The State of Louisiana has made and is making so-called “Road Home” grants to Louisiana homeowners rebuilding homes damaged or destroyed by Hurricanes Katrina and Rita. The homeowners assign the right to all insurance benefits that may be due them, up to the amount of the grant. Louisiana contends that insurers have been denying benefits actually due, thereby reducing Louisiana’s recoveries. It filed a massive class action against more that 200 insurance carriers, most of them out of State, on behalf of itself and those who have claimed or will claim benefits. This was removed to federal court under the Class Action Fairness Act. The district court denied remand and the Fifth Circuit just affirmed that denial. (I argued the case for the insurers in the Fifth Circuit.)

 

The State sued just before the contractual suit-limitation period (as extended by statute) was about to expire. With respect to those who had already received Road Home grants, it could rely on their assignments. With respect to those who had applied for such grants but had not received them, it contended that it could only preserve their claims by seeking to include them in a class action.

 

On appeal, the State made only one statutory argument. CAFA defines a “class action” as any civil action filed under Rule 23 of the Federal Rules of Civil Procedure or similar state statute or rule … authorizing an action to be brought on behalf of one or more representative persons as a class action. [Emphasis added.]

 

The State argued that states are ordinarily not treated as “persons” for purposes of federal statutes. While agreeing with the latter point, the Fifth Circuit rejected the argument. The Louisiana statute is one “that authorizes class actions to be brought by a person.” Moreover, “Congress considered and rejected an amendment that would have exempted class actions brought by a state attorney general from removal under CAFA.” And, while Louisiana is not itself a “citizen,” members of the class were, and that is enough under CAFA.

 

The State’s primary argument was that it had a sovereign immunity to removal of a suit it filed in its own courts to enforce its own laws. The issue was not the Eleventh Amendment, which applies only to suits against states, but the underlying sovereign immunity which the Eleventh Amendment is held to recognize. The Fifth Circuit assumed that Louisiana would be immune from removal if it had sued solely on its own behalf.. But it had chosen to bring private citizen class members into its suit. The Fifth Circuit held that whatever immunity to removal the State itself might possess “cannot be conferred by the State on the prosecution of suits by private citizens.” So, including private citizens as unnamed co-plaintiffs waived any immunity the State itself might have had.

 

The district court was directed to consider whether there might be some way of disentangling the State from the claims of the private citizens, which might allow the State to be remanded, while keeping the private citizens in federal court. But it is hard to see how that could be done, while preserving the State’s rights under assignments yet to be made. So it appears that this litigation will proceed in federal court.

 

Richard L. Fenton

Sonnenschein Nath & Rosenthal, LLP