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CAFA/Hurricane Katrina Class Action Defense Case-Caruso v. Allstate: Removal Of Class Action Proper Under Class Action Fairness Act (CAFA) And Plaintiffs Failed To Establish Local Controversy Exception To Removal

Louisiana Federal Court Holds that Local Controversy Exception to Class Action Removal Under CAFA (Class Action Fairness Act of 2005) was not Established Because Two Defendants had been Named in Class Actions Alleging Similar Claims Within the Three Years Preceding the Filing of the Instant Class Action Complaint

Six property owners filed a single class action complaint in Louisiana state court against six insurers alleging violations of the state’s Valued Policy Law, breach of contract and bad faith; Allstate’s defense attorneys removed the class action to federal court asserting jurisdiction under CAFA (Class Action Fairness Act of 2005). Caruso v. Allstate Ins. Co., 469 F.Supp.2d 364, 365-66 (E.D. La. 2007). Plaintiffs moved to remand the class action to state court based on CAFA’s “local controversy” exception to removal, id., at 366. The district court denied the motion, agreeing with defense arguments that plaintiffs had not met their burden of proving the applicability of that exception.

The class action plaintiffs alleged that Hurricane Katrina caused substantial damage to their homes and they sued their homeowner’s insurance carriers to recover policy benefits. Caruso, at 365. Each plaintiff was insured by a different insurer, so the class action complaint named as defendants Allstate Insurance Company, State Farm Insurance Company, Republic Fire & Casualty Insurance Company, Auto Club Family Insurance Company, Lafayette Insurance Company and Louisiana Citizens Property Insurance Company. Id. Allstate timely removed the lawsuit to federal court under CAFA, and plaintiffs’ sought remand alleging that the “local controversy” exception applied. Id., at 366. The district court found that “the proposed class action undoubtedly satisfies the CAFA’s criteria for removal,” id.; the relevant inquiry was whether the local controversy exception applied.

The federal court summarized the local controversy exception to removal of class actions under CAFA as follows: “This provision requires federal courts to decline jurisdiction when the case satisfies four requirements: (1) more than two-thirds of the class members are citizens of the original forum; (2) at least one defendant from whom ‘significant relief’ is sought and whose conduct is a ‘significant basis’ for the claims is a citizen of the original forum; (3) the ‘principal injuries resulting from the alleged conduct or any related conduct of each defendant’ occurred in the original forum; and (4) in the three-year period preceding the filing of the class action, no other class action has been filed ‘asserting the same or similar factual allegations against any of the defendants’ on behalf of any person.” Caruso, at 367 (citing 28 U.S.C. § 1332(d)(4)(A)).

Preliminarily, the district court noted Fifth Circuit authority placed the burden of proof the applicability of the local controversy exception on the plaintiffs, see Frazier v. Pioneer Americas LLC, 455 F.3d 542, 546 (5th Cir. 2006), and that defense attorneys conceded that the third requirement had been met. Caruso, at 367. With respect to the citizenship of the class members, the district court found plaintiffs had met their burden of proof explaining, “Given that no one disputes that Hurricane Katrina wrecked havoc on immovable property in Louisiana, the plaintiffs’ assertion that they represent a class of individuals covered by homeowner’s policies for homes that are located in Louisiana creates a reliable presumption that this is a class of Louisiana residents.” Id. The court rejected defense evidence that more than one-third of the putative class no longer resides in Louisiana, noting that forced evacuation does not mean that the homeowners were changing their domicile and that Allstate’s evidence did not accurately indicate how many homeowners intended to return to Louisiana. Id., at 367-68.

The district court also found that plaintiffs had adequately established the second prong of the local controversy exception, because Louisiana Citizens was the third largest property insurer. Caruso, at 368. The court held that while CAFA does not define “significant relief,” the term must mean something other than “primary defendant” (a phrase used, but undefined, elsewhere in CAFA), and that the relief sought against it was clearly significant. The tests the court applied were two-fold. First, it cited with approval case authority holding that “significant relief” is determined by comparing the relief sought against the particular defendant in question with the relief sought against other defendants or against all defendants as a whole. Id., at 368-69. Second, the district court cited other cases that evaluated “whether a defendant’s conduct forms a ‘significant basis’ for plaintiffs’ claims based on a comparison of the alleged role played by that defendant with that played by the other defendants.” Id., at 369 (citations omitted). Under either test, the court easily concluded that the requirement was satisfied. As the court explained at pages 369 and 370,

The third largest homeowner’s insurer in the state, with 7.5 percent of the market share, is hardly “trivial” or “of little or no importance” in Louisiana’s homeowner’s insurance market, especially when compared with the three defendants in this action-Lafayette, Auto Club, and Republic Fire-whose combined market share is about half of Louisiana Citizens’ share. Rather, the Court finds that the third largest insurer in Louisiana, with more than $105 million in total premiums, is clearly a major player in the insurance market by any measure.

However, the federal court agreed with defense attorneys that the final prong of the local controversy exception could not be met because both Allstate and State Farm previously had been named as defendants in class action complaints involving similar allegations less than three years before the filing of the instant class action. Caruso, at 370. The local controversy exception therefore did not apply. Id., at 370-71.

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