Amicus Curiae Brief — Ford Motor Co. v. McCauley

Supreme Court, U.S.

FILED

i MAY 6 2002

No. 01-896 | CLERK

IN THE

Supreme Court of the United States

FORD MOTOR COMPANY and

CITIBANK (SOUTH DAKOTA), N.A.,

Petitioners.

V.

JOHN B. McCAULEY, et al.,

Respondents.

On Writ oF CERTIORARI TO THE

Unitep STATES Court OF APPEALS FOR THE NINTH CIRCUIT

ee

BRIEF OF AMICUS CURIAE STATE FARM MUTUAL

AUTOMOBILE INSURANCE COMPANY

IN SUPPORT OF PETITIONERS

SHEILA L. BIRNBAUM

Counsel of Record

DouciLas W. DUNHAM

ELLEN P. QUACKENBOS

SKADDEN, Arps, SLATE,

MEAGHER & FLom LLP

Attorneys for Amicus Curiae

Four Times Square

New York, NY 10036

(212) 735-3000

173876 g

COUNSEL PRESS

(800) 274-3321 + (800) 359-6859

a

i

TABLE OF CONTENTS

Table of Cited Authorities ..........-605e eee

Interest of Amicus Curiae .........0e0 seers

Summary of the Argument ......----+sseeeeeee

Argument

I.

—e ee eeeee eae eeenpaesoeces eeeceee eo See"

The Ninth Circuit’s Decision Improperly Bars

from Federal Court Cases Between Citizens

of Different States Where Substantial

Pecuniary Interests Are Directly at Stake

A.

The Ninth Circuit’s Rule Fails to Gauge

Accurately the Amount Actually at Stake

When Injunctive Relief ls Sought and Is

Contrary to 28 U.S.C. § 1332 ........

Valuing Injunctive Relief from the

Viewpoint of the Defendant Does Not

Contravene This Court’s Decisions in

Zahn and Snyder ........--0+000+%

The Potential for Manipulation of the

Value of Injunctive Relief Is Exaggerated

by the Ninth Circuit and Does Not J ustify

the Result in This Case ...........--

12

il

Contents

Page

Il. The Ninth Circuit’s Ruling Is Counter to

Strong Federal Interests in Fostering and

Protecting Interstate Commerce .......... 19

Comobesios ....ccccccccsveseseseceeeneeeenes 26

ill

TABLE OF CITED AUTHORITIES

Cases:

Amerada Hess Corp. v. Department of Interior,

170 F.3d 1032 (10th Cir. 1999) ......--e- eens

BMW of North America, Inc. v. Gore, 517 U.S. 559

(1996) 0... ccc cece cece cece ere eeeeeeeeeeees

Barrow S.S. Co. v. Kane, 170 U.S. 100 (1898) ....

Bigelow v. Virginia, 421 U.S. 809 eee

Bolin v. Sears, Roebuck & Co., 231 F.3d 970

(Sth Cir. 2000) ........ cece cece reece eeeees

In re Brand Name Prescription Drugs Antitrust

Litigation, 123 F.3d 599 (7th Cir. 1997) .....-.

Brazos v. Electric Power Cooperative, Inc., 144 F.3d

784 (Fed. Cir. 1998) ........ cece cece eens

Brown-Forman Distillers Corp. v. New York State

Liquor Authority, 476 U.S. 573 (eee

Campbell v. General Motors Corp., \9 F. Supp. 2d

1260 (N.D. Ala. 1998) ...... 66 cece eee eens

In re Cardizem CD Antitrust Litig., 90 F. Supp. 2d

819 (E.D. Mich. 1999) ...... 0.5552 e eee eees

Page

16

13

17

24

16

13

iv

Cited Authorities

Page

In re Cordis Corp. Pacemaker Product Liability

Litigation, No. MDL 850, C-3-86-543, 1992

WL 754061 (S.D. Ohio Dec. 23, 1992) ........ 17

Davis v. Carl Cannon Chevrolet-Olds, Inc., 182 F.3d

792 (11th Cir. 1999) 20... ce cece e eee eee eee 20

Earnest v. General Motors Corp., 923 F. Supp. 1469

(N.D. Ala. 1996) .......0 cece cence eee eeeee 13

Edgar v. MITE Corp., 457 U.S. 624 (1982) ...... 24

Edge v. Blockbuster Video, Inc., 10 F. Supp. 2d 1248

(N.D. Ala. 1997) ....... ccc eee cree eeeceeees 14

Elmco Props., Inc. v. Second National Federal

Savings Association, 94 F.3d 914 (4th Cir. 1996)

Candeudeddeedéuabeehbuceaesueeeseuteees 17

Federal Trade Commission v. Travelers Health

Association, 362 U.S. 293 (1960) ..........-. 23

In re Ford Motor Co./Citibank (South Dakota), N.A.

Cardholder Rebate Program Litigation, 264 F.3d

952 (9th Cir. 2001) ........... 6, 7, 9, 13, 16, 18, 19

Gibbs v. Buck, 307 U.S. 66 (1939) .... 2.6.00 005 14

Guaranty Trust Co. of New York v. York, 326 U.S.

PO CISER) 2c ccccccccccccccccccecccosees 12, 21, 22

v

Cited Authorities

Page

Healy v. Beer Institute, Inc., 491 U.S. 324 (1989) ... 23

Hoffman v. Vulcan Materials Co., 19 F. Supp. 2d 475

(M.D.N.C. 1998) ....--- cece eee reer eeeees 6, 8

Hunt v. Washington State Apple Commission,

432 U.S. 333 (1977) .. 02. c cece eee cence eeee 9

Justice v. Atchison, Topeka & Santa Fe Railway Co.,

927 F.2d 503 (10th Cir. 1991) .......-0--+5s 14

Loizon v. SMH Societe Suisse de Microelectronics,

et Horologerie, 950 F. Supp. 250 (N.D. Ill. 1996)

agusenoneedecncedousseceneeneeducassenss 14

McCoy v. Erie Insurance Co., 147 F. Supp. 2d 481

(S.D. W. Va. 2001) .......--00ees 9, 10, 14, 15, 22

McIntire v. Ford Motor Co., 142 F. Supp. 2d 911

(S.D. Ohio 2001) «2.2... ee ee eee eee eee eee: 17

In re Microsoft Corp. Antitrust Litig., 127 F. Supp.

2d 702 (D. Md. 2001) ...... 6... ee cece eee eeee ll

Motorola, Inc. v. Perry, 917 F. Supp. 43 (D.D.C.

PODER oc ccccccccccccccccccvcccesscccccecs 17

New York Life Insurance Co. v. Head, 234 U.S. 149

¢ C) 0 ) 24

vi

Cited Authorities

Page

Pease v. Peck, 59 U.S. (18 Howe) 595 (1856) .... 20

In re Prudential Insurance Co. of America Sales

Practices Litigation, 148 F.3d 283 (3d Cir. 1998)

pid~~stiucentitedéaduh cade eesGnaeeuenwes 21

Ronzio v. Denver & R.GW.R. Co., 116 F.2d 604 (10th

tk DE koeevdedncuevdéesenuesecensdeens 6

Snyder v. Harris, 394 U.S. 332 (1969) .......... 12,15

Steinberg v. Nationwide Mutual Insurance Co.,

91 F. Supp. 2d 540 (E.D.N.Y. 2000) ....10, 11, 15, 22

Thomson v. Gaskill, 315 U.S. 442 (1942) ........ 9

Zahn v. International Paper Co., 414 U.S. 291 (1973)

idiCebkedunsnsendee beasséuccenéecanss 12, 14, 15

Statutes:

SPU OEE cecvccccccceseeccooceceoeses 22

BB UBL. 6 USES occccccccccccccccsccceces 3, 5, 7, 20

vii

Cited Authorities

Page

Other Authorities:

John H. Beisner & Jessica Davidson Miller, They re

Making a Federal Case Out of it ... in State

Court, 25 Harv. J.L. & Pub. Policy 143 (2002)

disacecendseseeeestsedeewusneuceanes 18, 24, 25

The Federalist No. 80 (Alexander Hamilton) ..... 19

John P. Frank, Historical Bases of the Federal

Judicial System, 13 Law & Contemp. Probs. 3

(1DEB) wn ncccccccccccccccccvccssccceseces 26

Brittain Shaw McInnis, The $75,000.01 Question:

What is the Value of Injunctive Relief?, 6 Geo.

Mason L. Rev. 1013 (1998) .........-.505065 8

1 James Wm. Moore, Moore’ Federal Practice,

q 0.91(1), at 846 (Ist ed. 1978) ........--+5-- 5,6

l

INTEREST OF AMICUS CURIAE '

Amicus curiae State Farm Mutual Automobile Insurance

Company (“State Farm”) is one of the largest automobile

insurance companies in the United States and does business

nationwide. State Farm believes that this brief will assist the

Court by providing perspective on the significant detrimental

impact that the decision below, if allowed to stand, will have

on the insurance industry and on the ability and authority of

each State to regulate the business of insurance within its

own borders.

In recent years, large insurance companies like State

Farm that are engaged in the business of insurance nationwide

or in multiple states have faced a marked increase in class

action lawsuits, involving putative or certified multi-state

or nationwide classes. In these lawsuits, plaintiffs often seek

injunctive relief on a class-wide basis that, if granted, may

necessitate a fundamental alteration in an insurance

company’s business operations, requiring changes to

computer systems, employee training, and numerous other

costs and expenses.

Such suits can be particularly costly to insurance

company defendants because of the need for insurance

companies to comply with the varying regulatory systems of

the different states. Thus, the costs to insurance companies

of complying with injunctions may include costs associated

' Counsel for a party did not author this brief in whole or in

part, and no person or entity, other than the amicus curiae, or its

counsel, has made a monetary contribution to the preparation or

submission of the brief. The parties have consented to the filing of

this brief and copies of those consents have been lodged with the

Court.

2

with attempting to make sure that alterations in the

companies’ operations resulting from court-ordered

injunctive relief comport with the applicable state statutes

and regulations in each affected jurisdiction. Accordingly,

the cost for insurance companies of complying with an

injunction in a large class action may well be far in excess of

the jurisdictional minimum even if measured by the cost of

compliance with respect to a single plaintiff.

The issues raised by injunctive relief sought in class

actions against insurance companies, however, go beyond

concerns for expenses and costs, but raise constitutional

concerns basic to this Nation’s federal system. When a single

state court judge, elected by the voters of a single county,

adjudicates the claims of a nationwide class of policyholders,

there is a serious risk that the resulting judgment may impinge

upon the prerogative of other states to regulate the business

of insurance within their own borders, particularly if the relief

granted includes injunctive relief that will affect the

defendant insurer’s future operations. Such nationwide

injunctive relief net only may impose tremendous compliance

costs, but also threatens to expose insurance companies to

conflicting legal obligations under the differing regulatory

systems of the different states.

Accordingly, the issue presented by this case is of major

interest to State Farm as a nationwide insurance company,

because of the particular impact this Court’s decision will

likely have on class action litigation involving insurance

practices and because of the special costs imposed upon

insurance companies in complying with injunctions, given

the varying regulatory regimes of the different states.

TL nN iL aE

3

SUMMARY OF THE ARGUMENT

The decision by the United States Court of Appeals for

the Ninth Circuit in this case should be reversed. The Ninth

Circuit held that, with only a very narrow exception, a

defendant’s cost of compliance with injunctive relief sought

by the plaintiffs in a class action may not be included in

determining the amount in controversy under 28 U.S.C.

§ 1332. The narrow exception permitted by the Ninth Circuit

improperly limits consideration of a defendant’s costs of

compliance to the relatively tiny category of cases where the

underlying claims of the named plaintiffs and class members

are common and undivided claims for a limited fund or

indivisible res. Contrary to the Ninth Circuit’s ruling, whether

a claim for injunctive relief is common and undivided (and

therefore properly assessed from the defendant’s viewpoint)

should depend upon the nature of the injunctive relief sought

and the character of the plaintiffs’ interest in that relief.

The Ninth Circuit’s ruling is not supported by the language

of Congress’ grant of diversity jurisdiction to the federal

courts in 28 U.S.C. § 1332 and subverts the purposes of

Congress’ grant of diversity jurisdiction to the federal courts.

The rule adopted by the Ninth Circuit, precluding

consideration of a defendant’s cost of complying with

injunctive relief, will almost invariably result in an artificially

low amount in controversy. If allowed to stand, this rule will

deprive insurance companies and other corporate defendants

of their right to remove to federal court class actions in which

they would be required to spend far more than the $75,000

jurisdictional threshold if the injunctive relief sought by the

plaintiffs were granted. Moreover, the Ninth Circuit’s ruling

will deprive such defendants of a federal forum even where

the cost of implementing injunctive relief for a single named

plaintiff would meet the jurisdictional minimum.

4

Although the Ninth Circuit states that its rule is intended

to keep “trivial” cases out of federal court, the instant case

and many of the other cases that will be barred from federal

court under the Ninth Circuit’s rule are important commercial

cases in which substantial monetary amounts are put at stake

through the plaintiffs’ broad claims for programmatic

injunctive relief. Federal diversity jurisdiction and the right

of diverse defendants to remove such cases continue to play

important roles in protecting out-of-state commercial

defendants from bias and in ensuring confidence by business

and investors in fair judicial processes. In the case of multi-

state or national class actions, federal diversity jurisdiction

also serves the federal interest in regulating interstate

commerce and in ensuring that states do not intrude on other

states’ interest in regulating conduct within their own borders.

Such considerations of state sovereignty, comity, and the

needs of our Nation’s federal system are particularly

important in the context of insurance. Both this Court and

the United States Congress have recognized that, under this

country’s federal constitutional system, it is uniquely the

prerogative of each state to regulate the business of insurance

within its borders. For insurance companies, and for other

corporate defendants, the Ninth Circuit’s rule threatens to

undermine the basic constitutional concerns that underlie the

concept of diversity jurisdiction. Permitting the exercise of

diversity jurisdiction in cases where costly injunctive relief

is sought is necessary to help ensure that out-of-state

corporate defendants are safeguarded from the potential

biases and overreaching of state court proceedings. For these

reasons and the reasons set forth below, State Farm

respectfully submits that the Ninth Circuit’s decision is

erroneous as a matter of law and policy and should be

overturned by this Court.

5

ARGUMENT

I. The Ninth Circuit’s Decision Improperly Bars from

Federal Court Cases Between Citizens of Different

States Where Substantial Pecuniary Interests Are

Directly at Stake

Section 1332, 28 U.S.C. § 1332, grants jurisdiction to

the federal courts over all civil actions between citizens of

different states where the “matter in controversy” exceeds

the sum or value of $75,000. The Ninth Circuit’s ruling that

the “matter in controversy” may not include the defendant’s

costs of compliance with injunctive relief sought by plaintiffs

is inconsistent with the language of section 1332, as

elucidated by this Court and the lower federal courts.

The Ninth Circuit’s ruling also ignores the economic reality

of the amount that may be put in controversy by a claim for

injunctive relief and disserves the purposes and policies

furthered by federal diversity jurisdiction.

A. The Ninth Circuit’s Rule Fails to Gauge

Accurately the Amount Actually at Stake When

Injunctive Relief Is Sought and Is Contrary to

28 U.S.C. § 1332

By requiring a minimum amount in controversy,

Congress sought to limit diversity jurisdiction to substantial

controversies. A rule that measures the value of injunctive

relief only from the viewpoint of the plaintiff, while providing

simplicity, may in many cases fail to recognize “the realities

of the magnitude of the controversy.” 1 James Wm. Moore,

Moore's Federal Practice, § 0.91(1), at 846 (1st ed. 1978)

(as quoted in McCarty v. Amoco Pipeline Co., 595 F.2d 389,

394 (7th Cir. 1979)). “Since the jurisdictional amount

6

prerequisite was enacted primarily to measure substantiality of

the suit, the question of whether the controversy is substantial

should not be answered unqualifiedly by looking only to the

value of that which the plaintiff stands to gain or lose.” Jd.

The Ninth Circuit’s ruling, greatly restricting the circumstances

in which the cost to the defendant of injunctive relief may be

counted toward the jurisdictional minimum in class actions, will

keep trivial cases out of the federal courts, but only “by also

keeping out cases where great sums of moncy are involved on

the part of the defendant, but not the plaintiff.” See Hoffman v.

Vulcan Materials Co., 19 F. Supp. 2d 475, 480 (M.D.N.C. 1998).

The “either viewpoint” test, which measures the amount in

controversy from either the defendant’s viewpoint or from

the plaintiff’s, better distinguishes large cases from small

and thus better effectuates the purposes of the amount-

in-controversy requirement. Under the “either viewpoint” rule,

“{i]n determining the matter in controversy, [the court] may look

to the object sought to be accomplished by the plaintiffs’

complaint; the test for determining the amount in controversy

is the pecuniary result to either party which the judgment would

directly produce.” Ronzio v. Denver & R.GW.R. Co., 116 F.2d

604, 606 (10th Cir. 1940) (footnote omitted).

The present case raises in particular the question of how

the value of injunctive relief should be measured where the

plaintiffs bring suit on behalf of a putative class, rather than

individually. The Ninth Circuit in this case recognized the

validity in individual litigation of measuring the value of an

injunction from either the plaintiff’s or the defendant’s

viewpoint,” but created a rule that essentially nullifies the “either

? See In re Ford Motor Co./Citibank (South Dakota), N.A.

Cardholder Rebate Program Litig., 264 F.3d 952, 958 (9th Cir. 2001)

(Cont’d)

7

viewpoint” rule for measuring the value of injunctive relief in

class actions. In class actions, the Ninth Circuit’s rule limits the

use of the “either viewpoint” rule to those rare cases where

plaintiffs’ underlying claims “involve a single indivisible res,

such as an estate, a piece of property (the classic example), or

an insurance policy.” Jn re Ford Motor Co./Citibank (South

Dakota), N.A. Cardholder Rebate Program Litig., 264 F.3d 952,

959 (9th Cir. 2001). The Ninth Circuit’s rule, if upheld, will

mean that in all other cases the pecuniary value of injunctive

relief would be the pro rata value to a single class member. In a

large class action, that pro rata amount will in virtually every

case fail to satisfy the amount in controversy despite the

magnitude of compliance costs for the defendant.

The Ninth Circuit’s rule is not consistent with the language

of section 1332, which neither expressly nor impliedly requires

injunctive relief to be measured from the viewpoint of a

particular party. Rather, section 1332, granting jurisdiction in

all civil actions in which the “matter in controversy” “between”

citizens of different States “exceeds the sum or value of

$75,000,” suggests that matter in controversy between the parties

should be defined broadly and take into account both viewpoints

or either viewpoint in order to reach a determination that accords

with the economic realities. As one commentator has stated:

[T]he either viewpoint rule is more in line with the

plain language of the diversity statute. Section 1332

(Cont'd)

(citing Ridder Bros. Inc. v. Blethen, 142 F.2d 395, 399 (9th Cir. 1944)

(stating “‘the test for determining the amount in controversy is the

pecuniary result to either party which the judgment would directly

produce’”; “where the value of a plaintiff’s potential recovery ...

is below the jurisdictional amount, but the potential cost to the defendant

of complying with the injunction exceeds that amount, it is the latter

that represents the amount in controversy for jurisdictional purposes”).

does not contain any language instructing courts

as to which party’s viewpoint should control the

amount in controversy. Critically, it does not state

that it should be from the plaintiff’s viewpoint.

Instead, the statute’s central unit of analysis for

purposes of determining the jurisdictional amount

is drafted in broad terms, “the matter in

controversy.” . . . [T]his unit of analysis has been

interpreted by the Supreme Court to mean

“the object of the litigation,” that is, what result a

judgment will effect. Congress’ choice to anchor

the amount in controversy to a more general unit

of analysis such as the matter in controversy

suggests that it did not intend to limit jurisdiction

only to cases where plaintiff’s alleged value of

the claim meets the jurisdictional amount. Thus,

the either viewpoint rule mirrors the flexibility

inherent in the statute’s language.

Brittain Shaw McInnis, The $75,000.01] Question: What is

the Value of Injunctive Relief?, 6 Geo. Mason L. Rev. 1013,

1031 (1998) (footnotes omitted).

A more pragmatic and flexible approach, in contrast to

the rigid rule adopted by the Ninth Circuit in the instant case,

would “take into account both the factual variances and the

numerous types of relief” and recognize “that any one case

may be legitimately valued in a number of different ways,

no one of which may be said to inherently represent true

value in every case.” Hoffman, 19 F. Supp. 2d at 481. Thus,

“[n]o one economic analysis will be right for all cases.”

Id. at 482. Such an approach would be in accord with this

Court’s decisions stating that “the amount in controversy is

measured by the value of the object of the litigation” and

9

that, generally, the value is measured by the “pecuniary

consequences to those involved in the litigation.” Hunt v.

Wash. State Apple Comm'n, 432 U.S. 333, 347 (1977);

Thomson v. Gaskill, 315 U.S. 442, 447 (1942).

In the instant case, the Ninth Circuit specifically refused

to consider the defendants’ cost of complying with the

injunctive relief at issue, even though “while the monetary

benefit to an individual plaintiff of reinstating the rebate

accrual program would be relatively insubstantial, the fixed

costs to Ford and Citibank of reinstating and maintaining

the program would be the same whether it is done for one

plaintiff or for six million.” Ford, 264 F.3d at 960. The court

did not question the factual accuracy of the defendants’

assertions as to the cost of compliance, but reasoned that

“(i]f the argument were accepted, and the administrative costs

of complying with an injunction were permitted to count as

the amount in controversy, ‘then every case, however trivial,

against a large company would cross the threshold.’” /d.

(citation omitted). Thus, according to the Ninth Circuit,

counting compliance costs toward the amount in controversy

would be “fundamentally violative of the principle underlying

the jurisdictional amount requirement — to keep small

diversity suits out of federal court.” /d. The Ninth Circuit's

reasoning ignores the real, substantial costs that are at issue

in the instant case and in similar cases and, as discussed

below, exaggerates the possibiiities for manipulation of the

amount in controversy.

Insurance companies in particular may face compliance

costs that far outweigh the value of the injunctive relief to a

particular plaintiff. As courts have recognized, injunctive

relief in the insurance context can, if granted, “require the

defendant to alter his method of doing business.” McCoy v.

10

Erie Ins. Co., 147 F. Supp. 2d 481, 492 (S.D. W. Va. 2001).

In McCoy, the plaintiff sought money damages allegedly due

her under her automobile insurance policy for the diminished

value of her automobile after repairs paid for by the insurance

company defendant. The purported diminished value was

well under the jurisdictional minimum. The plaintiff,

however, also sought prospective relief in the form of an

injunction requiring the insurer to “develop[] procedures and

systems with regard to such first-party claims for diminished

market value” that would have necessitated “hir[ing] two or

more additional appraisers in West Virginia for the purpose

of adjusting the diminished value aspect of first-party

claims.” /d. at 493. “Each appraiser would have to be paid a

salary and benefits, and would have to be provided with a

vehicle for use in extensive company-related travel.” /d.

The court concluded that the compliance cost for the

defendant if the injunctive relief sought were granted “would

well exceed the jurisdictional minimum.” /d. at 493.

Similarly, in Steinberg v. Nationwide Mutual Insurance

Co., 91 F. Supp. 2d 540 (E.D.N.Y. 2000), the court denied

plaintiffs’ motion for remand, finding that the amount in

controversy was satisfied where plaintiffs sought on behalf

of themselves and a putative nationwide class both

compensatory damages and prospective injunctive relief

prohibiting the defendant insurance company from specifying

the use of remanufactured parts in the repair of its insureds’

vehicles and from imposing “betterment” charges where the

repair resulted in an increase in value. See id. at 544. While

the court held that the compensatory damage claims could

not be aggregated for purposes of determining the amount in

controversy, the court found that the “economic impact” of

the requested injunction on the defendant amounted to

““millions of dollars annually’” and more than satisfied the

11

jurisdictional minimum. /d. (citing P!.’s Compl.); see also

In re Microsoft Corp. Antitrust Litig., 127 F. Supp. 2d 702,

718 (D. Md. 2001) (jurisdictional minimum satisfied where

defendant had “established that redesigning its operating

system software in order to comply with the injunctions

requested in each of the removed cases would cost millions

of dollars”).

In nearly every state, insurance companies are subject to

detailed and comprehensive regulations that govern their

obligations toward policyholders. Thus, compliance with an

injunction affecting those obligations can carry with it

substantial associated regulatory costs, in addition to the

computer, administrative, personnel and training costs and

many other expenses. In cases where plaintiffs assert claims

on behalf of a nationwide or multi-state class, the cost of

compliance for an insurance company will likely be even

more substantial because of variations in state insurance laws

and regulations. See supra at 1-2. In addition, the costs and

constraints imposed upon an insurance company by

injunctive relief may potentially have a serious detrimental

effect upon the company’s ability to compete in interstate

commerce against other insurance companies that are not

subject to the terms of the injunction.

If the Ninth Circuit’s rule is not overturned, courts in

many class actions will simply ignore the actual, substantial

costs for defendant corporations engaged in interstate

commerce of complying with large-scale programmatic

injunctive relief. State Farm submits that those costs should

appropriately be counted in determining whether the amount

in controversy is met. Indeed, permitting the exercise of

diversity jurisdiction over cases in which costly injunctive

relief is sought is essential to ensure that out-of-state

12

corporate defendants are protected from the potential biases

of state court proceedings. See Guaranty Trust Co. of N_Y. v.

York, 326 U.S. 99, 111-12 (1945) (“[d]iversity jurisdiction

is founded on assurance to non-resident litigants of courts

free from susceptibility to potential local bias”).

B. Valuing Injunctive Relief from the Viewpoint of

the Defendant Does Not Contravene This Court’s

Decisions in Zahn and Snyder

The result reached by the Ninth Circuit is not compelled

by the non-aggregation rule articulated by this Court in Zahn

v. International Paper Co., 414 U.S. 291 (1973), and Snyder

v. Harris, 394 U.S. 332 (1969). Neither of those two decisions

addressed the issue of how to calculate in a class action the

amount put into controversy by a request for injunctive relief.

Rather, in those decisions, this Court held that individual

monetary damages requested by plaintiffs and class members

could not be aggregated for purposes of determining the

amount in controversy. Zahn, 414 U.S. at 301; Snyder, 394

U.S. at 1056-57. Except where compliance costs merely

duplicate the cost of paying individual damages to each

plaintiff or class member, taking the defendant’s cost of

compliance into account in determining the amount in

controversy is not contrary to the non-aggregation rule of

Zahn and Snyder.

Courts that have taken a class action defendant’s cost of

complying with an injunction into account for purposes of

determining the amount in controversy have harmonized that

result with Zahn in a number of different ways. Certain courts,

such as the Seventh Circuit, have postulated the “one

plaintiff’ rule. Under the “one plaintiff’ rule, where the cost

of compliance with regard to one plaintiff would exceed

13

$75,000, the jurisdictional amount was satisfied, even if the

cost of compliance would be the same for one plaintiff or

for the entire class. See Jn re Brand Name Prescription Drugs

Antitrust Litig., 123 F.3d 599 (7th Cir. 1997). As the Ninth

Circuit concedes, the present case meets the “one plaintiff”

test. The proposed injunction would require the defendants

to alter their method of doing business by reinstating and

administering a rebate accrual program under the Ford/

Citibank credit card. Ford, 264 F.3d at 958. It is undisputed

that the cost of doing so would far exceed the jurisdictional

amount regardless of whether that relief were provided to

just one plaintiff or to the entire class.

Other courts have applied a less restrictive version of

the “common and undivided interest” test. Rather than

requiring that the plaintiffs’ claims be based upon a common

fund or other indivisible res (as the Ninth Circuit did in the

instant case), these courts have formulated a rule whereby if

the injunctive relief would “benefit the putative class as a

whole and not just any individual plaintiff,” the class would

be considered to have a common and undivided interest in

the injunctive relief sought. Earnest v. Gen. Motors Corp.,

923 F. Supp. 1469, 1472 (N.D. Ala. 1996) (class had

undivided interest in injunctive relief in the form of

advertising campaign, comprehensive vehicle recall, and

injunction forbidding the defendants from using allegedly

defective engines and engine control modules); see also

In re Cardizem CD Antitrust Litig., 90 F. Supp. 2d 819, 836

(E.D. Mich. 1999) (“Plaintiffs seek injunctive relief that will

benefit the class as a whole. Defendants’ costs of compliance

do not depend upon the size of the class or the identity of its

members. Accordingly, it is based upon a common and

undivided interest and constitutes an integrated claim; its

entire value may be considered when determining whether

14

the amount-in-controversy requirement for diversity

jurisdiction is satisfied”); Edge v. Blockbuster Video, Inc.,

10 F. Supp. 2d 1248, 1254-56 (N.D. Ala. 1997) (injunction

that would prohibit “course of conduct as a whole” and would

inure to the “collective good” of the class was common and

undivided and should be valued from defendant’s viewpoint

for purposes of the amount in controversy); Loizon v. SMH

Societe Suisse de Microelectronics, et Horologerie, 950 F.

Supp. 250, 253-54 (N.D. Ill. 1996) (finding that class

members had common and undivided interest in injunctive

relief because “[i]n this case only the class, and not the

individual class members, could request the injunctive

relief”). These courts have properly recognized that certain

class rights to injunctive relief can only be pursued as a class

and that the class members should be considered to have a

common and undivided interest in such relief.’

Still other courts have simply seen the non-aggregation

rule set forth in Zahn as inapplicable to valuing injunctive

relief. For example, in Justice v. Atchison, Topeka & Santa

Fe Railway Co., 927 F.2d 503 (10th Cir. 1991), the Tenth

Circuit acknowledged that the plaintiffs’ claims for

compensatory damages could not be aggregated, but affirmed

the district court’s ruling that the plaintiffs’ claims for

injunctive relief, measured with regard to the defendant’s

cost of compliance, satisfied the jurisdictional minimum and

were properly removed. /d. at 505. Likewise, in McCoy v.

Erie Insurance Co., 147 F. Supp. 2d 481 (S.D. W. Va. 2001),

* The approach taken by these courts finds support in decisions by

this Court, such as Gibbs v. Buck, 307 U.S. 66 (1939). In Gibbs, this

Court took a pragmatic approach in determining that the interest of

members of an association to “conduct their business though the medium

of the Society” represented “a common and undivided interest in the

matter in controversy in this class suit.” 307 U.S. at 73.

15

the court found that the “‘amount in controversy can be

satisfied by demonstrating that the injunctive relief would

require the defendant to alter his method of doing business

in such a manner that would cost at least the statutory

minimum.’” /d. at 492. The court in McCoy stated that it

“makes little sense” to “require[] that the amount in

controversy be satisfied even after the ‘inancial burden to

the defendant is apportioned to each plaintiff.” /d. at 494

n.14 (emphasis in original). See also Steinberg v. Nationwide

Mut. Ins. Co., 91 F. Supp. 2d 540, 544 (E.D.N.Y. 2000)

(in putative class action, valuing injunctive relief from

viewpoint of defendant).

The Ninth Circuit’s rule improperly makes it more

difficult for a class action to be tried in a federal forum. In

the instant case, the Ninth Circuit accepted as true the

contention that the cost of complying with the injunction

sought by plaintiffs in the present case would not materially

differ whether that injunction was entered with respect to a

single plaintiff or with respect to many plaintiffs (or indeed

the entire proposed class) and that even with respect to a

single plaintiff the cost of compliance would exceed the

jurisdictional amount. In such circumstances in an individual

litigation, it is clear that the jurisdictional amount is met.

Nothing in this Court’s decisions in Zahn or Snyder requires

that the result be different in a class action. Indeed, Zahn

and Snyder applied the same rule to class actions as is applied

in individual litigation and thus suggest that, contrary to the

Ninth Circuit, the same rules that apply to valuing injunctive

relief for purposes of determining the amount in controversy

in an individual case — not more restrictive rules — should

apply to class actions.

16

State Farm submits that where a proposed injunction would

require a defendant to change its business practices or methods

of operation or to take action with reference to the class as a

whole, the claim for injunctive relief should be treated as a

common and undivided claim. A rule that the defendant’s cost

of compliance with such an injunction should be included in

determining the amount in controversy best reflects the realities

both of the collective nature of the relief and the nature and

extent of the matter in controversy between the parties.

C. The Potential for Manipulation of the Value of

Injunctive Relief Is Exaggerated by the Ninth

Circuit and Does Not Justify the Resuli in This Case

The chief justification that the Ninth Circuit provides for

its rigid rule requiring that the value of injunctive relief must be

measured from the plaintiff’s viewpoint is that this rule would

prevent plaintiffs from manipulating claims for injunctive relief

in attempts to manufacture federal diversity jurisdiction.

See Ford, 264 F.3d at 960-61. The Ninth Circuit’s rule is not

necessary to achieve this objective. This objective may be best

accomplished through the application of established principles

of law developed in various contexts to identify sham requests

for injunctive relief. For example, when plaintiffs seek injunctive

relief that is essentially no more than money damages in

“injunctive garb,” the amount in controversy may be determined

as if only money damages were requested. Thus, in Campbell v.

General Motors Corp., the court treated a requested injunction

ordering “repair, replacement or refund” as constituting money

damages, stating that there is “no meaningful distinction between

money damages and in-kind replacement of a defective part.”

19 F. Supp. 2d 1260, 1267 (N.D. Ala. 1998); see also Amerada

Hess Corp. v. Department of Interior, 170 F.3d 1032 (10th Cir.

1999) (claim for injunction ordering refund was a suit for

17

damages); Elmco Props., Inc. v. Second Nat'l Fed. Sav. Ass'n,

94 F.3d 914, 919 n.1 (4th Cir. 1996) (claim for order requiring

refund was claim for monetary relief “‘dressed in injunctive

garb’”’) (citation omitted).*

Likewise, courts have discounted the value of the

injunctive relief sought where “[mJost of the class consists

of individuals who do not face further harm” from the

defendant’s challenged activities. Bolin v. Sears, Roebuck &

Co., 231 F.3d 970, 978 (Sth Cir. 2000).° In short, there is a

well developed set of legal principles that can effectively

prevent manipulation of the amount of controversy by means

of a sham claim for injunctive relief.

The potential for manipulation of the amount in

controversy through claims for injunctive relief is also limited

by the fact that plaintiffs nowadays frequently file class

* Accord Brazos v. Elec. Power Coop., Inc., 144 F.3d 784, 786

(Fed. Cir. 1998) (requested injunction to have defendant “correct

bookkeeping entry” was really claim for monetary damages of refund

or cancellation of debt); Jn re Cordis Corp. Pacemaker Prod. Liab.

Litig., No. MDL 850, C-3-86-543, 1992 WL 754061, at *8-9 (S.D.

Ohio Dec. 23, 1992) (claim for injunctive relief in the form of order

to replace allegedly defective pacemakers was “an attempt to cast a

claim for monetary damages as one for injunctive relief”); Motorola,

Inc. v. Perry, 917 F. Supp. 43, 46-47 (D.D.C. 1996) (claim for specific

performance was “correctly seen as a request for money damages;”

“artful pleading” by plaintiffs could not “convert{] a complaint for

monetary relief into a complaint for declaratory or injunctive relief”).

> Cf. McIntire v. Ford Motor Co., 142 F. Supp. 2d 911, 922

(S.D. Ohio 2001) (injunction ordering defendant not to misrepresent

that customers were required to participate in informal dispute

resolution before litigating warranty claims had no value to named

plaintiffs who had all already litigated warranty claims).

18

actions in state court. See, e.g., John H. Beisner & Jessica

Davidson Miller, They're Making a Federal Case Out of it

. in State Court, 25 Harv. J.L. & Pub. Policy 143, 145

(2002) (noting that “class action lawyers are bringing a large

number of cases in a small number of state courts that have

become ‘magnets’ for interstate class actions and that thus

exercise a wildly disproportionate role in adjudicating

national disputes”).° In cases filed in state court where

plaintiffs request injunctive relief, they obviously are not

attempting to manipulate the amount in controversy. In such

cases, the issue of how to value injunctive relief is raised

only if a diverse defendant removes to federal court.

Possibilities for manipulation are limited in such cases

because the plaintiffs, who are seeking to litigate in state

court, have not shaped their request for injunctive relief with

a view to obtaining federal jurisdiction.

In attempting to ensure that “small diversity suits” are

kept out of federal court, Ford, 264 F.3d at 961, the Ninth

Circuit has fashioned an inflexible rule that will improperly

deprive defendants of a federal forum in cases where

substantial amounts of money are at stake because of the

broad injunctive relief requested. Moreover, the Ninth Circuit

has inappropriately created a special rule for class actions

that makes it harder to establish that the jurisdictional amount

is satisfied than it is in individual litigation, where the Ninth

* For example, “in the courts of six small, rural Alabama

counties, at least ninety-one class actions were filed over two-year

period, often seeking relief on behalf of purported nationwide classes

concerning matters of national significance.” Beisner & Miller, 25

Harv. J.L. & Pub. Policy 146. The county court of Madison County,

Illinois (with a population of approximately 250,000) has experienced

a “disproportionately high volume of class actions filings,” with an

1850 percent increase of such filings in 2000. Jd. at 147.

19

Circuit permits injunctive relief to be valued from the

viewpoint of the defendant. See id. at 958. With this special

and inflexible rule for class actions, the Ninth Circuit has

achieved the perverse result that important national or multi-

state class actions, involving claims for injunctive relief that

may potentially affect the defendant’s ongoing manner of

doing business nationwide, are kept out of federal court.

Il. The Ninth Circuit’s Ruling Is Counter to Strong Federal

Interests in Fostering and Protecting Interstate

Commerce

In its professed zeal to protect the federal courts from

small lawsuits, the Ninth Circuit has fashioned a rule that

ignores the realities of modern class action litigation and the

very real costs imposed upon defendants when injunctive

relief is granted. Moreover, the Ninth Circuit’s decision raises

acute federalism concerns, particularly with respect to multi-

state or nationwide class actions involving the heavily

regulated insurance industry.

Historically, federal “jurisdiction of controversies

between citizens of different States of the Union” served the

purpose of “secur[ing] a tribunal presumed to be more

impartial than a court of the state in which one litigant

resides.” Barrow S.S. Co. v. Kane, 170 U.S. 100, 111 (1898).’

? See also The Federalist No. 80, at 537-38 (Alexander

Hamilton) (“{I]n order to ensure the inviolable maintenance of that

equality of privileges and immunities to which the citizens of the

union will be entitled, the national judiciary ought to preside in all

cases in which one state or its citizens are opposed to another state

or its citizens. To secure the full effect of so fundamental a provision

against all evasion and subterfuge, it is necessary that its construction

(Cont’d)

20

See also Davis v. Carl Cannon Chevrolet-Olds, Inc., 182

F.3d 792, 797 (11th Cir. 1999) (“An important historical

justification for diversity jurisdiction is the reassurance of

fairness and competence that a federal court can supply to

an out-of-state defendant facing suit in state court”); Pease

v. Peck, 59 U.S. (18 Howe) 595, 599 (1856) (“The theory

upon which jurisdiction is conferred on the courts of the

United States, in controversies between citizens of different

States, has it foundation in the supposition that, possibly,

the State tribunal might not be impartial between their own

citizens and foreigners.”). As the Eleventh Circuit

acknowledged in Davis, that historical justification has not

vanished. See Davis, 182 F.3d at 797 (apologetically

remanding class action to “a state court system that has on

occasion produced gigantic awards against out-of-state

corporate defendants;” stating that “[o]ne would think that

this case is exactly what those who espouse the historical

justification for § 1332 would have had in mind, and that

this fact would somehow color the statute’s interpretation’’).*

(Cont'd)

should be committed to that tribunal which, having no local

attachments, will be likely to be impartial between the different states

and their citizens, and which, owing its official existence to the union,

will never be likely to feel any bias inauspicious to the principles on

which it is founded.”).

* See also Davis, 182 F.3d at 799 (Nangle, J., concurring “under

protest”) (noting that after remand, “[f]acing the possibility of an

Alabama jury which occasionally brings in ‘gigantic awards’ in cases

of this sort (as pointed out by the majority), defendants in this case

will be under extreme pressure to settle with the only potential

obstacle to settlement being plaintiffs’ attorneys fees;” “this Judge is

of the opinion that the present case law [on determining the amount

in controversy] does not adequately accommodate the reality of

modern class action litigation and settlements”) (footnote omitted).

— ——— ee

21

Indeed, as the Third Circuit has stated, “[f]rom a policy

standpoint, it can be argued that national (interstate) class

actions are the paradigm for federal diversity jurisdiction

because, in a constitutional sense, they implicate interstate

commerce, foreclose discrimination by a local state, and tend

to guard against any bias against interstate enterprises.”

In re Prudential Ins. Co. of Am. Sales Practices Litig., 148

F.3d 283, 305 (3d Cir. 1998).

In the case of multi-state or national class actions, federal

diversity jurisdiction also serves the federal interest in

regulating interstate commerce and in ensuring that one

state’s interests do not intrude on other states’ interests in

regulating conduct within their own borders. Indeed, the

issues presented by class action lawsuits against insurance

companies raise constitutional concerns fundamental to this

country’s federal system. When a single state court judge

adjudicates the claims of a nationwide class of policyholders,

there is substantial risk that the resulting judgment may

impinge upon the right of other states to regulate the business

of insurance within their borders, especially if the relief

ordered includes injunctive relief that will affect the

defendant insurer’s future operations. In such cases, diversity

jurisdiction’s “assurance to non-resident litigants of courts

free from susceptibility to potential local bias,” Guaranty

Trust Co. of N.Y., 326 U.S. at 111-12, not only protects the

individual litigant, but protects the federal system as well.

State Farm and many other automobile insurance

companies have been named as defendants in nationwide or

multi-state class actions in which plaintiffs’ claims for

injunctive relief threaten to impair the divergent interests of

different States in regulating insurance transactions within

their borders. For example, a number of insurance companies

22

are defendants in class actions seeking injunctive relief with

regard to claims for “diminished value” (i.e., claims that the

plaintiffs’ cars have a diminished value even after repairs

for collision damage). As the court in McCoy, 147 F. Supp.

2d at 493, acknowledged, the requested injunctive relief in

a “diminished value” case, if granted, would require

programmatic changes in a defendant insurance company’s

operations, necessitating, inter alia, substantial expenditures

for hiring and training additional employees, additional

computer support, and additional claims investigation.

Likewise, in Steinberg, 91 F. Supp. 2d at 544, a nationwide

class action regarding a defendant insurance company’s

specification of remanufactured parts to repair its insureds’

automobiles, the court recognized that the “economic impact”

on the defendant of the injunctive relief sought by the

plaintiffs would amount to millions of dollars annually.

The obligations of insurance companies with regard to

such issues are governed by the varying regulations and laws

of the different States. Thus, nationwide or multi-state

injunctive relief regarding such issues would not only impose

tremendous compliance costs, but would also threaten to

expose insurance companies to conflicting legal obligations.

Moreover, such sweeping injunctive relief would impair the

prerogative of each individual state, guaranteed by this

Nation’s federal constitutional system, to make its own

decisions with respect to the regulation of insurance with its

own borders.

Congress has made clear, through the McCarran-

Ferguson Act, that “the continued regulation ... by the

several States of the business of insurance is in the public

interest.” 15 U.S.C. § 1011 (emphasis added). Although the

McCarran-Ferguson Act is a limitation on federal interference

——— ee ——_

23

with the regulation of insurance by the individual states, it is

predicated on the principle that each state should regulate

insurance transactions within its borders and that no state

may regulate extraterritorially. As this Court has explained,

[i]t is clear [from the legislative history of the Act]

that Congress viewed state regulation of insurance

solely in terms of regulation by the law of the State

where the activity sought to be regulated occurred.

There is no indication of any thought that a State

could regulate activities carried on beyond its own

borders.

Federal Trade Comm'n v. Travelers Health Ass'n, 362 U.S.

293, 300 (1960) (emphasis added).

In Travelers, this Court found it unnecessary to consider

the constitutional limitation on one state’s efforts to regulate

out-of-state insurance transactions of a domiciliary company,

but indicated that “the impediments, contingencies, and

doubts which constitutional limitations might create” as to a

state’s “power to regulate any given aspect of extraterritorial

activity” confirmed its conclusion that Congress did not

intend to authorize such power. /d. at 302. Since 7ravelers,

however, this Court has repeatedly made clear in other

contexts that the principles of state sovereignty embodied in

various provisions of the Constitution prohibit states from

attempting to regulate transactions occurring outside their

borders. See, e.g., BMW of N. Am., Inc. v. Gore, 517 U.S.

559, 568-73 (1996) (Alabama could not impose punitive

damages for the purposes of forcing defendant to change its

practices in other states); Healy v. Beer Inst., Inc., 491 U.S.

324, 336 (1989) (Commerce Clause “precludes the

application of a state statute to commerce that takes place

24

wholly outside of the State’s borders”); Brown-Forman

Distillers Corp. v. New York State Liquor Auth., 476 U.S.

573, 582-83 (1986) (rejecting New York’s attempt to “project

its legislation” into other states); Edgar v. MITE Corp., 457

U.S. 624, 641-43 (1982) (plurality op.) (Illinois anti-takeover

statute impermissibly regulated transaction occurring entirely

outside of Illinois); Bigelow v. Virginia, 421 U.S. 809, 824

(1975) (“{a] State does not acquire power or supervision over

the internal affairs of another State merely because the

welfare and health of its own citizens may be affected when

they travel to that State”); see also New York Life Ins. Co. v.

Head, 234 U.S. 149, 161 (1914) (“[i]t would be impossible

to permit the statutes of Missouri to operate beyond the

jurisdiction of that State ... without throwing down the

constitutional barriers by which all the States are restricted

within the orbits of their lawful activity and upon which the

preservation of which the Government under the Constitution

depends.”’).

Recent studies of insurance-related class action lawsuits

filed in state court demonstrate the reality of these

constitutional concerns. As commentators noted recently with

respect to the numerous class action filings against insurance

companies in southern Illinois state courts, “(t]he willingness

of certain Illinois state courts to serve as free-roving insurance

commissioners and issue edicts that affect the way insurance

companies can do business in forty-nine other states may

explain why twenty-six class action lawsuits have been filed

in Madison County against insurance companies in the last

few years.” Beisner & Miller, supra, at 151. Thus, in one

purported nationwide class action brought in Madison County

against some twenty insurance companies, “[o]ne Madison

County judge could be single-handedly responsible for

dramatically increasing the price of automobile insurance for

a nap on

25

all Americans and adversely affecting the non-original

manufacturer automobile parts industry.” Jd. “The ability of

one locally elected judge to exercise that much power raises

serious federalism questions.” /d.

These constitutional concerns underscore the continuing

importance of diversity jurisdiction in insurance-related class

actions. Moreover, diversity jurisdiction has not decreased

in importance with regard to the role it plays in protecting

interstate commerce and the national economic system.

Rather, diversity jurisdiction has become more important as

more companies, such as State Farm, engage in commerce

nationwide, and as class action lawsuits more and more often

have a significant impact on companies’ business operations

nationwide. Indeed, as one scholar of the federal court system

theorized, the “real key” to the provision by the founders for

diversity jurisdiction was their optimistic vision of a future

of manufacture and trade within the United States on a vast

scale — a future economic order that would both be advanced

by the availability of fair federal tribunals and that would

have increasing need for such tribunals:

The real key to the diversity clause lies in the

optimism of the founders, an optimism which

escapes the label “fantastic” because the dreams so

often came true. The members of the Convention

did a great deal of anticipating, and on many subjects

besides diversity jurisdiction. They anticipated

manufacture and trade within the United States on

an unknown but vast scale. One of the principal

objects of the Convention was to open a path for

that expansion. .. . If the Founding Fathers could

anticipate the industrial and commercial revolution,

already beginning, they could anticipate some of the

26

obstacles to the success of the concomitant business

enterprise. The diversity clauses were based on that

dual anticipation more largely than on experience.

John P. Frank, Historical Bases of the Federal Judicial

System, 13 Law & Contemp. Probs. 3, 27 (1948).

The rule adopted by the Ninth Circuit bars defendant

companies from federal court in cases where broad injunctive

relief is sought that may have substantial monetary impact

not only upon the defendant’s business operations conducted

within the forum state but also upon business operations in

other states or nationwide. The Ninth Circuit’s ruling

relegating such cases to state court disserves the significant

federal constitutional interest in adjudicating such cases and

should be overturned.

CONCLUSION

For all the foregoing reasons, amicus curiae State Farm

respectfully submits that the judgment of the Court of Appeals

for the Ninth Circuit in this case should be reversed.

Respectfully submitted,

SHEILA L. BirnBAUM

Counsel of Record

DoucGias W. DUNHAM

ELLeNn P. QUACKENBOS

SKADDEN, Arps, SLATE,

MEAGHER & FLom LLP

Attorneys for Amicus Curiae

Four Times Square

New York, NY 10036

(212) 735-3000