Abshire v. The State of Louisiana, 08-369-RET-SCR (M.D. La. December 30, 2008).

On November 10, 2008, United States Magistrate Judge Stephen C. Riedlinger handed down a magistrate judge’s report on the plaintiffs’ motion to remand recommending that the case be remanded to state court. 

This matter was originally filed in 1991 in Louisiana state court by approximately 1,000 individual plaintiffs who purchased different annuities from three Louisiana insurance companies. The plaintiffs alleged that from 1987 through 1991, the State of Louisiana negligently and intentionally acquiesced to the plans of the owners of the three companies to transfer funds out of the plaintiffs’ investment companies to support failing affiliated companies. The plaintiffs allege that the State of Louisiana gave regulatory approval to these transactions in order to protect a state fund which served as a guarantor for the failing companies that received the transferred funds. 

Ultimately, the three companies collapsed, which resulted in unprotected losses to the plaintiffs. The plaintiffs’ suit requests rescission of their purchases and restitution of all monies tendered to the companies. 

During the course of the litigation, the plaintiffs amended their complaint multiple times. On May 30, 2008, the plaintiffs filed their ninth amended and supplemental petition seeking class certification. 

The State of Louisiana removed the case and alleged that federal jurisdiction under CAFA was triggered by the ninth amended petition.

The plaintiffs moved to remand arguing that CAFA could not be applied retroactively and that their suit commenced prior to the enactment of CAFA. Additionally, because all of the defendants were added to the suit prior to the enactment of CAFA, none of the defendants were entitled to invoke federal diversity jurisdiction under CAFA. Alternatively, the plaintiffs argued that one of the exceptions to CAFA jurisdiction was applicable because the State of Louisiana was the primary defendant. 

The defendants argued that the plaintiffs’ ninth amended petition, which sought class certification for the first time, represented such a fundamental change in the lawsuit that a new suit had been commenced, therefore triggering CAFA. The defendants also argued that the CAFA state actor exception did not apply because the state defendants were not “primary defendants.”

In analyzing the arguments, the court noted that the burden to show exceptions to CAFA jurisdiction was on the plaintiffs. The specific exception claimed is contained in §1332(d)(5)(a) and disallows diversity jurisdiction under CAFA when “the primary defendants are states, state officials or other governmental entities against whom the district court may be foreclosed from ordering relief.”

The court noted that it is undisputed that CAFA does not apply retroactively, but the defendants argued that when the plaintiffs converted their suits to a class action, they commenced a new suit under CAFA. 

Citing the U.S. Fifth Circuit’s opinion in Braud v. Transportation Service Company of Illinois, the Court stated that an amendment to a complaint can revive the period for removal if the amendment provides either 1) new bases for removal or 2) changes the character of the litigation so as to make it substantially a new suit. (Editors’ Note: See the CAFA Law Blog analysis of Braud posted on May 24, 2006). 

The Court held, however, that the plaintiffs proposed class definition did not include any person who was not already a plaintiff in the removed state court case. Additionally, the plaintiffs’ ninth amended petition consisted almost entirely of allegations to establish class action status. The court held that the ninth amended petition did not change the substantive character of the litigation so as to commence a new civil action for the purpose of removal under CAFA.

On December 30, 2008, Chief United States District Judge Ralph E. Tyson approved the report and recommendation of the magistrate judge and adopted it as the court’s opinion. On that same day, Judge Tyson entered a judgment remanding the case to state court. 

Shortly after the decision, notices of appeal were filed with the Fifth Circuit who granted the parties’ permission to appeal. In reviewing the remand, the Fifth Circuit noted that the plaintiffs’ sought remand on grounds that 1) the action was not commenced after CAFAs effective date, so CAFA was inapplicable and 2) if CAFA applied at least one mandatory exception to the federal jurisdiction under CAFA required remand. 

The magistrate judge had remanded because the action had commenced prior to CAFA effective date and did not address the two CAFA exceptions presented in the appeal, the local controversy and primary state actor exceptions. Likewise, the Fifth Circuit addressed the commencement issue and remanded the case to state court without discussing CAFA’s exceptions. (Editor’s Note: See the CAFA Law Blog analysis of the Fifth Circuit opinion in Abshire posted on February 8, 2010).