Kraetsch et al v. United Services Automobile Association
MEMORANDUM AND ORDER (of Remand) -IT IS HEREBY ORDERED that plaintiffs' motion for leave to file a sur-reply [Doc. # 51 ] is granted. IT IS FURTHER ORDERED that defendant's motion to strike the class claims [Doc. # 38 ] is granted. IT IS FURTHER ORDERED that the Clerk of the Court shall remand this action to the Twenty-First Judicial Circuit Court of Missouri (County of St. Louis), from which it was removed. (cc: Clerk of Twenty-First Judicial Circuit Court of Missouri (County of St. Louis)). Signed by District Judge Carol E. Jackson on 3/30/15. (KKS)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
ROBERT E. KRAETSCH and MARY P.
UNITED SERVICE AUTOMOBILE
Case No. 4:14-CV-264-CEJ
MEMORANDUM AND ORDER
This matter is before the Court on defendant’s motion to strike plaintiffs’
The plaintiffs have responded and the issues are fully briefed.
Plaintiffs Robert Kraetsch and Mary Kraetsch purchased a homeowners
insurance policy issued by defendant United Service Automobile Association
In the second amended complaint, plaintiffs allege that their home
sustained extensive damage when rainwater penetrated the defective artificial
stucco that was installed on the house.
Plaintiffs filed a claim with USAA which
In the second amended complaint plaintiffs assert three causes of action:
Count I is a breach of contract claim premised on USAA’s failure to perform under
the policy. In Count II, plaintiffs seek a declaration that the policy covers the water
Count III is for vexatious refusal to pay the insurance claim. The
complaint also contains allegations of fraudulently concealment and a claim of
equitable tolling of the statute of limitations.
The plaintiffs also seek certification of a class, pursuant to Fed. R. Civ. P. 23.
The putative class would consist of (1) USAA policyholders; (2) in Missouri; (3) who
installed artificial stucco on their homes; (4) and whose stucco was negligently
designed, installed, or maintained, which caused the policyholders to suffer water
damage intrusion to their insured premises; (5) whose policies with USAA contain
coverage provisions that are the same as or substantially similar to those in
plaintiffs’ policy; (6) regardless of whether those policyholders ever filed claims with
Plaintiffs seek to proceed on behalf of the class under each theory of
recovery presented in the complaint. The gravamen of plaintiffs’ class claim is that
USAA failed to compensate the putative class members for covered “ensuing losses”
(i.e., the water damage), which the policies define to include “faulty, negligent,
inadequate or defective design, specifications and workmanship in construction.”
2d Am. Compl. at 2.
In its motion to strike, USAA argues that the proposed class should not be
certified because, as defined, the class does not satisfy Fed. R. Civ. P. 23(b)(3)’s
In its removal notice USAA states that based on plaintiffs’ class allegations
(i.e., more than 100 members and an amount in controversy exceeding $5 million),
the requirements of 28 U.S.C. § 1332(d) have been met. Plaintiffs interpret this
statement as USAA’s concession that an actual class is ascertainable, which is
contrary to the position it takes in the motion to strike the class claims. Plaintiffs
argue that judicial estoppel prevents USAA from taking contradictory positions in
this litigation such that it is precluded from moving to strike the class claims.
Judicial estoppel “protects the integrity of the judicial process.”
Petroleum, Inc. v. Davis, 822 F.2d 734, 738 n.6 (8th Cir. 1987).
It “prevents a
person who states facts under oath during the course of a trial from denying those
facts in a second suit, even though the parties in the second suit may not be the
same as those in the first.”
Monterey Dev. Corp. v. Lawyer’s Title Ins. Corp., 4
F.3d 605, 609 (8th Cir. 1993). Accordingly, “a party that takes a certain position in
a legal proceeding, ‘and succeeds in maintaining that position,’ is prohibited from
thereafter assuming a contrary position ‘simply because his interests have
changed,’ especially if doing so prejudices the party ‘who acquiesced in the position
formerly taken by him.’” Stallings v. Hussmann Corp., 447 F.3d 1041, 1047 (8th
Cir. 2006) (quoting New Hampshire v. Maine, 532 U.S. 742, 748 (2001)).
“The circumstances under which judicial estoppel may appropriately be
invoked are probably not reducible to any general formulation of principle.”
Hampshire, 532 U.S. at 750. “Three factors, while not ‘an exhaustive formula for
determining the applicability of judicial estoppel,’ aid a court in determining
whether to apply the doctrine.”
Hampshire, 532 U.S. at 751).
Stallings, 447 F.3d at 1047 (quoting New
Those three factors are: (1) the party’s “later
position must be clearly inconsistent with its earlier position;” (2) the party must
have “succeeded in persuading a court to accept [its] earlier position, so that
judicial acceptance of an inconsistent position in a later proceeding would create the
perception that either the first or the second court was misled;” and (3) the party
must be in such a position that it would “derive an unfair advantage or impose an
unfair detriment on the opposing party if not estopped.”
Id. (quoting New
Hampshire, 532 U.S. at 750–51).
USAA’s argument that an actual class is not ascertainable is not “clearly
inconsistent” with its earlier assertion that the putative class defined by plaintiffs
meets CAFA’s numerosity and amount in controversy requirements. USAA has not
conceded that a class exists, hence its use of the word “putative.”
removal, USAA merely asserted that this Court has jurisdiction under CAFA to
determine whether or not a class exists. There is no inconsistency between that
assertion and USAA’s current position that the Court, in exercising its jurisdiction
over the issue, should find that the putative class does not meet the requirements
of Rule 23.
Further, the Court has not been misled. The Supreme Court’s concern about
the “perception that either the first or the second court was misled” is instructive.
New Hampshire, 532 U.S. at 750.
This case is before one court. USAA has not
advanced contradictory positions in two different cases. Plaintiffs cite no authority
for the proposition that judicial estoppel applies within a case, at different stages in
litigation before a single court. Moreover, that argument is wholly undercut by the
Supreme Court’s proclamation that “[a]bsent success in a prior proceeding, a
no risk of
determinations, and thus poses little threat to judicial integrity.” Id. at 751. Here,
there is no “prior proceeding” because the case remains before this Court.
Finally, USAA gains no “unfair advantage” by removing the case to this
Court. Under CAFA, plaintiffs could have filed their suit in federal district court if
they had originally asserted class claims.
USAA properly removed once plaintiffs
amended the complaint to add those claims. There is nothing unfair about USAA
seeking to have this case heard by the proper court and also seeking the proper
resolution of plaintiffs class claims, which, in its view, is dismissal. Thus, judicial
estoppel does not bar any of USAA’s arguments.
B. Collateral estoppel
Over a decade ago, a Tennessee appellate court affirmed a trial court’s
determination that, under that state’s law and procedures, USAA breached its
homeowners insurance policies with a class of Tennessee plaintiffs when it denied
coverage after defective stucco led to water damage to those plaintiffs’ homes. See
Phillips v. United Servs. Auto. Ass'n, 146 S.W.3d 629 (Tenn. Ct. App. 2004).
Today, plaintiffs assert that in this federal district court, which applies Missouri law
and Fed. R. Civ. P. 23, collateral estoppel stemming from Phillips prevents USAA
from opposing certification of a class of Missouri plaintiffs who had different USAA
policies (though with possibly similar language) and who may have been denied
coverage after defective stucco led to water damage to their homes.
admit that Phillips is not binding precedent in this Court, but plaintiffs nonetheless
ask the Court to find that its collateral estoppel effects limit USAA’s opposition to
“The Full Faith and Credit Statute, 28 U.S.C. § 1738, requires that federal
courts give state court judgments the same preclusive effect that such a judgment
would be given in the courts of the state rendering the judgment.” Lommen v. City
of E. Grand Forks, 97 F.3d 272, 274 (8th Cir. 1996) (citing Allen v. McCurry, 449
U.S. 90, 96 (1980); Tolefree v. City of Kansas City, 980 F.2d 1171, 1173–74 (8th
Cir. 1992)). “Section 1738 does not permit federal courts to apply their own rules
to determine the effect of state court judgments, but instead mandates that a
federal court implement the preclusion rules of the state from which the judgment
originated.” Id. The Court therefore looks to Tennessee law to determine whether
the certification of a class of Tennessee plaintiffs who disputed coverage under
insurance contracts governed by Tennessee law precludes USAA from arguing that
a class of Missouri plaintiffs should not be certified in a dispute about insurance
contracts governed by Missouri law.
[In Tennessee, t]o prevail with a collateral estoppel claim, the party
asserting it must demonstrate (1) that the issue to be precluded is
identical to an issue decided in an earlier proceeding, (2) that the issue
to be precluded was actually raised, litigated, and decided on the
merits in the earlier proceeding, (3) that the judgment in the earlier
proceeding has become final, (4) that the party against whom
collateral estoppel is asserted was a party or is in privity with a party
to the earlier proceeding, and (5) that the party against whom
collateral estoppel is asserted had a full and fair opportunity in the
earlier proceeding to contest the issue now sought to be precluded.
Mullins v. State, 294 S.W.3d 529, 535 (Tenn. 2009) (emphasis added).
First, the issue on which plaintiffs hope to assert preclusion is not identical to
the issue decided in Phillips. The question before the court in Phillips was whether
to certify a class of Tennessee insureds who had policies with USAA that allegedly
did not cover water damage caused by defective stucco, with claims based on
Tennessee law and applying Tennessee’s class action procedures. 146 S.W.3d 629.
The fact that the claims in Phillips arose under Tennessee law reveals why the Court
does not need to reach the question of how far Tennessee’s class action procedures
depart from Fed. R. Civ. P. 23. The putative class in the instant case is a group of
Missouri insureds with policies governed by Missouri law.
Tennessee’s collateral estoppel doctrine, USAA is not precluded from asserting that
the class should not be certified here, where all of the questions of liability arise
under Missouri, not Tennessee, law.
Second, Tennessee’s version of the doctrine applies only where the “issue to
be precluded was actually raised, litigated, and decided on the merits in the earlier
proceeding . . . .”
Mullins, 294 S.W.3d at 535.
Whether an ascertainable class
exists of Missouri insureds who have common claims for breach of contract under
Missouri law was never raised in Phillips, nor was it litigated and decided.
Moreover, Phillips never actually raised, litigated, and decided specifically whether
common issues predominate among a putative group of Missourians who have
alleged breach of contract claims. Thus, Phillips’s collateral estoppel effects do not
preclude USAA from arguing against class certification in this case.
C. Class allegations
Plaintiffs seek certification of a class of USAA policyholders, as described
above, under Fed. R. Civ. P. 23(b)(3). Rule 23 “does not set forth a mere pleading
standard,” Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1432 (2013), and plaintiffs
bear the burden of demonstrating that certification is appropriate.
Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2550-51 (2011). “[C]lass claims that fail to
meet the requirements of Rule 23 may be properly dismissed by granting a Rule
12(b)(6) motion.” McCrary v. Stifel, Nicolaus & Co., 687 F.3d 1052, 1059 (8th Cir.
2012); see also In re Zurn Pex Plumbing Products Liab. Litig., 644 F.3d 604, 611
(8th Cir. 2011) (same). “Where it is facially apparent from the pleadings that there
is no ascertainable class, a district court may dismiss the class allegation on the
Lindsay Transmission, LLC v. Office Depot, Inc., 4:12-CV-221-CEJ,
2013 WL 275568, at *4 (E.D. Mo. Jan. 24, 2013) (citation omitted).
To determine whether class allegations should be stricken “it may be
necessary for the court to probe behind the pleadings before coming to rest on the
certification question, and . . .
certification is proper only if the trial court is
satisfied, after a rigorous analysis, that the prerequisites of Rule 23(a) have been
satisfied.” Comcast, 133 S. Ct. at 1432 (internal quotations and citations omitted).
“Such an analysis will frequently entail ‘overlap with the merits of the plaintiff’s
Id. (quoting Wal-Mart, 131 S. Ct. at 2551).
analytical principles govern Rule 23(b). If anything, Rule 23(b)(3)’s predominance
criterion is even more demanding than Rule 23(a).” Id. (citing Amchem Products,
Inc. v. Windsor, 521 U.S. 591, 623–24 (1997)). A district court has a “duty to take
a ‘close look’ at whether common questions predominate over individual ones.” Id.
(internal quotation and citation omitted).
“Federal Rule of Civil Procedure 23(a) sets out four threshold requirements
that must be met before a plaintiff may file a lawsuit on behalf of a class of
Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023, 1029 (8th Cir. 2010).
“Once those prerequisites have been met, the plaintiff must also establish that the
class fits within one of three types of class actions listed in Rule 23(b).” Id. Under
Rule 23(a), a named plaintiff must prove that (1) the class is so numerous that
joinder of all members is impracticable; (2) there are questions of law or fact
common to the proposed class; (3) the class representative’s claims are typical of
the claims of the class; and (4) the named plaintiff will fairly and adequately
represent the interests of the class.
U.S. at 613.
Fed. R. Civ. P. 23(a)(1)–(4); Amchem, 521
In this case, plaintiffs seek certification under Rule 23(b)(3).
succeed, they must show that “questions of law or fact common to the members of
the class predominate over any questions affecting individual members, and a class
action is superior to other available methods for the fair and efficient adjudication of
the controversy.” Fed. R. Civ. P. 23(b)(3); see Amchem, 521 U.S. at 615. Because
the dispositive inquiry here is whether plaintiffs’ class allegations can plausibly meet
Rule 23(b)(3)’s predominance requirement, the Court need not address the Rule
23(a) factors or Rule 23(b)(3)’s superiority requirement.
“The Rule 23(b)(3) predominance inquiry tests whether proposed classes are
sufficiently cohesive to warrant adjudication by representation.” Id. at 623. “At the
core of Rule 23(b)(3)’s predominance requirement is the issue of whether the
defendant’s liability to all plaintiffs may be established with common evidence.”
Avritt, 615 F.3d at 1029 (citation omitted). “If, to make a prima facie showing on a
given question, the members of a proposed class will need to present evidence that
varies from member to member, then it is an individual question.” Blades v.
Monsanto Co., 400 F.3d 562, 566 (8th Cir. 2005). “If the same evidence will suffice
for each member to make a prima facie showing, then it becomes a common
question.” Id. “In making its determination, the district court must undertake a
‘rigorous analysis’ that includes examination of what the parties would be required
to prove at trial.” Avritt, 615 F.3d at 1029 (citation omitted).
Moreover, in a proposed Rule 23(b)(3) class, “the need for detailed and
individual factual inquiries concerning the appropriate remedy for any violation 
weighs strongly against class certification.” In re St. Jude Med., Inc., 522 F.3d 836,
840–41 (8th Cir. 2008) (citation omitted). The predominance requirement cannot
be satisfied where, “[q]uestions of individual damage calculations will inevitably
overwhelm questions common to the class.”
Comcast, 133 S. Ct. at 1433.
Eighth Circuit has explained that, “[a]nswering the question of whether [an
insurer’s] claim processing methodology breached its contract under [state] law
necessitates individual fact inquiries for each member of the class.” Halvorson v.
Auto-Owners Ins. Co., 718 F.3d 773, 780 (8th Cir. 2013).
Halvorson’s admonition is instructive in the instant case. Common issues do
not and cannot predominate for two reasons.
First, determining whether each
member of the putative class has a valid claim against USAA would require an
individual inquiry into each of the putative class members’ claims.
would require determination of, among other things, these questions: (a) whether
the putative class members paid their premiums to USAA on time, if at all; (b) the
kinds of water damage they suffered and whether that damage was actually caused
by defective stucco; (c) whether the precise kinds of water damage caused by
defective stucco are or are not excluded under the members’ policies (depending on
how the water damage occurred, and over what periods of time); and (d) whether
USAA’s denial of coverage in each instance constitutes vexatious refusal to pay
under Missouri law.
Second, even assuming that one could generate common answers to those
questions without undertaking an exhaustive and individualized inquiry as to each
policyholder, another question would generate unique, individualized answers: As to
each policyholder, do any other provisions of their respective policies—or the
policyholders’ actions—provide USAA sufficient reason not to cover their defectivestucco induced losses? While that individualized inquiry is one that the Court could
undertake as to Kraetsch plaintiffs, the necessity to do so on a class-wide basis for
thousands of policyholders makes this action wholly unsuited for class resolution.
The common question of how a provision in an insurance policy is to be interpreted
does not predominate over all of those necessarily individual inquires. Accordingly,
the Court will strike the class claims.
Plaintiffs, who are Missouri citizens, initiated this action against USAA in the
Circuit Court of St. Louis County, Missouri.
Because USAA is an unincorporated
association, it is ordinarily considered a citizen of Missouri and every state in which
it has members.
GMAC Commercial Credit LLC v. Dillard Dep't Stores, Inc., 357
F.3d 827, 828 (8th Cir. 2004) (citation omitted). Thus, before plaintiffs added the
class claims, USAA could not have removed the action because complete diversity
See 28 U.S.C. § 1332(a).
After the class allegations were added,
however, USAA removed the action, pursuant to the Class Action Fairness Act of
2005 (CAFA), which requires only minimal diversity and also treats unincorporated
associations like corporations for purposes of determining citizenship.
§§ 1332(d), 1446, 1453. Under CAFA, USAA is considered a citizen of Texas, so
minimal diversity existed at the time of removal.
Now, however, because the class claims will be stricken, CAFA no longer
USAA is therefore considered a citizen of Missouri, complete diversity is
lacking, and the Court lacks subject matter jurisdiction. See 28 U.S.C. §§ 1332(a),
1446. As a result, this action will be remanded to the state court.
For the reasons set forth above,
IT IS HEREBY ORDERED that plaintiffs’ motion for leave to file a sur-reply
[Doc. #51] is granted.
IT IS FURTHER ORDERED that defendant’s motion to strike the class
claims [Doc. #38] is granted.
IT IS FURTHER ORDERED that the Clerk of the Court shall remand this
action to the Twenty-First Judicial Circuit Court of Missouri (County of St. Louis),
from which it was removed.
Dated this 30th day of March, 2015.
CAROL E. JACKSON
UNITED STATES DISTRICT JUDGE
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