Louisiana v. American National Property & Casualty Co. , 746 F.3d 633 ( 2014 )

Case: 14-30071 Document: 00512574423 Page: 1 Date Filed: 03/26/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
No. 14-30071, March 26, 2014
consolidated with No. 14-30072 Lyle W. Cayce
Clerk
STATE OF LOUISIANA, on behalf of insured(s)/assignor(s)/subrogor(s),
Plaintiff – Appellee
v.
AMERICAN NATIONAL PROPERTY & CASUALTY COMPANY;
AMERICAN NATIONAL GENERAL INSURANCE COMPANY; ANPAC
LOUISIANA INSURANCE COMPANY,
Defendants – Appellants
Appeals from the United States District Court
for the Eastern District of Louisiana
Before JOLLY, SMITH, and CLEMENT, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
In this Class Action Fairness Act (“CAFA”) case, having roots in
Hurricane Katrina and arising from a state program to assist homeowner
victims, the defendant, American National Property & Casualty Company
(“ANPAC”), appeals the judgment of the district court holding that it lacked
subject matter jurisdiction over the case. This case was initiated as a class
action, in state court under state law, by the State of Louisiana (the “State”).
The State brought the suit against several insurers, including ANPAC, to
recover on the homeowner insurance policies purchased by individual
Louisiana citizens but assigned by the respective policy holders to the State in
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return for State financial assistance in repairing and rebuilding their homes
in the wake of the hurricanes. The defendant insurance companies removed
the case to federal court, asserting jurisdiction under CAFA. The federal court
certified a question relating to the legality of the assignment of the policies to
the Supreme Court of Louisiana. After the Louisiana Supreme Court held
that, under Louisiana law, the insurance policies at issue must be considered
individually, the State dropped its class allegations and severed this individual
action from the original class action case. Thus arose the question of federal
jurisdiction over these individual cases, once part of the CAFA class action.
Although an earlier opinion from this court had held that CAFA provided
federal jurisdiction over the class, the district courts held that these severed
individual actions must have their own independent federal jurisdictional
basis and found none. Because they lacked an independent basis for federal
jurisdiction, the district courts remanded the cases to state court.
We hold that the general rule regarding federal jurisdiction over a
removed case controls here: Jurisdictional facts are determined at the time of
removal, not by subsequent events. Because at the time of removal CAFA
supplied federal subject matter jurisdiction over these cases – as a prior panel
of this court explicitly had held – we hold that CAFA continues to provide
jurisdiction over these individual cases notwithstanding their severance from
the class. Accordingly, we REVERSE the judgments of the district courts and
REMAND for further proceedings not inconsistent with this opinion.
I.
As a result of the damage inflicted on Louisiana by Hurricanes Katrina
and Rita, the State of Louisiana – with funding from the Department of
Housing and Urban Development – initiated the Louisiana Road Home
program. Through this program, the State distributed funds to residents to
assist efforts to rebuild homes damaged by the hurricanes. In return for these
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funds, and to avoid the homeowners recovering duplicate payments from
multiple sources, citizens participating in the Road Home program were
required to assign to the State the homeowner’s rights against his insurer up
to the amount received from the program.
In August 2007, the State initiated a class action lawsuit in Louisiana
state court to recover on the insurance policies of its citizens. The suit was
brought under Louisiana Code of Civil Procedure Article 591(A) – a state class
action statute – and named several insurance companies as defendants. This
“Road Home Litigation” has been ongoing ever since. We will only recount the
relevant procedural steps that have brought the case before this panel.
After the Road Home Litigation was filed, the insurance company
defendants removed the case to federal court. The State moved to remand
arguing that the court lacked subject matter jurisdiction. The defendants
argued, and the district court agreed, that because the case was brought under
a state class action statute, more than $5,000,000 was in controversy, and
minimal diversity existed, CAFA supplied federal subject matter jurisdiction.
The State requested permission to appeal the district court’s denial of its
motion to remand. This court granted permission to appeal, and subsequently
affirmed the judgment of the district court holding that CAFA supplied federal
jurisdiction. In re Katrina Canal Litig. Breaches, 524 F.3d 700, 705–12 (5th
Cir. 2008).
Federal jurisdiction having been established, the case continued in the
district court. The defendants next filed a motion to dismiss the State’s claims
arguing that, under Louisiana law, homeowners were forbidden to assign their
recovery to the State under the anti-assignment clauses in the respective
insurance policies. The State countered that these anti-assignment provisions
did not apply to post-loss assignments. Again, this issue was litigated and
appealed to this court. Recognizing that the issue was novel and dispositive,
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this court certified the question to the Louisiana Supreme Court. The
Louisiana Supreme Court accepted the certified question and responded that
applying anti-assignment clauses to post-loss assignments did not violate
Louisiana public policy, but that “it must be evaluated on a policy by policy
basis.” In re Katrina Canal Breaches Litig., 63 So. 3d 955, 957 (La. 2011). 1
In reaction to this ruling, the district court handling the litigation
ordered the claims on behalf of each individual severed from the collective
action and directed the State to file a new amended complaint for each
individual claim. Accordingly, the State filed 1,504 amended complaints, each
encompassing its claim on behalf of each respective policy holder; each was
given a new case number and randomly assigned to a district judge.
Following the severance, the district judges ordered ANPAC to show
cause why, now severed from the alleged CAFA class action, these cases should
not be remanded to state court. ANPAC responded that jurisdictional facts of
a case removed from state court are assessed at the time of removal and are
not affected by later events, and further, because this court unambiguously
held that CAFA supplied jurisdiction at the time of removal, it was clear that
post-removal events could not divest the court of jurisdiction. The district
courts disagreed and held that they lacked jurisdiction. The district courts
relied on Honeywell Int’l, Inc. v. Phillips Petroleum Co., in which this court
stated that “a severed action must have an independent jurisdictional basis.”
415 F.3d 429, 431 (5th Cir. 2005). The district courts held that once these cases
were individually severed from their former home in the class action, CAFA
did not supply jurisdiction; furthermore, the courts lacked diversity
1Subsequent to this decision, the State settled with all of the defendants save ANPAC.
These settlements reduced the number of claims (i.e. individuals on whose behalf the State
was attempting to collect) from about 160,000 to 1,504.
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jurisdiction because the amount in controversy was less than $75,000. The
district courts thus entered orders remanding the cases to state court.
Pursuant to 28 U.S.C. § 1453(c), ANPAC petitioned this court for
permission to appeal the remand order. Because we recognized that this case
presents an important CAFA-related question both for this case and for the
other individual actions currently pending, and because the record before us
was sufficiently developed, we granted permission to appeal. See, e.g., Coll. of
Dental Surgeons of P.R. v. Conn. Gen. Life Ins. Co., 585 F.3d 33, 38–39 (1st Cir.
2009) (discussing factors to consider in granting permission to appeal a district
court’s remand order in a CAFA case).
II.
A.
As presented to us, we have two competing principles that address
federal jurisdiction in these removed cases. The first is a long-established
general rule, holding that jurisdictional facts are determined at the time of
removal, and consequently post-removal events do not affect that properly
established jurisdiction. See Grupo Dataflux v. Atlas Global Grp., L.P., 541
U.S. 567, 569–70 (2004) (recognizing “the general rule that, for purposes of
determining the existence of diversity jurisdiction, the citizenship of the
parties is to be determined with reference to the facts as they existed at the
time of filing”); Freeport-McMoRan, Inc. v. KN Energy, Inc., 498 U.S. 426, 428
(1991) (per curiam) (“We have consistently held that if jurisdiction exists at the
time an action is commenced, such jurisdiction may not be divested by
subsequent events.”); Cavallini v. State Farm Mut. Auto Ins. Co., 44 F.3d 256,
264–65 (5th Cir. 1995) (recognizing that removal jurisdiction is determined on
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the basis of the complaint at the time of removal). 2 The other rule at issue in
this appeal constitutes an exception to the general rule and requires that an
action severed from the original case must have an independent jurisdictional
basis, which in turn calls for jurisdictional facts to be determined post-removal,
at the time of severance. Honeywell, 415 F.3d at 431 (“[A] severed action must
have an independent jurisdictional basis.”). We start from the proposition that
the general time-of-removal rule applies unless the Honeywell exception is
applicable to these facts.
Reviewing the district court’s remand order de novo, Admiral Ins. Co. v.
Abshire, 574 F.3d 267, 272 (5th Cir. 2009), we find that this exception relating
to severed cases, announced in Honeywell, does not apply as broadly as the
State suggests. We reach this conclusion based on several considerations that
we now discuss.
B.
1.
We begin by considering the factual and legal context underlying
Honeywell’s statement that “a severed action must have an independent
jurisdictional basis.” Honeywell, 415 F.3d at 431. In Honeywell, the claim at
issue had never been invested with original federal jurisdiction. That is, at the
time the third-party claim (the severed claim) in Honeywell was filed, the
district court exercised only its supplemental jurisdiction over the claim –
recognizing it as related to the underlying federally-based case. Id.2 The State argues that subsequent developments in these cases have demonstrated
that jurisdiction did not exist even at the time of removal. This argument is unavailing
especially in the light of the prior panel opinion squarely holding that CAFA provides federal
jurisdiction. In re Katrina Canal Litig. Breaches, 524 F.3d at 705–12. Although when
subsequent discovery reveals that alleged jurisdictional facts were untrue at the time of
removal a court may hold that jurisdiction was lacking at the time of removal, the State has
made no meritorious argument that any alleged facts have been discovered to be untrue.
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The legal authority Honeywell cited to support its proposition that
federal jurisdiction must be established anew for severed claims related only
to a particular species of severed claims – claims that were never infused with
original jurisdiction, but state claims that were tagging along in the tail wind
of the original federal claims. Specifically, the panel relied on United States v.
O’Neil, 709 F.2d 361 (5th Cir. 1983) and 28 U.S.C. § 1367. O’Neil, like
Honeywell, dealt with the severance of counterclaims over which the district
court had apparently exercised only supplemental jurisdiction. O’Neil, 709
F.2d at 365. O’Neil held that these severed counterclaims required an
independent jurisdictional basis if they were going to stay in federal court; they
simply had never, at any point, established a federal jurisdictional basis
independent of the underlying federal claim. Id. at 375. Thus, O’Neil does not
support the broad application the State urges – overruling the customary time-
of-removal rule with respect to claims that are original federal claims at the
time they were removed to federal court.
Similarly, Honeywell’s citation of and reliance on § 1367 further, and
strongly, supports the conclusion that its statement, although cast in broad
language, only applies to claims based on supplemental jurisdiction. Section
1367 grants the district court the discretion to exercise supplemental
jurisdiction over related state claims that have been joined “in the action
within such original jurisdiction.” Thus, when the related state claim is
severed from the federal claim, the once-upon-a-time related claim is no longer
a related claim because there is no federal claim to which it can relate; nor does
the claim any longer supplement the federal claim, and supplemental
jurisdiction was the only support for its brief federal life.
Neither is § 1367 authority for the broader rule that the State urges. The
section contains nothing to suggest that a court which has original federal
jurisdiction over a claim is stripped of that jurisdiction when the claim is
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severed from a claim that itself embodies original jurisdiction. Here, these
individual claims are not related claims subject to § 1367; they are the specific
claims over which the district courts had possessed original jurisdiction at the
time of removal and later were adjudicated to be federal claims.
To sum up: Honeywell examined a severed third-party claim that the
district court had only exercised supplemental jurisdiction over. In support of
its ruling that severed claims require an independent jurisdictional basis,
Honeywell cited O’Neil, a case dealing with the severance of claims that
enjoyed only supplemental jurisdiction, and the code section granting
supplemental jurisdiction, which constrains the exercise of supplemental
jurisdiction to claims within the same action. These contextual markers
strongly suggest that Honeywell’s statement was not intended to apply to
severed claims that enjoyed original federal jurisdiction, but instead was only
applicable to situations like that before the Honeywell court involving the
severance of “related” claims.
2.
Furthermore, the subsequent history of Honeywell also suggests that a
broad reading of the case should be avoided. No court of appeals has ever cited
Honeywell for the proposition that severed actions require an independent
jurisdictional basis. Nor have we found another case in our circuit or in any
other circuit that states, so sweepingly, this exception to the time-of-filing rule;
nor have we seen analysis that gainsays a limited application of Honeywell to
claims based on supplemental jurisdiction. And we certainly have found no
circuit court cases that apply the rule in Honeywell to severed claims over
which the district court had original jurisdiction at the time of removal.
The State’s reading of Honeywell finds some limited support in the
opinions of some federal district courts. With the exception of several district
court decisions within this Road Home Litigation, we have, however, found no
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district court case that applies Honeywell to a claim that enjoyed original
jurisdiction prior to severance. See, e.g., Admiral Ins. Co. v. Health Holdings
USA, Inc., No. Civ. A. 3:03CV1634-G, 2005 WL 3500286, *1–3 (N.D. Tex. Dec.
21, 2005) (applying Honeywell to severed counterclaims). And the only district
court that has faced the precise issue we face – the intersection of Honeywell
and the time-of-removal rule in CAFA cases – held that Honeywell was not
applicable because it does not apply to severed claims that enjoyed original
jurisdiction prior to severance. Helm v. Alderwoods Group, Inc., No. C 08–
01184 SI, 2011 WL 2837411, *1–3 (N.D. Cal. July 18, 2011) (holding that
individual actions severed from CAFA class action do not require an
independent jurisdictional basis because Honeywell applies only to severed
claims that were dependent on the presence of other parties or claims in the
suit).
This subsequent history further suggests that Honeywell’s statement,
though phrased broadly and without exception, should be applied only to
severed claims that find themselves in federal court on the basis of
supplemental jurisdiction.
3.
Next, applying Honeywell’s statement to this case would likely run afoul
of the statutory language of CAFA. The text of CAFA states that federal
jurisdiction will extend to “class actions” with minimal diversity and at least
$5,000,000 in controversy. 28 U.S.C. § 1332(d)(2). The statute defines “class
action” as “any civil action filed” under Rule 23 or a state class action statute.
Id. at § 1332(d)(1)(B) (emphasis added). Thus, federal jurisdiction under the
statutory provision of CAFA is explicitly concerned with the status of an action
when filed – not how it subsequently evolves. And, it is undisputed that this
action was filed as a class action, consistent with the standards of the statute.
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Similarly, the legislative history of CAFA indicates that the time-of-
removal rule was to be applied in these cases. The Senate Report on the bill
reflects concerns about post-filing events either creating or destroying federal
jurisdiction. See S. Rep. 109-14, at 70 (2005), reprinted in 2005 U.S.C.C.A.N.
3, 65. The Senate Report dismisses these concerns as “unfounded” recognizing
that “[w]ell-established law exists to resolve these questions, and [CAFA] does
not change–or even complicate–the answers to these questions.” Id. The
Senate Report goes on to state that “[c]urrent law (that [CAFA] does not alter)
is also clear that, once a complaint is properly removed to federal court, the
federal court’s jurisdiction cannot be ‘ousted’ by later events.” Id. Thus, the
Senate Report is a further indication that Honeywell should not be applied to
this case; instead, CAFA provides original jurisdiction, determined at the time
of removal.
4.
Finally, we doubt that the statement in Honeywell could apply as broadly
as the State suggests in the light of the overwhelming authority with which it
would pose conflicts if given this broad reading.
The State’s reading of Honeywell would obviously constitute a significant
exception to the time-of-removal rule for assessing jurisdiction, a rule well
entrenched in federal jurisprudence. See Grupo Dataflux, 541 U.S. at 569–70.
The State’s reading of Honeywell would also certainly seem to separate us from
other circuits. Every circuit that has addressed the question has held that
post-removal events do not “oust” CAFA jurisdiction. See Vega v. T-Mobile
USA, Inc., 564 F.3d 1256, 1268 n.12 (11th Cir. 2009) (“[J]urisdictional facts are
assessed at the time of removal; and post-removal events (including non-
certification, de-certification, or severance) do not deprive federal courts of
subject matter jurisdiction.”); United Steel Workers Int’l Union v. Shell Oil Co.,
602 F.3d 1087, 1091–92 (9th Cir. 2010) (agreeing with Vega that “post-filing
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developments do not defeat jurisdiction if jurisdiction was properly invoked as
of time of filing”); In re Burlington N. Santa Fe Ry. Co., 606 F.3d 379, 381 (7th
Cir. 2010) (“CAFA is, at base, an extension of diversity jurisdiction. Even in
cases filed originally in federal court, later changes that compromise diversity
do not destroy jurisdiction.”); Buetow v. A.L.S. Enters., Inc., 650 F.3d 1178,
1182 n.2 (8th Cir. 2011) (“[CAFA jurisdiction] continued despite the district
court’s denial of Plaintiffs’ motion for class certification.”); Metz v. Unizan
Bank, 649 F.3d 492, 500 (6th Cir. 2011) (“We agree with the other circuits that
have addressed this issue and hold that denial of class certification does not
divest federal courts of jurisdiction.” (internal quotation marks omitted)).
It is true, as the State points out, that none of the subsequent events in
these cases involved a claim actually severed from the original case. But on
the other hand, the severed claim in Honeywell was not a claim suffused with
original federal jurisdiction at the time of removal, as indeed the instant
severed claims were. In the face of this overwhelming and unanimous
authority, we are unwilling to isolate our circuit on so thin a distinction as a
single broad, unexplicated statement taken out of context.
III.
In sum, we hold that at the time of removal, these claims clearly
possessed original federal jurisdiction as an integrated part of the CAFA class
action. Honeywell’s statement – that severed actions require an independent
jurisdictional basis – applies only to severed claims that are based on
supplemental jurisdiction. Consequently, we find the Honeywell exception is
inapplicable here and hold that the usual time-of-removal rule controls this
appeal, and federal jurisdiction is properly exercised over these severed cases.
For the reasons stated herein, the judgments remanding to state court
are REVERSED, and the cases are hereby REMANDED to the federal district
courts a quo for further proceedings not inconsistent with this opinion.
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