American Medical Security, Inc. v. Parker

612 S.E.2d 261, 279 Ga. 201, 2005 Fulton County D. Rep. 1054, 2005 Ga. LEXIS 244

• Court: Supreme Court of Georgia
• Decided: March 31, 2005
• Docket: S04A1995, S04A2010
• Status: Published

Opinions

Fletcher, Chief Justice.

Appellees in these companion cases filed an action in a Georgia court seeking to enjoin the proposed settlement in an Alabama class action suit against appellants. The proposed settlement was to bind both Alabama and Georgia plaintiffs that were part of the Alabama class. It would not, however, bind appellees because they had been excluded from the Alabama class. Notwithstanding this fact, the Georgia trial court granted appellees’ request for an injunction against the settlement and held appellants in contempt for violating the injunction. Because appellees had been excluded from the Alabama class, they lacked standing to challenge the settlement. Therefore, we reverse.

On June 11, 2002, an Alabama class action was initiated against American Medical Security, Inc. and United Wisconsin Life Insurance Company (appellants) over the rating schemes used in certain group medical insurance policies sold by appellants. The plaintiff sought certification of a class that would include both Alabama and Georgia residents insured by appellants. Appellants and plaintiff negotiated a settlement of the claims and submitted a stipulation of settlement to the Alabama court on March 11, 2004. This stipulation included the method by which to evaluate and settle claims by the different claimants, and excluded all “persons that have pending against one or more of the named defendants on the date of the Court’s certification order any individual action wherein recovery sought is based in whole or in part on the type of claims asserted in this Action.”

On March 15,2004, almost two years after the Alabama suit was initiated, Stephen and Anne Parker, on behalf of themselves and others insured by appellants in Georgia (appellees), filed suit against appellants in Georgia challenging the same insurance policies based on the same facts at issue in the Alabama suit. Appellees alleged that the policies were illegal under Georgia law, asserted a RICO claim,¹ and sought injunctive relief plus compensatory and punitive damages for breach of contract, fraud, and conspiracy, among other allegations.

On April 6, 2004, the Alabama court entered an order accepting the stipulation of settlement, temporarily certifying the settlement class, approving the proposed notice to the class and ordering that it be sent, and setting a schedule for the fairness hearing on the proposed settlement. Appellees then filed a motion in the Georgia court on May 17, 2004 seeking injunctive relief against the proposed Alabama settlement.

The Georgia court determined that the stipulation of settlement imposed Alabama law on all Georgia parties for all purposes, even though there were material differences between Alabama and Georgia law. Finding that appellees had no adequate remedy at law and would suffer irreparable harm, the trial court enjoined appellants from issuing the settlement notice to or settling the claims of any Georgia resident in the Alabama action. Appellants appeal from that ruling in Case No. S04A1995.

Appellants sent notice to the class members as ordered by the Alabama court, and on July 15, 2004, the Georgia court held appellants in contempt for violating the Georgia injunction. Appellants appeal from that ruling in Case No. S04A2010.

Finally, on July 28,2004, the Alabama court issued another order clarifying that appellees were specifically excluded from the Alabama class, and that the claims of Georgia residents who remained in the Alabama class would be evaluated in accordance with Georgia law pursuant to the U. S. Supreme Court’s decision in Phillips Petroleum Co. v. Shutts.2

1. It is a well-settled rule that only class members have standing to challenge a class settlement.³ Before the Georgia action was even filed, the proposed settlement filed in the Alabama case specifically excluded “persons that have pending against one or more of the named defendants on the date of the Court’s certification order any individual action wherein recovery sought is based in whole or in part on the type of claims asserted in this Action.” After appellees brought suit in Georgia, the Alabama court clarified that appellees were not part of the Alabama class by excluding them by name.⁴ As non-class members whose rights and remedies were not affected by the Alabama settlement, appellees had no standing to challenge that settlement on an individual basis.

2. Appellees also lack standing to challenge the Alabama settlement as potential representatives of a Georgia class. Appellees do not have standing to do indirectly what they cannot do directly. The well-settled rule — that only class members can challenge a class settlement — remains the same even if appellees sought to act in a representative, rather than individual, capacity.⁵

Furthermore, appellees could not be adequate potential class representatives for purposes of challenging an Alabama settlement from which they had been explicitly excluded.⁶ The issue of whether appellees are qualified to represent Georgia plaintiffs in their Georgia class action is not before us today; what is before us is whether the appellees had standing to ask the Georgia court to enjoin the Alabama settlement. Adequacy, as well as commonality, must be viewed accordingly. Because appellees had been excluded from the Alabama class, they were not adequate representatives for purposes of challenging the Alabama settlement, nor did they stand in the same position as those that had not been so excluded for purposes of challenging the settlement.

The dissent believes that Georgia plaintiffs will be disadvantaged by the Alabama settlement, even though the Alabama court expressly stated that it would apply Georgia law to Georgia class members, and for this reason attempts to circumvent or diminish the importance of appellees’ standing. But standing is necessary before issues of equity, which the dissent goes to great lengths discussing, can be considered. As this Court stated in Robinson v. The Landings Association:

Generally, the granting of an injunction rests in the sound discretion of the trial judge and should not be resorted to except in clear and urgent cases____However, before the trial court can exercise its discretion with regard to issuing a permanent injunction, the party seeking the injunction must first show that it has a legal right to relief. The moving party has the burden of establishing the right to such relief.⁷

For these reasons, appellees did not have standing to challenge the Alabama settlement. Accordingly, the grant of the injunction is reversed.

3. Because the injunction was invalid, appellants cannot be held in contempt for violating it.⁸ Therefore, the finding of contempt is also reversed.

4. Because we hold that appellees lack standing, we need not address appellants’ other claims on appeal.

Judgment reversed.

Sears, P. J., Carley and Thompson, JJ., concur and concur specially; Benham, Hunstein and Hines, JJ., dissent.

¹

Georgia Racketeer Influenced and Corrupt Organizations Act, OCGA § 16-4-1 et seq.

2 472 U. S. 797 (105 SC 2965, 86 LE2d 628) (1985).

3 See, e.g., Ex Parte Anderson, 807 So.2d 505, 508 (Ala. 2000); In re Domestic Air Transp. Antitrust Litig., 148 F.R.D. 297, 342-343 (N.D. Ga. 1993); Gould v. Alleco, Inc., 883 F.2d 281, 284 (4th Cir. 1989).

4 It was within the Alabama court’s discretion to so exclude appellees once they elected to pursue the Georgia action, which is apparently undisputed. See Ex Parte Anderson, 807 So.2d at 507 (court has inherent power under Alabama’s version of class action rule to exclude potential plaintiffs who were not "subject to or adversely affected by the final judgment” in class action); Ex Parte Green Tree Fin. Corp., 723 So.2d 6, 7-8 (Ala. 1998) (class excluded “all persons who have pending and/or previously filed . . . individual (non-class) lawsuits against [Defendant] for the same claims advanced by Plaintiffs herein”).

5 See Chincilla v. Star Cas. Ins. Co., 833 So.2d 804, 805 (Fla. App. 2002) (when Chincilla’s insurance policy was reinstated for reasons other than to “pick [her] off’ as the class representative, she lost standing to be the class representative).

6 OCGA § 9-11-23 (requiring class representatives that will adequately protect the class); Linda S. Mullenix, Standing and Other Dispositive Motions After Amchem and Ortiz: The Problem of Logically Antecedent Inquiries, 2004 Mich. St. L. Rev. 703, 705 (adequacy of class representatives often tied to the question of standing).

7 (Emphasis supplied.) 264 Ga. 24, 25 (440 SE2d 198) (1994).

8 See, e.g., McKinnon v. Neugent, 226 Ga. 331, 333 (174 SE2d 788) (1970).