EAST ST. LOUIS – Claims that Country Mutual collected higher premiums than necessary belong in U.S. district court rather than St. Clair County Circuit Court, District Judge David Dugan ruled on June 26.
Dugan denied a motion to remand the potential class action against Country Mutual to St. Clair County, where Swansea attorney David Cates filed it last November.
Cates represents dozens of current and former Country Mutual policy holders in St. Clair and Clinton counties.
Their complaint stated that Country Mutual failed to meet its obligation to operate in a manner reasonably calculated to provide insurance at its cost.
They alleged breaches of contract, fiduciary duty, and a covenant of good faith and fair dealing.
They also alleged consumer fraud and unjust enrichment.
The plaintiffs sought restitution and distribution of compensation for excess premiums.
They named 47 current and former board members and executives as individual defendants, including Robert Bateman, a Massachusetts citizen.
Country Mutual removed the complaint to district court, claiming Bateman’s presence on the docket defeated state court jurisdiction.
Country Mutual also claimed provisions of the national Class Action Fairness Act required federal jurisdiction.
Cates moved to remand on the basis of exceptions in the Act.
Dugan heard argument on May 25, and found the exceptions didn’t apply.
First he rejected a local controversy exception for cases where plaintiffs incurred injuries in the state where the action was filed.
Cates claimed the exception applied because Illinois policy holders paid 55% of premiums in the past ten years.
Country Mutual claimed the exception didn’t apply because policy holders in other states paid 45% of premiums.
Dugan found that Country Mutual covers 1.4 million vehicles and 700,000 homes across 19 states.
He found allegations of the plaintiffs could be made with equal force in the other 18 states.
Second, Dugan rejected a home state exception for cases where two thirds of class members and the primary defendants are citizens of the state.
Cates claimed Bateman wasn’t a primary defendant because his tenure with Country Mutual lasted two years and three months.
Cates claimed Country Mutual faced the greatest exposure to liability and was the only defendant against whom every plaintiff had a claim.
The 47 individual defendants claimed they were primary defendants.
They claimed they weren’t sued for purposes of indemnification or contribution, and the fiduciary breach claim wasn’t premised on vicarious liability.
Dugan wrote, “Here, the court initially recognizes the rather awkward nature of the test for identifying primary defendants and the fact that it requires a fair bit of guesswork.”
He found plaintiffs alleged the individuals “did not merely acquiesce in decisions taken by others but consciously made the decision to breach their fiduciary duty as part of a concerted policy and practice of the board of directors.”
He found the individuals managed, directed, conducted, and supervised Country Mutual’s business affairs.
He also found they were able to, and did, exercise control over the acts complained of in this case.
“It is difficult for plaintiffs to parbuckle their arguments for the home state exception against the winds of their own complaint,” Dugan wrote.
“Even assuming each defendant is liable, the court cannot estimate the amount any single defendant or class of defendants may lose if liable, and plaintiffs do not even attempt to do so or to meaningfully distinguish between the defendants on this basis,” he added.
Dugan described the individuals as the real targets of the allegations and inseparably the subjects of the suit’s primary thrust.
Third, Dugan rejected an internal affairs exception for claims relating to corporate governance.
Cates claimed Country Mutual’s strategy of accumulating surplus was so divorced from industry and regulatory standards that it couldn’t be reconciled with an obligation to provide insurance at cost.
Dugan wrote, “Even if these claims involve a common thread related to Country Mutual’s alleged obligation to provide insurance to its policy holders at its costs, the proposed class action clearly does not solely involve claims relating to the internal affairs or governance of Country Mutual and arising under or by virtue of the laws of Illinois.”
Dugan also denied an alternative motion from Cates to dismiss the action so plaintiffs could file a complaint in St. Clair County without Bateman as a defendant.
Dugan found he would abuse his discretion to dismiss the action if defendants would suffer plain legal prejudice.
He found forum manipulation cases counseled against allowing plaintiffs to affect jurisdiction with amendments after removal.
He found it undeniable that dismissing the action would deprive defendants of their statutory right to proceed in federal court after proper removal.
Gerald Stranch of Nashville and Lynn Toops of Indianapolis represent plaintiffs in association with Cates.
Christopher Byron and Christopher Petri of Edwardsville, Chanda Feldkamp and William Kelly of Denver, and Sessions Hootsell of New Orleans represent Country Mutual.
Michael Nester of Belleville and David Lubben of Peoria represent the individual defendants.