April 7, 2022 – A federal district court properly denied a plaintiff’s motion to remand her class-action lawsuit over medical records to state court after it had been removed to federal court, the U.S. Court of Appeals for the Seventh Circuit has ruled.

In Schutte v. Ciox Health, LLC, No 22-1087 (March 1, 2022), a three-judge panel held that the defendant had met the requirements for removal established by Congress in the Class Action Fairness Act (CAFA). The panel also held that the plaintiff failed to show that an exception to removal under the CAFA applied.

Charges for Medical Records

Donna Schutte filed a class action lawsuit after ProHealth Care, Inc. (acting through its agent Ciox Health, LLC) charged her for electronic copies of medical records related to injuries she suffered in a 2016 auto accident.

Under a Wisconsin Court of Appeals decision, health care providers are not allowed to charge fees for electronic records.

In her class action complaint, Schutte claimed that she should not have been charged the fees. She also proposed to represent a class of patients who had sought electronic copies of medical records from health care providers in Wisconsin and were impermissibly charged fees.

Schutte alleged that the class included several thousand people and entities, each likely with multiple claims.

In the complaint, Schutte sought compensatory damages and exemplary damages up to $25,000 per claimant, as allowed for “knowing and willful violations” under Wis. Stat. section 146.84(1)(b).

District Court Rules for Ciox

After Ciox removed the case to federal court, Schutte moved to remand the case to state court.

Schutte claimed that Ciox had failed to establish that the amount in controversy was greater than $5 million, one of three requirements for removal under the CAFA. She also claimed that the “local controversy exception” in the CAFA applied to her lawsuit.

The U.S. District Court for the Eastern District of Wisconsin ruled that Ciox had provided a good faith estimate that the amount in controversy was greater than $5 million. The district court also ruled that the local controversy exception did not apply.

Ciox Met Amount Requirement

Writing for a three-judge panel, Judge David Hamilton explained that under Seventh Circuit precedent, Ciox need only give a good-faith estimate of the amount in controversy and show that the estimate was plausible and supported by the evidence.

Once the defendant demonstrated that it had met the $5 million amount in controversy requirement under CAFA, Hamilton explained, the case must be transferred to federal court unless it was “legally impossible” for the plaintiff to recover that amount.

Ciox met the $5 million amount in controversy requirement, Judge Hamilton wrote, because Schutte’s complaint alleged that the class would include several thousand members, each of whom could recover up to $25,000 in punitive damages under section 146.84(1)(b).

Court Not Required to Predict

Schutte argued that few members of the class would likely recover $25,000.

But in ruling on Schutte’s remand motion, Judge Hamilton explained, the district court wasn’t tasked with predicting how Schutte and other class members would fare on the merits.

“What matters is the amount ‘in controversy’—not the amount that plaintiffs are most likely to recover,” Judge Hamliton wrote.

Schutte also pointed out that under Wisconsin law, punitive damages may be awarded only if compensatory damages are awarded. Because Ciox had failed to establish the amount each class member had been impermissibly charged for medical records, she argued, punitive damages were theoretical.

Ciox only needed to provide a good faith estimate that the potential recovery of the class exceeded $5 million, Judge Hamilton explained.

Furthermore, he wrote, “Schutte put ‘in controversy’ the exemplary damages contemplated by the statute. She cannot avoid federal jurisdiction by trying to retreat from her own allegations.”

Montana Suit ‘Nearly Identical’

The local controversy exception under CAFA has several requirements.

The only one at issue on appeal, Judge Hamilton noted, was whether any other class action “asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons” had been filed in the three years prior to filing of Schutte’s class-action complaint.

The district court had ruled that a class action lawsuit with identical factual allegations had been filed against Ciox within the three-year period.

In that case, the plaintiffs claimed that Ciox violated Montana law by charging patients fees for electronic copies of medical records.

Schutte argued that the factual allegations in that lawsuit weren’t identical because they involved a claimed violation of Montana law instead of Wisconsin law.

But differences in legal theories, Judge Hamilton explained, were not the same as differences in factual allegations, and the when the two lawsuits were viewed together “the factual allegations are nearly identical.”

Several federal district courts facing the same question have rejected the argument that class actions filed in different states do not involve similar factual allegations, Judge Hamilton pointed out.

Crystal Clear Meaning

Schutte also argued that the wording “on behalf of the same or other persons” in the local controversy exception under CAFA meant that there must be some connection between the class actions with allegedly similar factual allegations.

If it were not so, Schutte argued, the wording would be surplusage.

That argument was not persuasive, Judge Hamilton wrote, because legislative drafters often “‘err on the side of redundancy’ as a precautionary measure and as a response to political demands.”

Furthermore, Judge Hamilton explained, without the wording Schutte that argued was superfluous, “courts and litigants might reasonably wonder whether a prior class action needed to involve the same class representatives or members to qualify—especially given the express requirement that it involve at least one of the same defendants.”

Congress would have easily anticipated that issue, Judge Hamilton wrote, “and Congress chose statutory language that made its meaning crystal clear: a prior class action that is factually similar qualifies regardless of whether it was brought  ‘on behalf of the same or other persons.’”