Opinion
CASE NO. 9:20-CV-190
2021-05-27
Daphne Noble FREE v. ALLSTATE INDEMNITY CO.
Jane Swearingen Leger, Mark Christopher Sparks, Jonathan Joseph Jones, The Ferguson Law Firm, LLP, Beaumont, TX, John Michael Love, Love & Wills, Lufkin, TX, for Daphne Noble Free. Roger Dale Higgins, Elizabeth Lee Thompson, Gino John Rossini, Mark J. Jung, Thompson Coe Cousins & Irons, LLP, Dallas, TX, John Michael Causey, Hope & Causey, Conroe, TX, for Allstate Indemnity Company.
Jane Swearingen Leger, Mark Christopher Sparks, Jonathan Joseph Jones, The Ferguson Law Firm, LLP, Beaumont, TX, John Michael Love, Love & Wills, Lufkin, TX, for Daphne Noble Free.
Roger Dale Higgins, Elizabeth Lee Thompson, Gino John Rossini, Mark J. Jung, Thompson Coe Cousins & Irons, LLP, Dallas, TX, John Michael Causey, Hope & Causey, Conroe, TX, for Allstate Indemnity Company.
ORDER DENYING DEFENDANT'S MOTION TO STRIKE CLASS ALLEGATIONS
Michael J. Truncale, United States District Judge Pending before the Court is Defendant Allstate Indemnity Company's ("Allstate") Motion to Strike Class Allegations in the Third Amended Complaint. (Doc. #13). After considering the motion, arguments from the parties, and all applicable law, the Court denies the motion.
I. FACTUAL BACKGROUND
On June 18, 2015, Plaintiff Daphne Noble Free's manufactured home caught fire and was a total loss. (Doc. #8, at 4). At the time of the fire, Free had an insurance policy with Allstate. Id. Free alleges that under the terms of the policy, her home was covered for a value of $50,320.00. Id. at 5. However, on December 31, 2015, Allstate made a partial payment of $29,385.03, claiming that amount was the actual value of Free's home. Id. Free contends that under the Texas Insurance Code, Allstate was required to pay her the full amount of the policy, not just the actual value. Id. The operative complaint asserts claims for breach of contract, breach of the duty of good faith and fair dealing, violations of the Texas Insurance Code, misrepresentation of insurance policy, violations of the Texas Administrative Code, and violations of the Texas Deceptive Trade Practices Act. (Doc. #8). It also includes class action allegations pursuant to Federal Rule of Civil Procedure 23. Id.
II. PROCEDURAL HISTORY
Due to this case's complex procedural history, a timeline of its major events is set forth below.
June 21, 2017: Free filed suit in Angelina County, Texas, against Allstate.
September 20, 2017: Allstate removed the case to federal court. The parties then jointly moved to remand after Free stipulated that the amount in controversy in the case did not exceed $75,000. This motion was granted, and the case was remanded to state court.
May 29, 2018: In state court, Free filed a motion for partial summary judgment as to her breach of contract claim, seeking partial summary judgment on the issue of whether Allstate's action of paying her the actual cash value of her home instead of the full face value of the policy constituted a breach of contract by Allstate.
August 19, 2018: The state court granted Free's motion for partial summary judgment.
September 30, 2019: Free filed in state court her First Amended Class Action Petition and Request for Injunctive Relief, asserting putative class claims for breach of contract and other causes of action.
August 3, 2020: Free filed her Second Amended Class Action Petition and Request for Injunctive Relief in state court.
September 2, 2020: Allstate removed the case to federal court for the second time.
September 22, 2020: Free filed her Third Amended Complaint and Request for Injunctive Relief in this court.
October 5, 2020: Allstate filed the pending motion to strike class allegations.
III. LEGAL STANDARD
Under Federal Rule of Civil Procedure Rule 12(f), the court may strike from any pleading "an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." FED. R. CIV. P. 12(f). Federal Rule of Civil Procedure 23(d)(1)(D) states that a district court "may issue orders that ... require that the pleadings be amended to eliminate allegations about representation of absent persons and that the action proceed accordingly." FED. R. CIV. P. 23(d)(1)(D). Federal courts have utilized this rule to strike class allegations. See Barasich v. Shell Pipeline Co. , No. 05-4180, 2008 U.S. Dist. LEXIS 47474 at *8, 2008 WL 6468611 (E.D. La. June 19, 2008). "A defendant may move to strike class allegations prior to discovery in rare cases where the complaint itself demonstrates that the requirements for maintaining a class action cannot be met." Delarue v. State Farm Lloyds , No. 1:09-CV-237, 2010 WL 11530499, at *2 (E.D. Tex. Mar. 10, 2010) (Giblin, J.) (citing Rios v. State Farm Fire & Cas. Co. , 469 F. Supp. 2d 727, 740 (S.D. Iowa 2007) ). A court may strike class allegations when the issues are "plain enough from the pleadings" that a class cannot be maintained. Gant v. Whynotleaseit, LLC , No. CV H-13-3657, 2014 WL 12606313, at *1 (S.D. Tex. Dec. 11, 2014), report and recommendation adopted , 2015 WL 12804529 (S.D. Tex. Jan. 16, 2015) (citing Gen Tel. Co. of Sw. v. Falcon , 457 U.S. 147, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982) ; John v. Nat'l Sec. Fire & Cas. Co. , 501 F.3d 443, 445 (5th Cir. 2007) ).
IV. DISCUSSION
The main issue raised in Allstate's motion to strike is whether the one-way intervention doctrine prohibits Free from pursuing her case as a class action after obtaining a favorable state court ruling. Regrettably, neither the Supreme Court nor the Fifth Circuit offer very much guidance on this issue. Even among the other circuits, the Court has not found cases that are similar to this one. This case is unique because not only did Free add class action allegations to her complaint over two years after the suit began, she added them over a year after the state court granted her partial summary judgment on her breach of contract claim. To further complicate matters, after the favorable state court ruling, the case was removed to this Court for the second time.
The one-way intervention doctrine pertains to class actions brought pursuant to Federal Rule of Civil Procedure 23. See generally Am. Pipe & Constr. Co. v. Utah , 414 U.S. 538, 94 S.Ct. 756, 38 L.Ed.2d 713 (1974). The Supreme Court has noted that, prior to the 1966 amendments to Rule 23, potential class members could take advantage of the Rule's failure to include a time limitation for seeking class certification by "await[ing] developments in the trial or even final judgment on the merits in order to determine whether participation would be favorable to their interests." Id. at 547, 94 S.Ct. 756. Thus, "[i]f the evidence at the trial made their prospective position as actual class members appear weak, or if a judgment precluded the possibility of a favorable determination, such putative members of the class who chose not to intervene or join as parties would not be bound by the judgment." Id. "This situation—the potential for so-called ‘one-way intervention’—aroused considerable criticism upon the ground that it was unfair to allow members of a class to benefit from a favorable judgment without subjecting themselves to the binding effect of an unfavorable one." Id.
The 1966 amendments to Rule 23 required a district court to make "a determination whether an action shall be maintained as a class action ... ‘(a)s soon as practicable after the commencement of an action brought as a class action.’ " Id. (quoting FED. R. CIV. P. 23(c)(1)(A) (amended 2003)). The Supreme Court explained that these "amendments were designed, in part, specifically to mend this perceived defect in the former Rule and to assure that members of the class would be identified before trial on the merits and would be bound by all subsequent orders and judgments." Id. (citation omitted). Thus, the purpose of the 1966 Amendments to Rule 23 was to eliminate one-way intervention because it was unfair to the defendant. See Katz v. Carte Blanche Corp. , 496 F.2d 747, 759 (3d Cir. 1974) ("To meet the point that one-way intervention was unfair to the defendant, the Advisory Committee on the Federal Rules concluded that class members should be brought in prior to the determination of defendant's liability, thus making the estoppel mutual." (citations omitted)).
Rule 23 was amended again, in 2003, to provide that certification be determined "at an early practicable time." FED. R. CIV. P. 23(c)(1)(A). The change was made to reflect the "many valid reasons that may justify deferring the initial certification decision." FED. R. CIV. P. 23 advisory committee's note to 2003 amendment. However, the advisory committee's note "makes clear that the purpose of the 2003 Amendments was not to restore the practice of one-way intervention that was rejected by the 1966 revision." FED. R. CIV. P. 23 advisory committee's note to 2003 amendment.
Here, Free obtained partial summary judgment in her favor in state court before she added class action allegations to her complaint and before Allstate removed the case to this Court. Allstate argues that Free is barred from proceeding with her class claims because doing so would contravene the bar on one-way intervention. None of the cases cited by either party contemplate a similar situation to the one present here. Namely, neither party has cited, and the Court cannot find, any case where a plaintiff received a favorable summary judgment ruling in state court before adding class action allegations to their complaint. And although there are cases that discuss motions to strike class allegations and cases that discuss the one-way intervention doctrine, Allstate has not provided any cases where a motion to strike was granted because of the one-way intervention doctrine.
Nevertheless, after examining the applicable case law, the Court agrees with Allstate that allowing Free's partial summary judgment ruling to stand would likely create a one-way intervention problem because potential plaintiffs unknown to Allstate at the time partial summary judgment was granted would be able to take advantage of the favorable ruling. But contrary to Allstate's motion to strike, striking the class allegations is not the best way to resolve the one-way intervention problem. The Court believes there are two better methods to remedy the problem. Each will be discussed in turn.
A. Dissolve State Court Summary Judgment
One-way intervention is most commonly discussed when a plaintiff files a motion for summary judgment or another motion on the merits before filing a motion for class certification. When this happens, instead of ruling on the motion and creating a potential one-way intervention problem, courts typically deny the plaintiff's motion without prejudice to refiling after class certification. See Hartley v. Suburban Radiologic Consultants, Ltd. , 295 F.R.D. 357, 369 (D. Minn. 2013) (court denied without prejudice as premature plaintiff's pre-certification motion for summary judgment); Shane v. Nw. Indus., Inc. , 49 F.R.D. 46, 47 (N.D. Ill. 1970) (same); Koehler v. USAA Cas. Ins. Co. , No. CV 19-715, 2019 WL 4447623, at *8 (E.D. Pa. Sept. 17, 2019) (same); Spring House Tavern, Inc. v. Am. Fire & Cas. Co. , 337 F.R.D. 371, 375 (E.D. Pa. 2020) (because plaintiff's motion for judgment on the pleadings implicated the rule against one-way intervention, the court denied it without prejudice to plaintiff filing a new motion after the court addressed class certification).
Because Free's motion for partial summary judgment was granted prior to removal to this Court, this Court clearly cannot deny it without prejudice. However, under 28 U.S.C. § 1450, district courts have the power to dissolve or modify all injunctions, orders, and other proceedings had in an action prior to its removal. 28 U.S.C. § 1450. When "the state court's ruling is purely interlocutory, it remains subject to reconsideration just as it had been prior to removal." Nissho-Iwai Am. Corp. v. Kline , 845 F.2d 1300, 1303 (5th Cir. 1988) ; see First City, Texas-Beaumont, N.A. v. Treece , 848 F. Supp. 727, 743 (E.D. Tex. 1994) (Fisher, J.) ("Prior rulings and orders made or issued by the state court remain in effect after removal ... although they may be reviewed ‘de novo’ by the federal court after the case is removed."). Thus, although the Court cannot deny Free's partial motion for summary judgment without prejudice, it can choose to dissolve it and reconsider it after a decision on class certification. See Louisiana v. Guidry , 489 F.3d 692, 698 (5th Cir. 2007) (holding that district court was free to reconsider defendant's motion for summary judgment even though that motion encompassed many of the arguments rejected by the state trial court pre-removal); Enlow v. Tishomingo Cnty., Miss. , 962 F.2d 501, 507 n. 16 (5th Cir. 1992) (noting that the district court has broad discretion in controlling its own docket and may reconsider a previous summary judgment motion even in the absence of new material presented (internal citations omitted)); Consol. Rest. Operations, Inc. v. Nat'l Processing Co., LLC , No. 3:02-CV-1278G, 2002 WL 1432469, at *6 (N.D. Tex. June 28, 2002) (dissolving state court temporary restraining order); Fiduciary Network, LLC v. Buehler , No. 3:15-CV-0808, 2015 WL 11120985, at *2 (N.D. Tex. Mar. 23, 2015) (dissolving state court order granting expedited discovery).
The Court finds further support for its conclusion that Free's prior summary judgment is not fatal to her class claims in Gooch v. Life Investors Insurance Co. of America , 672 F.3d 402 (6th Cir. 2012). In Gooch , the Sixth Circuit noted that because a preliminary injunction was not a binding decision on the merits, it could not have affected any class member's decision about whether to join or leave the class. Id. at 432. In other words, because the court could revisit the issues decided in the injunction, class members were left to weigh the risks and benefits as they would have in any other situation. Id. at 433. Here, instead of a preliminary injunction, the Court is dealing with a favorable state court summary judgment ruling. However, as explained above, just like with a preliminary injunction, the Court can revisit the issues decided in the state court summary judgment ruling. Thus, the summary judgment ruling is not on its own fatal to Free's class action allegations.
B. Allow Free to Decide Whether the Court Should Set Aside State Court Summary Judgment
In the alternative, when courts are presented with existing one-way intervention problems, they may give the plaintiff the option to chose whether to retain the favorable summary judgment ruling and proceed as an individual or ask the court to set aside the summary judgment and proceed as a class. For example, in Kondos v. Lincoln Property Company , the trial court certified a class action and then while an appeal of that certification was pending, decided a motion for summary judgment in the plaintiff's favor. Kondos v. Lincoln Prop. Co. , 110 S.W.3d 716, 723 (Tex. App.—Dallas 2003, no pet.). On appeal, the Dallas Court of Appeals determined that the trial court erred in certifying the class. Id. The court then noted that it would "not presume plaintiffs would have proceeded in the same manner with the summary judgment motion had the trial court not certified the class" and concluded that "plaintiffs should be allowed to decide whether to attempt to re-certify a class on remand or to pursue their claims individually." Id. at 723–24. Unlike Allstate seems to assert, the court in Kondos did not reverse the trial court and vacate the order certifying a class because of the one-way intervention issue; it instead did so because it determined that the trial court improperly certified the class without vigorously analyzing the requirements to certify a class. Id. at 724.
Although clearly not binding on this Court, both parties’ briefs rely heavily on Texas state court cases and thus, the Court finds it appropriate to discuss state court cases. Additionally, the Texas rule on class actions is patterned after the Federal rule, making Texas state court cases persuasive authority. See Sw. Refin. Co. v. Bernal , 22 S.W.3d 425, 433 (Tex. 2000).
Even if the Court agreed with Allstate that for the summary judgment ruling to stand, notice needed to be sent to the class prior to its determination, the Court's decision on the motion to strike remains the same. Like in Kondos , Free had not done anything procedurally improper at the time the state court rendered its summary judgment decision. Thus, like in Kondos , the Court feels it best to give Free the choice of whether to keep the summary judgment ruling and proceed as an individual or ask the Court to set aside it and attempt to certify the class. Free has indicated that should the Court decide not to certify the class because of the partial grant of summary judgment, she " ‘would [not] have proceeded in the same manner with the summary judgment motion’ and now wishes to pursue class notice and certification without the benefit afforded a partial finding in her favor." (Doc. #17, at 21) (quoting Kondos , 110 S.W.3d at 723–24 ). Thus, the Court will set aside the partial summary judgment in her favor and allow her to proceed with her class action allegations.
After considering the applicable case law, the Court determines that it has two equally viable options to resolve the one-way intervention problem present here. First, because the partial summary judgment is interlocutory, the Court can dissolve it subject to Free refiling after a class certification determination. Second, because the partial summary judgment was valid at the time it was decided, the Court can honor Free's decision to set aside the partial summary judgment and attempt to certify the class.
V. CONCLUSION
Because striking the class allegations is not the best way to overcome the one-way intervention problem that is created by the state court's partial summary judgment ruling in Free's favor, the Court DENIES Allstate's Motion to Strike Class Allegations in the Third Amended Complaint. (Doc. #13).
Additionally, the state court's grant of partial summary judgment in Free's favor is DISSOLVED and SET ASIDE . However, Free is free to refile a new motion for summary judgment after the class certification issue is decided.