In State of Louisiana, ex rel, James D. Caldwell v. Allstate Ins. Co., ___ F.3d ___, 2008 U.S. App. LEXIS 15275, No. 08-30465 (5th Cir. July 18, 2008), the Fifth Circuit considered the reach of removal under the Class Action Fairness Act (CAFA) in the context of a purported parens patriae action brought by the Louisiana Attorney General under the Louisiana Monopolies Act. The complaint, originally filed in state court, accused six insurance carriers, two outside software vendors and a management consulting firm that had been retained by some of the carriers of an unlawful conspiracy to reduce claims expense through the use of computerized adjusting software. Although the complaint did not assert that it was being brought as a class action, the complaint did purport to seek treble damage relief on behalf of unspecified citizens of Louisiana who had allegedly receive inadequate insurance settlements, and defendants removed under CAFA.

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The district court denied the Attorney General's motion to remand the case to State Court, holding that the complaint was a "disguised" class action that was subject to federal jurisdiction under the Class Action Fairness Act because the individual policyholders were the real parties in interest and monetary relief was being sought on their behalf. The Fifth Circuit affirmed 2-1 on slightly different reasoning. The Fifth Circuit agreed with the district court that the policyholders were the real parties in interest, but held that because the attorney general sought to assert the rights of more than 100 separate claimants, the case was subject to federal jurisdiction as a "mass action" under CAFA. The Fifth Circuit did not address whether the case also fit the definition of a "class action."

Citing its earlier decision in In re: Katrina Canal Litigation Breaches, State of Louisiana, et al. v. AAA Insurance, et al., 524 F.3d 700, 2008 U.S. App. LEXIS 7933 (5th Cir. 2008)(the “Road Home” decision), the Fifth Circuit also rejected the attorney general's argument that the assertion of federal jurisdiction violated the Eleventh Amendment and/or the State's sovereign immunity. As in Road Home, however, the Fifth Circuit suggested that some of the claims, i.e., those seeking injunctive relief, might be susceptible to severance and remand to state court, but emphasized that any such decision would be at the district court’s discretion as “the able manager of this complex litigation.”

In dissent, Judge Southwick argued that the State did not file for class action treatment, nor did it join additional parties in a mass joinder. According to Judge Southwick, the proper procedure would therefore have been to remand to state court and allow the state court to address the question of whether the attorney general had standing to bring a parens patriae action for damages under Louisiana law without either class certification or mass joinder. If the state court ruled that such a claim could only be asserted as a mass or class action, the parties could then remove if and when the complaint was amended to assert class action or mass action claims. Judge Southwick argued that a federal court should not be imposing a class or mass action procedure on the state attorney general where the state itself had neither sought class certification nor sought to join individual parties on a mass basis.

While this case presents a somewhat unusual factual and procedural scenario, the lesson here is that the plaintiff's characterization of his pleading is not necessarily determinative and that there may be instances where a suit seeking broad relief, whether filed by the State or by a private party, may fall within the definition of a CAFA class action or mass action even without formal Rule 23 allegations or mass joinder.

Richard L. Fenton
Sonnenschein Nath & Rosenthal, LLP