On Friday, the Sixth Circuit vacated an order from the District Court for the Middle District of Tennessee, precluding class certification, in large part, due to an intervening and nearly identical class action settlement affirmed by the Arkansas Supreme Court (Runyan Settlement). Gooch v. Life Investors Insurance Comp. of America, et al., Case Nos.: 10-5003/5723 (6th Cir. February 10, 2012).

The original action was filed by Anthony Gooch against Life Investors Insurance Company and its parent company. The suit alleged breach of contract when Life Investors began interpreting the “actual charges” provision of its cancer-insurance policy to mean the charges that medical providers accept as full payment from the primary insurer and the insured. Gooch claimed that the policy entitles him to be paid the higher “list prices” that appears on the hospital bills before the primary insurer negotiates a lower rate.

On the same day that the district court certified Gooch’s class, the Arkansas Supreme Court issued final approval of a nearly identical class action. The Sixth Circuit determined that the Runyan settlement carried a preclusive effect under state law and complied with the federal due process requirements for Full Faith and Credit. The Sixth Circuit clarified that when a state and federal case percolate “simultaneously…the first forum to dispose of the case” is the forum whose “judgment…is binding on the parties.”

The Court further held that while many members of Gooch’s class had settled their claims pursuant to the Runyan settlement, Gooch may still be able to represent those class members who have certifiable claims, dismissing objections raised by Life Investors regarding Gooch’s proposed conflicts of interests and credibility issues undermined the adequacy of representation. The Sixth Circuit likewise rejected Life Investor’s argument that Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) prohibits certification when a monetary damage award is sought. Instead, the Court clarified that declaratory relief is appropriate when it constitutes a separable and distinct type of relief that will resolve an issue common to all class members: “what matters to a class certification… [is] the capacity of a class wide proceeding to generate common answers apt to drive the resolution of the litigation.” In this case, Rule 23(b)(2) certification was appropriate under Wal-Mart because a declaratory judgment, which was sought independently from monetary relief, could apply a uniform interpretation of the contract term “actual charges” that would govern each member of the class.

This decision represents one of the Sixth Circuit’s first interpretations of Wal-Mart, and it addresses a number of issues that can arise in class certification.