STATE OF LOUISIANA; ET AL. v. AAA INSURANCE; ET AL.
No. 08-30145
United States Court of Appeals, Fifth Circuit
April 11, 2008
REVISED APRIL 23, 2008. FILED Aрril 11, 2008. Charles R. Fulbruge III, Clerk.
Before HIGGINBOTHAM, STEWART, and ELROD, Circuit Judges. PATRICK E. HIGGINBOTHAM, Circuit Judge:
PATRICK E. HIGGINBOTHAM, Circuit Judge:
The Attorney General of Louisiana filed a class action, naming the State and numerous Louisiana citizens as Plaintiffs. The class action alleged that the Defendant insurance companies failed to pay covered insurance claims following Hurricanes Katrina and Rita and as a result breached the insurance contracts to which the State is a partial assignee. It requested damages and declaratory and injunctive relief, all under state law. At several Defendants’ request, the case was removed to federal district court under the Class Action Fairness Act
I
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 uр 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. These assignments, functionally subrogation agreements, read in part:
Notwithstanding anything to the contrary contained herein, this is a limited subrogation and assignment, and is limited to an amount not to exceed the amount of the grant received by the undersigned [insured] under the Program, to which the State has not been reimbursed from other sources.
While an owner‘s assignment was partial in that the owner retained his claim against his insurer for amounts exceeding the sum advanсed 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.2
[a]ll current and former citizens of the State of Louisiana who have applied for and received or will receive funds through the Road Home Program, and who have executed or will execute a subrogation or assignment agreement in favor of the State, and to whom insurance proceeds are due and/or owed for damages sustained to any such recipient‘s residence as result of any natural or man-made occurrence associated with Hurricanes Katrina and/or Rita under any policy of insurance, as plead herein, and for which the State has been or will be granted or be entitled to recover as reрayment or reimbursement of funds provided to any such recipient through the Road Home Program.
The amended petition alleged breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty, asserting inter alia that “repeated demands were made by recipients to the . . . Defendants which refused to meet their obligations under the All Risk policies and refused to pay the full damages for recipients’ homes being destroyed or damaged,” that the insurance companies had “by failing . . . to pay the recipients all of the benefits due and owing them . . . violаted the duties of good faith and fair dealing owed to recipients,” and that “Defendants’ failure to fully disclose and properly
On the filing of the amended petition with its class actiоn allegation, several Defendants filed a notice of removal in which others joined and consented. Louisiana moved to remand to state court, arguing that CAFA did not apply and that exercise of federal jurisdiction over the suit offended its sovereign immunity. Following a hearing, the district court refused to remand. At the hearing, the insurance companies argued that removal was proper under CAFA and the Multiparty Multiform Trial Jurisdiction Act (MMTJA), which provides for original jurisdiction in the district court, and removal to district court, for certain minimal diversity actions arising from a “single accident.”6 Finding minimal diversity under CAFA, the district court declined to reach the claim of jurisdiction under MMTJA.7
Louisiana here argues that 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; and that MMTJA does not apply by its own terms.
II
any civil action filed under rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action.8
Louisiana argues that a state hаs never been treated as a person for purposes of diversity jurisdiction and that it has not filed a class action as defined by CAFA. The argument is not without force,9 but we are not persuaded. CAFA only requires that the action be brought under Rule 23 or a state statute that authorizes class actions to be brought by a person.10 Louisiana‘s Article 591(A) is such a statute, as it permits “members of a class” to “sue or be sued as representative parties.”11 Congress considered and rejected an amendment that would have exempted class actions filed by an attorney general from removal under CAFA.12 Nor can we agree that CAFA‘s use of the term “citizen” bars its
CAFA has additional general jurisdictional requirements that must be met. CAFA requires that a class action involve an aggregate amount in controversy of at least $5 million15 and present at least minimal diversity of parties.16 Louisiana contests only whether the requisite diversity is met. Louisiana argues that it is the real party in interest and as a state, it is not a citizen for purposes of diversity jurisdiction. We agree that a state is not a citizen under the diversity statutes, including CAFA.17 But that is not this case. Louisiana seeks relief for both the State and the citizens as “recipients” of insurance. While it is true that as partial assignees and assignors, both the
III
Our precise question is not the insulating force of any sovereign immunity of the State of Louisiana from removal of a suit filed by it alone in its own state courts, seeking enforcement of its state laws against insurers who each qualified to do business in the State and are subject to its regulation. That question states Louisiana‘s claim of sovereign protection from removal in its most powerful form and has never been directly answered. It has eluded answer for the practical reason that it has been long settled that a State is not a person for purposes of diversity jurisdiction. This, with the long time companion insistence upon complete diversity, made the presence of additional parties aligned with the State irrelevant to federal diversity jurisdiction. CAFA, with its grant of jurisdiction to the federal district courts of qualifying class actions with minimаl diversity of parties, pushes the question forward but does not tax the immunity claimed here by Louisiana-involuntary removal of its suit in its own courts to enforce its own laws against companies subject to its regulation.
Defendants reply that Louisiana enjoys no immunity as a plaintiff; that its immunity is from suit filed against it. As the argument goes, it is only those actions against the State that offend its dignitary interests and imperil its coffers. And indeed several courts seem to say as much. We would stop here if we found these cases to be dispositive, for joinder of the class would not weigh
By their logical order we would first addrеss whether Louisiana has any of the immunity from federal process that Louisiana claims for itself as a plaintiff suing in its own courts to enforce its own laws, turning next to whether Congress has sufficiently expressed its intent to abrogate the immunity and then to whether the State can extend any of its immunity to private citizens of Louisiana suing citizens of other states for money damages and declaratory relief. We will follow a narrower course.
By this course, we accept for now that there is some measure of insulation. Doing so, the question becomes rather whether the State can extend that protection to private citizens of the State-whether immunity‘s net casts so broadly as to protect private citizens joined in a state claim. There is a footnote to the question of whether Louisiana waived immunity by bringing private citizens into its suit, parties that provided the requisite minimal diversity under CAFA. If Louisiana had not named these citizens as plaintiffs, we would have faced the question of what effect immunity may have had given the fact that the assignments are only partial. Stated more directly, because Louisiana brought a class action, we need not address whether Louisiana might have been
IV
Constitutional questions unanswered by the Founders and which remain open ought not be reached unless doing so is necessary to the resolution of a case or controversy. A brief repair to history informs our decision. The scope of sovereign immunity is put in play by the intersection of Article III, Section 2 of the Constitution, providing for federal jurisdiction over “Controversies . . . between a State and Citizens of another State,” and the Eleventh Amendment, which provides, “The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.”
As freestanding prose these grants and limitations could be read to end our inquiry, and, without more, affirm the district court‘s denial of remand. Louisiana as plaintiff has brought a suit against “citizen” insurance companies of other states,20 and the insurance companies, as defendants, have not
[T]he plaintiff in error contends that he, being a citizen of Louisiana, is not embarrassed by the obstacle of the eleventh amendment, inasmuch as that amendment only prohibits suits against a state which are brought by the citizens of another state, or by citizens or subjects of a foreign state. It is an attempt to strain the constitution and the law to a construction never imagined or dreamed of. Can we suppose that, when the eleventh amendment was adopted, it was understood to be left open for citizens of a state to sue their own state in federal courts, while the idea of suits by citizens of other states, or of foreign states, was indignantly repelled?22
The Hans Court also held that despite the Eleventh Amendment‘s text, states as defendants may consent to federal jurisdiction.23 In Principality of Monaco v. Mississippi, the Court recognized that “there is no express provision that the United States may not be sued in the absence of consent. . . . [A]rticle [III] . . . extends the judicial power ‘to Controversies to which the United States shall be a Party.’ Literally, this includes such controversies, whether the United States be party plaintiff or defendant.”24 Yet it concluded that “by reason of the established doctrine of the immunity of the sovereign from suit except upon consent, . . . [A]rticle [III] . . . does not authorize the maintenance of suits against
sovereign immunity derives not from the Eleventh Amendment but from the structure of the original Constitution itself. The Eleventh Amendment confirmed rather than established sovereign immunity as a constitutional principle; it follows that the scope of the States’ immunity from suit is demarcated not by the text of the Amendment alone but by fundamental postulates implicit in the constitutional design.29
The many сases looking to immunity‘s purpose and rejecting a strict textual interpretation of immunity have all focused on the importance of protecting states as defendants, as did the Founders’ debates over Article III. The Alden Court emphasized states’ “immunity from suit,”30 observing, “[T]he doctrine that a sovereign could not be sued without its consent was universal in the States when the Constitution was drafted and ratified.”31 In Seminole Tribe,
Founders supporting Article III in the debates argued that it would not force defendant states into federal courts. At the Virginiа Convention, James Madison maintained that under the Supreme Court‘s “jurisdiction in controversies between a state and citizens of another state . . . It is not in the power of individuals to call any state into court.”33 At the same convention, John Marshall asserted, “With respect to disputes between a state and citizens of another state . . . . I hope that no gentleman will think that a state will be called at the bar of federal court.” In The Federalist, Alexander Hamilton wrote,
It has been suggested that an assignment of the public securities of one State to the citizens of another, would enable them to prosecute that State in the federal courts for the amount of those securities; a suggestion which the following considerations prove to be without foundation. It is inherent in the nature of sovereignty not to be amenable to the suit of an individual without its consent.34
These same supporters of Article III argued that its purpose, rather than to subject states to federal jurisdiction as defendants, was to require plaintiff states to bring suits against citizens in federal court. Madison stated, “The only operation it can have, is that, if a state should wish to bring a suit against a citizen, it must be brought before the federal court.”35 And Marshall urged, “The
The anti-federalist doubters focused their fire upon subjecting defendant states to suits in federal courts, although they hinted at negative implications for states as plaintiffs. Richard Henry Lee wrote,
How far it may be proper so to humble a state, as to oblige it to answer to an individual in a court of law, is worthy of consideration . . . . this new jurisdiction will subject the states, and many defendants to actions . . . which were not in the contemplation of the parties, when the contract was made . . . . 37
At the Virginia Convention, Patrick Henry worried,
A state may be sued in the federal court, by the paper on your table . . . . [and later] [Madison‘s] construction of it [Article III] is to me perfectly incomprehensible. . . . What says the paper? That it shall have cognizance of controversies between state and citizens of another state, without discriminating between plaintiff and defendant.38
More recently, courts have continued their focus on states as defendants, not plaintiffs. In Huber, Hunt, & Nichols, Inc. v. Architectural Stone Co., plaintiffs in a contract dispute with a state university sought arbitration, requesting removal to federal district court on diversity grounds. This court observed in a footnote, “Of course, the eleventh amendment is inapplicable where a state is a plaintiff . . . .”39 In California ex rel. Lockyer v. Dynegy, Inc.,
The Supreme Court has similarly held. In Illinois v. City of Milwaukee, the Court held, “where a State is suing parties who are not other States, the original jurisdiction of this Court is not exclusive and . . . those suits may now be brought in or removed to the Circuit Courts [now the District Courts] without regard to the character of the parties.”43 And in Ames v. Kansas, the Court held that
a suit brought by a State in one of its own courts, against a corporation amenable to its own process, to try the right of the corporation to exercise corporate powers within the territorial limits of the State, can be removed to the Circuit Court of the United States....44
While the immediate issue in City of Milwaukee and Ames was whether the Supreme Court‘s original jurisdiction in actions involving States is exclusive of jurisdiction in the lower federal courts, nearly every court to consider Eleventh Amendment immunity in the removal context has relied on the unconditional holding of those cases, in conjunction with the pointed and specific language used in the constitutional text itself, to conclude that a State cannot assert Eleventh Amendment immunity to bar the removal of a suit it has brought.45
That said, none of the cases or founding history speak directly to the issue at hand, which might well raise a constitutional concern had the Stаte not waived immunity by bringing a suit with private citizens: whether a state as a plaintiff suing defendants over whom it has regulatory authority in state court under its own state laws may be removed to federal court on diversity grounds under CAFA, rather than federal question jurisdiction. In sum, we are persuaded that we ought to rest our decision on the most narrow of grounds46-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. We are persuaded that the State cannot pull these citizens under its claimed umbrella of protection in frustration of a congressional decision to give
V
At the oral hearing on removal in district court, Plaintiffs raised the possibility of splitting the action in two, leaving the Plaintiff citizens to pursue the class action in federal court and allowing Louisiana to remand its portion of the case to state court, perhaps staying the federal case to await the decision of the Louisiana courts, which will control in any event. The distriсt court considered this remedy but did not implement it, denying the motion for remand.
We trust that given our caution in this matter of state sovereignty, the district court will explore the possibility of returning Louisiana to the state court while retaining the class suit-perhaps with new class representatives drawn from its membership. We express no opinion regarding either the permissible or the practicable segmenting of this case. We make these observations against the backdrop of the settled power of the district courts.48 We will affirm the
AFFIRMED.
PATRICK E. HIGGINBOTHAM
UNITED STATES CIRCUIT JUDGE