State of Louisiana etc. et al. v. AAA Insurance, et al ., 08-30145, 2008 WL 1118176 (5th Cir. Apr. 11 , 2008).

And now ladies and gentlemen, from the lovely Soul Queen of New Orleans Irma Thomas, “Drip drop, drip drop, drip drop, drip drop. It’s raining so hard, looks like its going to rain all night…” Inspired by the Fifth Circuit’s affirmance last week of the denial of remand in Louisiana’s putative class action suit against hundreds of insurers, your CAFA Law Blog editors collectively close our eyes, lean back in our chairs and imagine the Louisiana state court singing to the state’s lawsuit (we know it is a stretch to think of a court singing to a lawsuit, but it is even more of a test to imagine a state court judge singing to new Louisiana Attorney General Buddy Caldwell): “I guess I’ll have to accept the fact that you are not here.”

In August, 2007, the State of Louisiana filed a lawsuit under state law against more than 200 insurers doing business in the state for damages allegedly arising out of the insurers’ handling of Hurricane Katrina and Rita property damage claims. Louisiana asserted its standing to file the lawsuit derives, in part, from an assignment executed by property owners as part of their acceptance of funds from the Road Home program. 

In a nutshell, the Road Home program is designed to provide funds, in the form of grants, to Louisiana property owners whose properties were damaged in the 2005 hurricanes. The amount of the grant for which an applicant is eligible is reduced by the amount of insurance proceeds received for damage to the same property. Prior to receiving grant funds, property owners sign an assignment agreement in which they assign to the State any rights to pursue additional insurance proceeds, up to the amount of the grant awarded. 

Relying on this assignment agreement, the State’s lawsuit against the insurers claims that the insurers failed to pay covered insurance claims, breaching insurance contracts, violating state law, and resulting in the improper reduction of insurance payments, which in turn resulted in lower offsets from the Road Home grant amounts. In essence, the Road Home program had to pay more because the insurers paid less.

The State filed its original petition in state court. A few days later, the State filed an amended petition adding class allegations on behalf of those property owners who had already and would in the future execute assignment agreements in connection with their Road Home grants. The lawsuit sought relief for the State and the class. 

A group of the defendant insurers removed the case to federal court, asserting diversity jurisdiction under CAFA and asserting jurisdiction under the Multiparty Multiform Trial Jurisdiction Act. Not surprisingly, the State moved to remand. 

The district court denied the State’s motion, and held that CAFA’s provisions applied in situations where a state sued on behalf of a putative class as a plaintiff. The State then sought permission for an interlocutory appeal to the Fifth Circuit, which was granted.

After the Louisiana Supreme Court’s decision earlier last week in another significant Katrina-related insurance case, viewed by many as dealing a blow to Louisiana property owners and a pat on the back to insurers, the Fifth Circuit’s decision in this case might have the State and its class crooning “I wish this rain would hurry up and stop.”

The Fifth Circuit’s opinion upholds the denial of the State’s motion to remand, finding that the State waived any immunity that might have applied when it added the class allegations and took on the role of representative for a class of private citizens.

First, the Fifth Circuit rejected the State’s argument that its status as a “non-person” defeats jurisdiction. The court reasoned that CAFA does not require a class representative to be a person. Instead, CAFA defines a class action as an action filed under FRCP 23 or similar state rule authorizing an action to be filed by one or more representative persons as a class action. The state rule under which Louisiana filed the lawsuit was such a state rule. So, the lawsuit satisfied CAFA’s definition of a class action. (The court notes that CAFA’s legislative history includes the rejection of a bid to exempt suits brought by state attorneys general from removal under CAFA. Editors’ Note: Funny how some courts will look to the legislative history and some will not.) 

Then, the court rejected the State’s argument that CAFA’s minimal diversity requirements are not met, because the State is not a citizen. The court found that CAFA, by expanding federal jurisdiction over some class actions, meant that some suits escape the rule that the citizenship of the named representative is controlling. Because the State is suing on its own behalf AND as class representative for its assignors, who are citizens, CAFA’s minimal diversity requirements are met.

Next the court turned to the sovereign immunity question. The court expressed disfavor for the defendants’ argument that a state, suing as a plaintiff, waived sovereign immunity without exception. Instead, the court found it was the addition of a class of private citizen plaintiffs that waived any immunity from removal that might have been possessed by the State. The court further concluded the State may not cloak the class members with any immunity-based protection from removal.

To explain these conclusions on this novel issue, the court took a “brief repair to history” pertaining to sovereign immunity. The court noted that much of the judicial development of the doctrine of sovereign immunity dealt with cases in which the sovereign is a defendant. Of those removal cases dealing with the sovereign as a plaintiff, the underlying claims have been federal law claims. The court found that no immunity cases in the removal context have dealt with a state, suing in its own courts, on its own behalf, under state law. Rather than tackle this unanswered question unnecessarily, the

court found waiver of any immunity in the State’s addition of the class of private citizens asserting claims for money damages and injunctive relief against diverse defendants. 

After reading this, the State and the class, humming, “I’ve got the blues so bad, I can barely catch my breath” found a tantalizing ray of hope. Near the end of the opinion, the appellate judges addressed, in pure dicta, the possibility that the district court judge might yet have an opportunity to revisit the remand issue. 

During oral argument comments were made suggesting that the case could proceed in state and federal courts simultaneously with the State’s claims severed from the claims of the class. The appellate judges speculated that such a severance might provide a basis for the district judge to exercise his considerable discretion in the matter and remand the State’s lawsuit to state court. Only time will tell if the district court or the State renews discussion along these lines. Meanwhile, the state court finishes its serenade to the lawsuit: “It’s raining so hard, brings back memories/ Of the times when you were here with me/ This is the time I’d love to be holding you tight/ I guess I’ll just go crazy tonight.” (Stephanie John)