Defendants in RICO suit over Avery v. State Farm ask judge to deny class certification

By Bethany Krajelis | Jul 9, 2013


The defendants in a lawsuit alleging fraudulent activity in Avery v. State Farm have asked a federal judge to deny class certification, saying the plaintiffs’ claims would require re-litigation of the underlying issues in an already resolved case.

State Farm made this argument in a memorandum of law filed Monday in opposition to the plaintiffs’ June request for class certification.

The two other named defendants -- William Shepherd, an attorney at the insurance company, and Ed Murnane, president of the Illinois Civil Justice League (ICJL) –on Monday filed a joinder to State Farm’s memo.

The issue over class certification stems from a lawsuit that Mark Hale, Todd Shale and Carly Vickers Morse brought in May 2012 in southern Illinois’ federal court. All three plaintiffs were plaintiffs in the 1997 nationwide class action Avery v. State Farm.

They accuse the defendants of violating the Racketeer Influenced and Corruption Organizations (RICO) Act by creating an enterprise “to enable State Farm to evade payment of a $1.05 billion judgment affirmed in favor of approximately 4.7 million State Farm policyholders” in Avery.

The plaintiffs contend the alleged scheme was implemented in two phases, the first of which involved recruiting, financing and electing a candidate to the Illinois Supreme Court who would vote to overturn the judgment against State Farm once elected.

They assert the first phase was completed when Lloyd Karmeier won the 2004 race for the Fifth District seat on the state high court and nine months later, voted in favor of overturning the billion-dollar judgment against State Farm.

The second phase, the suit contends, took place in 2005 and 2011, when State Farm filed alleged misrepresentations to the Supreme Court in response to the plaintiffs’ requests for the justices to vacate their decision overturning judgment.

In their Monday memo, the defendants claim the plaintiffs' June request for class certification “is an improper attempt to reopen class certification issues that were definitely decided against plaintiffs in Avery v. State Farm.”

They further argue that the plaintiffs’ RICO theory would not only “require re-litigation of the underlying issues decided in Avery,” but “would necessitate individual evidence for each class member that a non-OEM [Original Equipment Manufacturer] part was installed on his or her car and that the use of that part resulted in injury in damages.”

In Avery, the plaintiffs claimed that “State Farm’s specification of non-OEM parts in its policyholders' car repair estimates breached its policies and violated the Illinois Consumer Fraud Act (ICFA),” according to the defendants’ memo.

The Supreme Court in Avery, the memo notes, determined the plaintiffs’ claims “presented an overwhelming predominance of individual issues because” the terms of each class members’ policies varied, as did the circumstances of their car repairs and damages.

“The re-litigation of these issues, including issues of class certification, is barred by the Rooker-Feldman doctrine, collateral estoppel and res judicata, as well as principles of comity that the U.S. Supreme Court has held are applicable in the class certification context,” the defendants assert.

Stressing that the plaintiffs have unsuccessfully argued four times in the state high court and once in the U.S. Supreme Court that “Karmeier’s participation in Avery ‘tainted’ the proceedings,” the defendants contend “the same predominating individual issues that existed in Avery render class certification improper here.”

And while the plaintiffs claim they don’t challenge the Avery decision, the defendants assert the plaintiffs’ attempt to recover the overturned award constitutes a challenge of the court’s ruling over class certification, as well as its conclusions on the merits of the case.

“Plaintiffs’ RICO theories do not change the fact that the same transactions at issue in Avery are at issue here,” the defendants assert in their memo. “Accordingly, State Farm respectfully requests as a preliminary matter that the Court reexamine the threshold issue of subject matter jurisdiction under” the Rooker-Feldman doctrine.

They claim that this doctrine – which basically says that federal courts don’t have jurisdiction to review state court decisions or claims intertwined with previous state court rulings – prevents the federal court from reviewing Karmeier’s participation in Avery or the court’s rulings in the case.

The defendants further argue that even if the Rooker-Feldman doctrine doesn’t apply, the plaintiffs’ claims are barred by collateral estoppel and res judicata.

“[D]espite being cloaked in the guise of RICO claims,” the defendants assert the class certification issues decided by the court in Avery are identical to the ones made in this suit and “involve the same underlying transactions and factual allegations.”

As such, the defendants contend in their memo that the plaintiffs are “precluded from re-litigation class certification and from seeking to represent in federal court the identical class that they purported to represent in Avery.”

In addition to these arguments, the defendants claim that the individual issues presented in the suit would make it impossible to meet the class certification requirements under Rule 23 of the Federal Rules of Civil Procedure.

“In order to satisfy RICO standing and injury, each individual class member would need to show that he or she was entitled to a ‘clear and definite’ amount of damages,” the defendants assert.

This, the defendants claim, “would require individual examination of a class member's underlying claim in Avery, including the policy terms, whether or not an OEM part was actually installed on the class member's car, and whether the car was returned to its pre-loss condition.”

“Moreover,” the defendants state in their memo, “given the Illinois Supreme Court's unanimous substantive rulings rejecting specification damages and the $600 million ICFA punitive award, an unknown number of class members, who could only be identified on an individual basis, will have no claim whatsoever.”

The defendants also argue that the plaintiffs’ ability to show injury under the RICO Act “is dependent upon their ability to show that they were entitled to recover in Avery.”

And since the court in Avery did not resolve issues over liability and damages, the defendants assert it is unknown how much each class member might have been awarded if the billion-dollar judgment was not overturned.

“Millions of individual hearings would be required to make those determinations in this case, overwhelming any purported common issues and rendering class certification improper,” the defendants claim.

They argue that “the need for such determinations not only demonstrates the utter impropriety under Rooker-Feldman of the task Plaintiffs ask the Court to undertake, but would multiply the individual questions raised by Plaintiffs' claims.”

State Farm’s memo, which the two other defendants joined, was submitted by Edwardsville attorney Patrick D. Cloud and Chicago attorneys J. Timothy Eaton, Joseph A. Cancila, Jr. and James P. Gaughan, along with three New York attorneys listed as of counsel.

Belleville attorneys Russell Scott and Laura Oberkfell represent Shepherd. Chicago attorneys Richard J. O'Brien, Scott M. Berliant and David Gavin Jorgensen represent Murnane.

The plaintiffs are represented by more than 20 attorneys, including Mississippi attorney Don Barrett, Tennessee attorneys W. Gordon Ball and Charles Barrett, Louisiana attorneys Patrick Pendley and Nicholas Rockforte, Arkansas attorney Tom Thrash and Alabama attorneys Steven Martino, Richard Taylor and Lloyd Copeland.

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