Gatti v. Louisiana, No. 10-329-JJB-DLD, 2011 WL 1827437 (M.D. La. Feb. 25, 2011)

Facing an unusual situation because all the defendants agreed that the case could not go forward without deciding the claim for declaratory relief against the state, a District Court in Louisiana remanded the action to state court under the “State as the primary defendant” exception to CAFA.

The plaintiffs, owners of mineral rights in the Haynesville Shale, a shale oil/natural gas patch in Louisiana, on behalf of themselves and the 50,000 putative class members, brought a class action in state court concerning the unitization of natural gas fields against the State of Louisiana through the Department of Conservation and numerous “operating defendants” of the Haynesville Shale, including Chesapeake Operating, Inc.

The plaintiffs contended that the Commissioner of Conservation had violated Louisiana law by establishing and maintaining 640 acre drilling units in the Haynesville Shale Zone, and that the units should be much smaller and reflect the actual area that can be drained by one well. They also objected to the Commissioner’s grant of permits for “alternate unit wells” within existing units. They sought a declaration that the Commissioner’s prior orders establishing these units were null and void; that certain acts were beyond the authority of the Commissioner; and sought damages from the various operating defendants for failing to comply with orders of the Commissioner to provide information that would have or should have resulted in establishing and/or revising units to comply with statutory standards.

Chesapeake removed the action to federal court pursuant to CAFA. The plaintiffs and the defendant State filed separate motions to remand. Various operator defendants filed motions to abstain based on the Burford abstention doctrine.

Before the Magistrate Judge, all the parties agreed that that plaintiffs’ request for declaratory relief regarding the authority of the Commissioner of Conservation and the validity of his orders must be remanded to state court. All parties also agreed that the current claims against the operator defendants would be moot if the declaratory judgment action against the State failed. What was disputed was whether the remaining claims against the operator defendants should be stayed or remanded along with the declaratory judgment action.

The State argued that this entire matter should be remanded because this matter fell under the “State as the primary defendant” exception set forth in 28 U.S.C. §1332 (d)(5).

The Court noted that under Frazier v. Pioneer Americas, L.L.C., 455 F.3d 542, 546-47 (5th Cir. 2006), in order for “State as the primary defendant” exception to apply, all “primary defendants” must be the “State, state officials, or other governmental entities against whom the district court is foreclosed from ordering relief.” (Editors’ Note: See the CAFA Law Blog analysis of Frazier posted on August 17, 2006).

As regular readers of the CAFA Law Blog already know, the term “primary defendant,” however, is not defined in CAFA, and there is no universally accepted term of art that can be easily applied with corresponding examples to turn to for guidance. The Senate Report, S. Rep. No. 109-14, at 43-44 (2005), which was issued ten days after CAFA’s enactment, states that “primary defendants” be interpreted to reach those defendants who are the real “targets” of the lawsuit-i.e., the defendants that would be expected to incur most of the loss if liability is found. Thus, the term “primary defendants” should include any person who has substantial exposure to significant portions of the proposed class in the action, particularly any defendant that is allegedly liable to the vast majority of the members of the proposed classes (as opposed to simply a few individual class members). (The Editors of the CAFA Law Blog applaud Magistrate Judge Dalby for looking to the Senate Report for guidance on what Congress intended. Regular readers of the CAFA Law Blog know how we feel about looking at the intent of Congress).

Judge Vance (a U.S. District Judge in the Eastern District of Louisiana) early on made the commonsense observation in her article, A Primer on the Class Action Fairness Act of 2005, 80 Tul.L.Rev 1617, 1623, that “the determination of who is a primary defendant will likely involve the analysis of state substantive law to determine who can be liable and to what extent under plaintiffs’ theories of liability.” In an attempt to articulate the factors to consider in determining who is a primary defendant, many courts have cited the five factors listed in Sorrentino v. ASN Roosevelt Center, LLC, 588 F. Supp. 2d 350, 359 (E.D.N.Y. 2008). (Editors’ Note: See the CAFA Law Blog analysis of Sorrentino posted on August 17, 2009). Sorrentino stated that a primary defendant is one (1) who has the greater liability exposure; (2) is the most able to satisfy a potential judgment; (3) is sued directly, as opposed to vicariously, or for indemnification or contribution; (4) is the subject of a significant portion of the claims asserted by plaintiffs; or (5) is the only defendant named in one particular cause of action.

Similar observations have been made in varying factual contexts by other courts. For example, courts have interpreted the term “primary defendant” as “one who either is (1) directly liable for a ‘main’ or ‘principal’ portion of the relief sought” or (2) “plays a ‘main’ or ‘principal’ role in the underlying dispute”; and as “defendants facing direct liability and excluding all defendants joined as secondary or third-party defendants for purposes of vicarious liability, indemnification, or contribution.” 

The State, accordingly, argued that the claim against the operators depended on finding that the harm they suffered was a direct result of discretionary actions taken (and not taken) by the Commissioner. All the parties agreed that the Commissioner’s findings with regard to unitization and the use of alternate unit wells were the “crux” of the entire case, the “but for” for all claims, “part and parcel” of plaintiffs’ claims. All the parties also agreed that the plaintiffs’ claims against the operators could not go forward at this time; thus, the claims against the operator defendants were premature, albeit for different reasons.

All the defendants thus indicated that the State was the primary defendant here.  The Court noted that defining “primary defendant” when the State is the primary defendant is rare, probably because States are rarely named as significant, much less primary, defendants in class action lawsuits removed to federal court. In Hangarter v. The Paul Revere Life Insurance Co, 2006 WL 213834 (N.D. Cal. 2006), the court remanded the action under the “State as the primary defendant exception,” and noted that the Commissioner was the ‘“but-for cause’ of the supposed harm,” because he was the only defendant named in one claim and the only defendant against whom all plaintiffs sought relief. (Editors’ Note: See the CAFA Law Blog analysis of Hangarter posted on February 2, 2006).

The Court found that here, as in Hangarter, the Commissioner’s actions were the “crux” of the case, the “but-for cause” of the alleged harm, and the Commissioner was the only defendant named in one claim, and the only defendant against whom all plaintiffs have a uniform claim for relief. All plaintiffs, however, do not have claims against all defendants because the defendants have varying relationships with the plaintiffs. The only defendant against whom all the liability evidence was pertinent was the State, for it was the State who, according to plaintiffs, would have created the units differently and should have revised the units based on information that the operators had and did not present to the Commissioner. Indeed, the operator defendants themselves requested that they be remanded to state court along with the State in the declaratory judgment action, even though they are not named, because it was the claims against the State and the evidence presented there would affect the rights of the operator defendants. Not only was the State the only defendant against whom all plaintiffs had made a claim, most, if not all, the claims against the operator defendants were couched in terms that made them, certainly at this time, essentially claims against the State.

All the parties agreed that all of the factual and legal claims in this class action were inextricably intertwined and were wholly dependent upon undoing prior orders of the Commissioner of Conservation based on the breach of Louisiana law both by the Commissioner in exceeding his statutory authority and by the operator defendants in not abiding by orders of the Commissioner to provide technological and geological information that would have caused the Commissioner to issue different orders with regard to the unitization of the Hanesville Shale Zone fields. 

The Magistrate Judge accordingly concluded that the State was the primary defendant because without it, there was no claim that could stand alone at this time and was not dependent upon a finding of what the Commissioner would have or should have done. What the Commissioner would have or should have done was the “but for” element overriding every issue. All else was secondary. Therefore, the Magistrate Judge recommended that the “State as the primary defendant” exception to CAFA jurisdiction was applicable.

Subsequently, on May 12, 2011, the District Court adopted the Magistrate Judge’s report and recommendation, and remanded the action to state court.