Charlotte Phillips v. Wellpoint Incorporated , 764 F.3d 662 ( 2014 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos.  12-­‐‑3882  &  13-­‐‑2230
BOB  MYRICK  and  CHARLOTTE  PHILLIPS,
Plaintiffs-­‐‑Appellants,
v.
WELLPOINT,  INC.,  et  al.,
Defendants-­‐‑Appellees.
____________________
Appeals  from  the  United  States  District  Court
for  the  Southern  District  of  Illinois.
No.  10-­‐‑cv-­‐‑00357-­‐‑JPG-­‐‑SCW  —  J.  Phil  Gilbert,  Judge.
____________________
ARGUED  JANUARY  24,  2014  —  DECIDED  AUGUST  19,  2014
____________________
Before  BAUER,  EASTERBROOK,  and  WILLIAMS,  Circuit  Judg-­‐‑
es.
EASTERBROOK,   Circuit   Judge.   During   2001   the   insurance
regulators  of  Illinois  permitted  WellPoint  (through  a  subsid-­‐‑
iary)   to   acquire   RightCHOICE   Managed   Care,   Inc.,   which
offered   health   insurance   through   its   subsidiary   Right-­‐‑
CHOICE   Insurance   Company.   WellPoint   caused   Right-­‐‑
CHOICE   Insurance   to   withdraw   from   the   Illinois   market   in
2002;  this  cancelled  all  RightCHOICE  policies.  WellPoint  of-­‐‑
2   Nos.  12-­‐‑3882  &  13-­‐‑2230
fered   the   policyholders   costlier   UniCare   policies   as   substi-­‐‑
tutes.   Persons   who   elected   not   to   pay   the   higher   premiums
had  to  shop  for  policies  from  different  insurers,  which  usual-­‐‑
ly  declined  to  cover  pre-­‐‑existing  conditions.  Contending  that
the   cancellation   of   RightCHOICE   policies   violated   Illinois
law,   Greg   Cima   and   several   others   filed   suit   and   asked   the
district   court   to   certify   a   class   of   all   former   RightCHOICE
policyholders.   The   district   court   declined,   Cima   v.   WellPoint
Health  Networks,  Inc.,  250  F.R.D.  374  (S.D.  Ill.  2008),  and  later
entered   judgment   against   plaintiffs   on   the   merits,   Cima   v.
WellPoint   Health   Networks,   Inc.,   2008   U.S.   Dist.   LEXIS   84882(S.D.  Ill.  Oct.  22,  2008).  No  one  appealed.
Because  Cima  had  not  been  certified  as  a  class  action,  the
judgment  bound  only  the  named  plaintiffs.  The  law  firm  be-­‐‑
hind   Cima   found   another   set   of   former   policyholders   and
filed   a   new   suit,   this   time   in   state   court,   making   the   same
substantive  contentions  and  again  proposing  certification  as
a  class  action.  The  federal  decision  not  to  certify  a  class  did
not   prevent   state   courts   from   reaching   a   contrary   decision,
see  Smith  v.  Bayer  Corp.,  131  S.  Ct.  2368  (2011),  but  the  federal
decision   on   the   merits   remained.   Defendants   removed   the
suit  under  28  U.S.C.  §1453,  part  of  the  Class  Action  Fairness
Act.  Section  1453  incorporates  the  requirements  of  28  U.S.C.
§1332(d),  which  makes  this  suit  removable  because  the  pro-­‐‑
posed  class  has  at  least  100  members,  the  amount  in  contro-­‐‑
versy  exceeds  $5  million,  and  at  least  one  class  member  has  a
citizenship  different  from  at  least  one  defendant.
Plaintiffs  asked  the  district  judge  to  remand  the  suit  un-­‐‑
der   §1332(d)(4),   which   says   that   the   court   shall   “decline   to
exercise”  the  jurisdiction  created  under  §1332(d)(2)  if  at  least
two-­‐‑thirds  of  the  class’s  members  are  citizens  of  the  state  in
Nos.  12-­‐‑3882  &  13-­‐‑2230   3
which  the  suit  began  and  at  least  one  defendant  from  which
“significant  relief”  is  sought  is  a  citizen  of  the  same  state.  It
is   agreed   that   the   complaint   seeks   “significant   relief”   from
an   Illinois   defendant.   Plaintiffs   observed   that   the   Right-­‐‑
CHOICE  policy  was  offered  only  to  persons  who  represent-­‐‑
ed  that  they  live  in  Illinois  (or,  for  group  policies,  to  employ-­‐‑
ers   who   represented   that   most   beneficiaries   live   in   Illinois).
The   policies   were   cancelled   in   2002,   and   plaintiffs   main-­‐‑
tained  that,  if  their  former  holders  left  Illinois  at  the  normal
rate  (the  Census  Bureau  estimates  that  roughly  2%  of  the  na-­‐‑
tion’s  population  changes  states  each  year),  about  87%  of  the
class   would   have   been   Illinois   residents   when   the   suit   was
removed.   But   the   district   judge   denied   the   motion   to   re-­‐‑
mand.  Phillips  v.  WellPoint,  Inc.,  2010  U.S.  Dist.  LEXIS  123844(S.D.   Ill.   Nov.   23,   2010).   It   then   again   declined   to   certify   a
class,   Phillips   v.   WellPoint,   Inc.,   2012   U.S.   Dist.   LEXIS   147736(S.D.  Ill.  Oct.  15,  2012),  and  again  ruled  in  defendants’  favor
on  the  merits,  Phillips  v.  WellPoint,  Inc.,  2012  U.S.  Dist.  LEXIS
175405  (S.D.  Ill.  Dec.  10,  2012).  This  time  appeals  have  been
taken:   by   plaintiff   Bob   Myrick   concerning   all   issues   and   by
plaintiff   Charlotte   Phillips   concerning   the   district   court’s
award  of  costs.
When  deciding  that  the  suit  belongs  in  federal  court,  the
district  judge  noted  that  the  policies  were  issued  to  persons
who   represented   that   they   “reside”   in   Illinois,   while
§1332(d)(4)  deals  with  the  class  members’  “citizenship”.  For
purposes   of   the   diversity   jurisdiction,   citizenship   differs
from   residence.   Citizenship   means   domicile   (the   person’s
long-­‐‑term  plan  for  a  state  of  habitation)  rather  than  just  cur-­‐‑
rent  residence.  See  In  re  Sprint  Nextel  Corp.,  593  F.3d  669  (7th
Cir.   2010)   (distinguishing   residence   from   citizenship   for   the
purpose  of  §1332(d)(4)).  What’s  more,  people  who  said  they
4   Nos.  12-­‐‑3882  &  13-­‐‑2230
resided  in  Illinois  might  have  meant  something  else;  perhaps
some   who   lived   in   Indiana   but   worked   in   Illinois   bought
RightCHOICE   policies.   And   for   the   purpose   of   §1332(d)(4)
employers   that   purchased   group   plans   have   their   own   citi-­‐‑
zenships,   which   may   be   distinct   from   the   residence   of   the
policies’   beneficiaries.   Group   policies   also   covered   persons
who   lived   outside   of   Illinois,   if   employers   represented   that
most   workers   lived   inside.   The   district   judge   thought   that
plaintiffs   had   failed   to   establish   the   exception   to   federal   ju-­‐‑
risdiction  under  §1332(d)(2).
It  is  not  clear  from  the  statute  which  side  has  the  burden
of   persuasion   under   §1332(d)(4),   but   Hart   v.   FedEx   Ground
Package  System,  Inc.,  457  F.3d  675  (7th  Cir.  2006),  holds  that  it
belongs   to   the   party   relying   on   the   home-­‐‑state   exception.   It
follows   that   the   party   proposing   that   the   district   court   “de-­‐‑
cline   to   exercise”   jurisdiction   that   was   properly   invoked   at
the  time  of  removal  also  has  the  burden  of  production.  The
jurisdictional   rules   are   those   in   §1332(d)(2);   the   “decline   to
exercise”   clause   of   §1332(d)(4),   like   the   local-­‐‑law-­‐‑remand
provision   in   28   U.S.C.   §1367(c),   concerns   whether   the   court
exercises  jurisdiction  to  the  full,  not  whether  jurisdiction  ex-­‐‑
ists.  See  Morrison  v.  YTB  International,  Inc.,  649  F.3d  533  (7th
Cir.  2011).  This  makes  it  a  party-­‐‑driven  rather  than  a  court-­‐‑
driven  rule.  Judges  must  enforce  limits  on  subject-­‐‑matter  ju-­‐‑
risdiction   no   matter   what   the   litigants   do   or   concede,   but
other  case-­‐‑processing  rules  may  be  waived  or  forfeited,  and
judges   may   wait   for   issues   to   be   properly   presented.   See,
e.g.,  Gonzalez  v.  Thaler,  132  S.  Ct.  641  (2012);  Reed  Elsevier,  Inc.
v.  Muchnick,  559  U.S.  154  (2010).  So  plaintiffs  needed  to  pro-­‐‑
duce  some  evidence  that  would  allow  the  court  to  determine
the  class  members’  citizenships  on  the  date  the  case  was  re-­‐‑
moved.  Yet  they  produced  none.
Nos.  12-­‐‑3882  &  13-­‐‑2230   5
Instead   plaintiffs   pointed   to   the   policies’   language   and
asked   the   court   to   infer   that   (a)   because   coverage   under   in-­‐‑
dividual   policies   was   supposed   to   be   restricted   to   residents
of  Illinois,  it  was  so  restricted  in  fact;  (b)  all  residents  of  Illi-­‐‑
nois  also  are  citizens  of  Illinois;  (c)  holders  of  RightCHOICE
policies  were  no  more  likely  to  move  than  average  citizens  of
every  state;  and  (d)  employers  purchasing  group  policies  all
are   citizens   of   Illinois,   even   though   the   policies   do   not   re-­‐‑
strict   the   location   of   employers   (that   is,   California   or   Wis-­‐‑
consin   firms   could   purchase   RightCHOICE   policies   for
workers  at  their  facilities  in  Illinois).  These  propositions  may
or  may  not  be  right,  but  plaintiffs  did  not  offer  any  evidence
to  support  them.
In   a   supplemental   memorandum   filed   after   oral   argu-­‐‑
ment,  plaintiffs  contended  that  proving  the  citizenship  of  all
class   members   is   simply   too   expensive,   so   proof   should   be
excused.  Lawyers  who  launch  class  actions  are  not  in  a  good
position   to   complain   about   the   expenses   they   entail;   plain-­‐‑
tiffs  and  their  counsel  must  be  prepared  to  meet  them  or  be
deemed   inadequate   representatives.   Cf.   Eisen   v.   Carlisle   &
Jacquelin,   417   U.S.   156   (1974)   (the   cost   of   notifying   all   class
members  does  not  justify  foregoing  notice  or  shifting  the  ex-­‐‑
pense  to  the  defendants).
Not  that  it  would  have  been  prohibitively  costly  to  offer
evidence.  Counsel  for  the  proposed  class  assumed  that  there
were   only   two   options:   determine   the   citizenship   of   every
policyholder  (expensive)  or  rely  on  assumptions  (cheap).  But
there’s   at   least   one   more   option:   take   a   random   sample   of
policyholders   (100,   say),   ascertain   the   citizenship   of   each   of
these   on   the   date   the   case   was   removed,   and   extrapolate   to
the   class   as   a   whole.   If   the   sample   yields   a   lopsided   result
6   Nos.  12-­‐‑3882  &  13-­‐‑2230
(say,   90%   Illinois   citizens   or   only   50%   Illinois   citizens)   then
the   outcome   is   clear   without   the   need   for   more   evidence.
(The  more  lopsided  the  result,  the  smaller  the  sample  need-­‐‑
ed  to  achieve  statistical  significance.)  If  the  result  is  close  to
the   statutory   two-­‐‑thirds   line,   then   do   more   sampling   and
hire  a  statistician  to  ensure  that  the  larger  sample  produces  a
reliable  result.  Nothing  of  the  kind  was  done,  however,  and
on   an   empty   record   the   district   court   was   entitled   to   con-­‐‑
clude  that  §1332(d)(4)  has  not  been  satisfied.
We   skip   over   the   question   whether   the   plaintiffs   could
have  met  the  requirements  for  class  certification  under  Fed.
R.  Civ.  P.  23,  because  counsel’s  insouciance  toward  the  need
for  proof  of  the  class  members’  citizenship  is  only  one  illus-­‐‑
tration  of  plaintiffs’  (and  counsel’s)  inadequacy  as  represent-­‐‑
atives.  The  very  fact  that  counsel  have  asked  us  to  direct  the
district   court   to   certify   this   suit   as   a   class   action   is   another.
Plaintiffs  have  already  lost  on  the  merits;  that  counsel  want
to   take   the   rest   of   the   putative   class   down   in   flames   with
them  shows  what  a  slapdash  approach  they  have  adopted  to
this  litigation.
We  could  understand  a  contention  that,  if  we  first  reverse
on  the  merits  (or  at  least  remand  for  a  trial),  then  we  should
direct  the  district  judge  to  certify  a  class.  But  class  counsel’s
brief   maintains   that   a   class   should   be   certified   no   matter
what  happens  on  the  merits.  (Counsel  receded  from  this  po-­‐‑
sition  at  oral  argument,  but  only  after  initially  defending  it.)
When  writing  the  brief,  counsel  seems  to  have  forgotten  that,
had  a  class  been  certified  in  Cima,  this  suit  could  never  have
been   filed.   Now   that   the   district   court   has   (again)   ruled   for
WellPoint   on   the   merits,   we   would   have   expected   defend-­‐‑
ants   to   become   the   proponents   of   class   certification,   which
Nos.  12-­‐‑3882  &  13-­‐‑2230   7
would   make   a   third   suit   impossible.   Defendants   appear   to
be   content   with   the   precedential   effect   of   an   appellate   deci-­‐‑
sion,  however,  and  it  is  unclear  why  that  wouldn’t  do  nicely
for  the  putative  class  as  well  if  plaintiffs  prevail  in  this  court.
No  more  need  be  said  about  Rule  23.
As   for   the   merits:   the   district   court   has   covered   them   in
detail,   more   than   twice.   (Both   Cima   and   this   suit   produced
multiple   opinions   on   different   substantive   issues,   each   time
followed  by  opinions  dealing  with  requests  for  reconsidera-­‐‑
tion.)  We  have  nothing  to  add  to  what  the  district  judge  has
written  and  affirm  substantially  for  the  reasons  he  gave.
In   brief:   (1)   A   claim   that   WellPoint   misrepresented   its
plans   to   state   insurance   regulators   when   acquiring   Right-­‐‑
CHOICE  may  entitle  the  regulators  to  seek  redress,  but  they
have  not  expressed  any  dissatisfaction;  private  litigants  can-­‐‑
not  enforce  state  regulators’  entitlements.  (2)  Because  Right-­‐‑
CHOICE  was  losing  money  in  2001,  it  is  unlikely  that  the  ac-­‐‑
quisition   (or   a   statement   made   to   an   agency)   was   the   cause
of  the  policy’s  discontinuation  or  its  replacement  by  a  differ-­‐‑
ent  policy  with  a  higher  premium.  (3)  The  Illinois  Health  In-­‐‑
surance   Portability   and   Accountability   Act   (HIPAA)   cannot
be  enforced  by  a  private  suit  when  there  are  other  public  or
private   means   to   implement   its   terms.   Abbasi   v.   Paraskevou-­‐‑
lakos,   187   Ill.   2d   386   (1999);   Fisher   v.   Lexington   Health   Care,
Inc.,   188   Ill.   2d   455   (1999).   Since   the   RightCHOICE   policies
contained   HIPAA’s   substantive   terms   almost   verbatim,   en-­‐‑
forcing   the   contract   suffices.   (4)   Plaintiffs   now   concede   that
as  a  matter  of  contract  RightCHOICE  Insurance  was  entitled
to  withdraw  from  the  Illinois  market  and  cancel  existing  pol-­‐‑
icies.  HIPAA’s  language  about  withdrawal  and  cancellation,
8   Nos.  12-­‐‑3882  &  13-­‐‑2230
215   ILCS   97/50(B)(3),   (C),   is   materially   identical   to   the   poli-­‐‑
cies  in  this  respect,  so  HIPAA  has  not  been  violated.
The  only  remaining  question  concerns  costs.  Defendants
submitted  a  bill  of  costs  running  to  about  $96,000;  the  district
court  awarded  about  $39,000.  Phillips  v.  WellPoint,  Inc.,  2013
U.S.  Dist.  LEXIS  69830  (S.D.  Ill.  May  16,  2013).  Appellants  do
not   contend   that   any   of   the   awarded   costs   was   improper
under   28   U.S.C.   §1920   or   that   defendants   needlessly   ran   up
the  costs  in  this  suit.  Instead  they  maintain  that,  because  de-­‐‑
fendants’  conduct  in  replacing  the  RightCHOICE  policy  with
the  more  expensive  UniCare  policy  was  “reprehensible”,  the
losing  side  should  not  have  to  pay  costs.  Yet  Fed.  R.  Civ.  P.
54(d)(1)  creates  a  presumption  in  favor  of  awarding  costs  to
the  prevailing  party.  The  district  court  did  not  abuse  its  dis-­‐‑
cretion  in  implementing  that  presumption.
Plaintiffs   demanded   many   million   dollars;   a   high-­‐‑stakes
suit  does  not  come  cheap  to  either  side.  Despite  losing  Cima,
the   law   firm   tried   again   in   the   hope   that   a   different   forum
would   produce   a   different   answer.   After   finding   itself   back
in  the  original  forum  and  before  the  judge  who  had  decided
Cima,   the   law   firm   did   not   economize.   It   could   have   asked
the  district  court  to  enter  the  same  opinion  as  in  Cima  in  or-­‐‑
der  to  set  up  an  appeal;  instead  it  launched  a  new  round  of
discovery  and  proceeded  to  litigate  as  if  Cima  did  not  exist.
No  wonder  the  defendants  incurred  substantial  costs.
Law   firms   representing   would-­‐‑be   class   representatives
have  portfolios  of  suits.  Some  will  be  settled  for  considerable
sums;   others   will   fail.   Paying   the   costs   of   failure   is   part   of
being  in  this  business.  See  Rand  v.  Monsanto  Co.,  926  F.2d  596(7th   Cir.   1991)   (observing   that   class   counsel   properly   agree
to   bear   the   costs   of   suit,   rather   than   leaving   them   with   the
Nos.  12-­‐‑3882  &  13-­‐‑2230   9
figurehead   representatives);   see   also   White   v.   Sundstrand
Corp.,  256  F.3d  580,  586  (7th  Cir.  2001).  Counsel  should  thank
their  lucky  stars  that  the  district  court  did  not  sanction  them
under   28   U.S.C.   §1927   for   filing   a   second   suit   rather   than
pursuing  the  first  through  appeal.
AFFIRMED