R Block that increased customers’ tax
liabilities. An amended complaint added TSI and H&R
Block Eastern Tax Services, Inc. as additional named
defendants and class representatives. The court dismissed
the two original named defendants, H&R Block, Inc. and
H&R Block Group, Inc. for lack of personal jurisdiction
and granted the plaintiffs’ motion to voluntarily dismiss
H&R Block Eastern Tax Services, Inc. That left TSI as
the only representative of the defendant class.
  Eventually the state court certified three plaintiff classes,
comprising all people in the 50 states and the District of
Columbia who had been victimized by members of the
defendant class—which the court also certified, defining it
to include “any entity with the names ‘H&R Block’ or
‘HRB’ in its name, or otherwise affiliated or associated
with [TSI], and which sold or sells the [Peace of Mind]
product.” Subsequently, however, the court decertified
the defendant class at TSI’s request, leaving TSI, which
already was the only defendant, with no class-representa-
tive status since there was no longer a defendant class.
TSI had asked the court to decertify the plaintiff classes
as well, and while the court refused to do so, it did
narrow the classes to residents of 13 states.
No. 09-8002                                                 3

   TSI then removed the case to federal district court on
the ground that the decertification of the defendant class
had made the case removable under the Class Action
Fairness Act because the decertification occurred after the
Act’s effective date, and had increased TSI’s potential
liability notwithstanding the elimination of claims by
residents of 37 states. Despite the deletion of those
claims, TSI may face greater liability as a result of the
decertification of the defendant class—unless, as the
plaintiffs argue, TSI was from the outset jointly and
severally liable for all the alleged misconduct of its affili-
ates and other “associates” (franchisees either of TSI or
of any affiliate of TSI)—and hence for the alleged mis-
conduct of all the members of the defendant class.
   TSI is the franchisor of the H&R Block franchised (as
opposed to owned) retail tax offices, but it does not operate
any of them. As the sole defendant against certified
plaintiff classes that include victims of alleged statutory
violations by any entity affiliated or associated with it,
TSI complains that it is now potentially liable for viola-
tions for which it had not been potentially liable before
decertification. It estimates its additional potential
liability at approximately $60 million, and notes that a
ruling that increases a defendant’s potential liability may
make a case originally filed before the effective date of the
Class Action Fairness Act removable if the ruling comes
after that date, unless the alteration in the scope of the
plaintiff’s claim “relates back” to the original claim.
Santamarina v. Sears, Roebuck & Co., 466 F.3d 570, 573 (7th
Cir. 2006); Knudsen v. Liberty Mutual Ins. Co., 435 F.3d 755
(7th Cir. 2006), 411 F.3d 805 (7th Cir. 2005). The district
4                                                No. 09-8002

judge thought that only a formal amendment of the
complaint could commence a new action for CAFA pur-
poses, but that would place too much weight on form;
if decertifying the defendant class altered the plaintiffs’
claims adversely to the defendant (the shrinkage of the
plaintiff classes did not), it is a detail that the plaintiffs
did not file an amended complaint with a suitably
altered caption.
  If, when it was a class representative, TSI would have
been jointly and severally liable for the unlawful acts of
all members of the defendant class, decertifying the
class and leaving TSI as the sole defendant did not
increase its potential liability. We do not understand the
plaintiffs to be contending, however (or to be suggesting
that the state court had ever ruled), that merely by
being named as a defendant TSI would have been jointly
and severally liable for the acts of its codefendants. For
although many of them are its corporate affiliates, the
doctrine of limited liability ordinarily insulates a corpora-
tion from the tort or other liabilities of its affiliates.
Browning-Ferris Industries of Illinois, Inc. v. Ter Maat, 195
F.3d 953, 959-60 (7th Cir. 1999).
  Nor would TSI’s status as the representative of the
defendant class have created such derivative liability.
Defendant classes are certified in order to facilitate the
economical resolution of common issues rather than to
alter the substantive rights of parties or class members.
2 Alba Conte & Herbert B. Newberg, Newberg on Class
Actions § 4:50 (4th ed. 2008). Class actions in federal courts
are authorized by Rule 23 of the Federal Rules of Civil
No. 09-8002                                                  5

Procedure, and those rules “shall not abridge, enlarge
or modify any substantive right.” 28 U.S.C. § 2072(b);
see Ortiz v. Fibreboard Corp., 527 U.S. 815, 845 (1999). True,
that is the federal rule, and the class action suit in this
case was brought in state court. But the Illinois statute
that authorizes class actions in Illinois, 735 ILCS 5/2-801
et seq., is similar to Rule 23 and contains no hint that a
class action alters substantive rights.
  The original and amended complaints do assert “joint
and several, if not ultimate, liability” by “Block” for all the
violations alleged in the complaints, many of which were
committed by affiliates or franchisees. But “Block” is
defined as the two (or, in the amended complaint, the
four) defendants named in the complaints, one of which
is TSI and the others are affiliates of it. For all that
appears, while those four may, among them, be liable for
the acts of still other affiliates and of the franchisees, it
cannot be assumed that, with three of them gone from
the case, TSI’s status is unchanged. Illinois law requires
that conspiracy or other concerted action be pleaded
specifically. Oliveira-Brooks v. Re/Max Int’l Inc., 865 N.E.2d
252, 260 (Ill. App. 2007); Connick v. Suzuki Motor Co.,
675 N.E.2d 584, 592 (Ill. App. 1996).
   Suppose that one of the original H&R Block defendants
was liable for the misconduct of its affiliates and franchi-
sees but others, including TSI, which may have had no
dealings with those affiliates and franchisees and there-
fore never created a situation that would permit piercing
the corporate veil, were not liable. Then TSI’s potential
liability would have been limited. But now, having lost
6                                                No. 09-8002

the other defendants, the plaintiffs want to pin the
entire liability of all the former members of the defendant
class on TSI. They may, for all we know, be able to do
so, but that will, so far as appears, enlarge TSI’s liability;
the plaintiffs have presented no evidence to the contrary.
   But we must decide whether the change in the scope
of the plaintiffs’ claim relates back to the original claim,
for only if it does not may the defendant remove. In
federal law “the criterion of relation back is whether
the original complaint gave the defendant enough notice
of the nature and scope of the plaintiff’s claim that he
shouldn’t have been surprised by the amplification of the
allegations of the original complaint in the amended one.”
Santamarina v. Sears, Roebuck & Co., supra, 466 F.3d at 573.
The plaintiffs do not claim that Illinois’ criterion (remem-
ber that this is a state case that the defendant is trying
to remove) is any different; they are right not do so.
Porter v. Decatur Memorial Hospital, 882 N.E.2d 583, 591-93
(Ill. 2008) (adopting the federal approach); Frigo v. Silver
Cross Hospital & Medical Center, 876 N.E.2d 697, 712-14
(Ill. App. 2007). And if we are right that the liability
asserted in the original claim was significantly less ex-
tensive than the liability now claimed as a result of the
decertification of the defendant class, there is no rela-
tion back; from the standpoint of the original claim, the
expansion of potential liability was a surprise.
  The plaintiffs place great weight on TSI’s having
moved to decertify the defendant class. But TSI made that
motion as part of a package in which it sought to
decertify the plaintiff classes as well. It failed in that
No. 09-8002                                              7

endeavor, and so ended up worse off, as far as potential
liability was concerned, than before. Or so at least the
record suggests. We can imagine a situation in which a
defendant deliberately increases its potential liability in
an attempt to be allowed to remove the case under the
Class Action Fairness Act; but that is not argued.
  The case should not be sent back to state court. The
district court’s order is therefore
                                                R EVERSED.

                          4-30-09