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CAFA Class Action Defense Cases–In re Katrina Canal: Fifth Circuit Affirms Denial Of Motion To Remand Class Action To State Court Holding State Sovereignty Did Not Preclude Removal Of Class Action Under CAFA Because Citizens Were Class Members

Class Action by State on Behalf of Itself and Citizens Properly Removed under Class Action Fairness Act (CAFA) because State’s Sovereign Immunity not Applicable to Citizens Fifth Circuit Holds

Louisiana’s Attorney General Louisiana filed a putative class action against more than 200 insurance companies on behalf of the State and numerous Louisiana citizens based on defendants’ alleged failure to pay for covered insurance claims arising out of Hurricanes Katrina and Rita; the class action complaint alleged only state law claims, and sought compensatory, declaratory and injunctive relief. In re Katrina Canal Litig. Breaches, 524 F.3d 700, 2008 WL 1118176, *1 (5th Cir. 2008). Defense attorneys removed the class action to federal court asserting removal jurisdiction under the Class Action Fairness Act (CAFA) and the Multiparty Multiform Trial Jurisdiction Act (MMTJA). Id., at *1, *3. Louisiana moved to remand the class action to state court, “arguing that CAFA did not apply and that Louisiana enjoyed sovereign immunity from involuntary removal to federal court in that it was suing in its state court to enforce state law.” Id., at *1. The district court denied the motion; because it found that removal jurisdiction existed under CAFA, it did not reach the issue of whether jurisdiction also existed under MMTJA. Id., at *3. The Fifth Circuit granted the State’s petition under CAFA for permission to appeal the remand order under CAFA, and then affirmed.

On appeal, Louisiana argued “CAFA does not apply, and that even if it does apply by its terms, it cannot abrogate sovereign immunity from federal process, or at the least Congress did not clearly do so in CAFA.” In re Katrina, at *3. (Louisiana also raised arguments under MMTJA, but the Fifth Circuit did not address this issue so we do not discuss it here.) The only aspect of CAFA removal jurisdiction challenged on appeal was diversity; specifically, Louisiana argued that a state is not a person for purposes of diversity jurisdiction and, further, that “it has not filed a class action as defined by CAFA.” Id. The Fifth Circuit held that this was not the relevant inquiry, because “Louisiana seeks relief for both the State and the citizens as “recipients” of insurance.” and the citizens adequately satisfied the minimal diversity required by CAFA. Id. The “difficult question” addressed by the Circuit Court was whether state sovereignty barred removal. Id.

After a lengthy discussion of whether sovereign immunity even applies to States in their role as plaintiffs rather than defendants, see id., at *4-*8, the Fifth Circuit opted to “rest [its] decision on the most narrow of grounds” and held that “waiver and its predicate that any immunity the State may have cannot be conferred by the State upon the prosecution of suits by private citizens,” id., at *8. In short, because the State brought the class action on behalf of its citizens as well as itself, the citizens were not permitted to invoke the State’s sovereign immunity (even assuming it existed) and so the matter was properly removed under CAFA. Id. As the Fifth Circuit concluded, “We are persuaded that the State cannot pull these citizens under its claimed umbrella of protection in frustration of a congressional decision to give access to federal district courts to defendants exposed to these private claims, presumably for reasons not far removed from those that led the first Congress to confer diversity jurisdiction – known then and now to the trial bar as ‘home cooking.’” Id. (footnote omitted). Accordingly, the order denying the motion to remand was affirmed, id., at *9.

NOTE: The Fifth Circuit summarized the State’s standing as follows: “Louisiana administers the Road Home Program, which advances money to Louisiana homeowners for reconstructing homes damaged or destroyed by Hurricanes Rita and Katrina. Any homeowner could receive up to $150,000 from Louisiana with a written assignment to the State of the owner’s claim against his insurer in the amount of the payment received from the State. Only an owner’s claim for damage to his dwelling was assigned. * * * While an owner’s assignment was partial in that the owner retained his claim against his insurer for amounts exceeding the sum advanced by the State, the assignment also granted Louisiana the right to sue his insurer in the owner’s name for the owner’s insured losses.” In re Katrina, at *2 (footnote omitted). In pertinent part, the class action sought “an injunctive order directing that the Insurance Company Defendants pay all coverage afforded under the terms of the recipients’ policies, and where a total loss is found, an injunctive order directing the payment of the full value placed on the recipients’ residence … with full reimbursement or repayment of any funds to which the State is entitled to as a result of any grant issued under The Road Home Program.” Id.

Download PDF file of In re Katrina Canal Litigation