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State Farm Katrina Class Action Defense Case-Roby v. State Farm: Louisiana Federal Court Grants Motion To Remand Class Action To State Court Holding Hurricane Is Not An Accident Under Federal MMTJA

A Hurricane is not an “Accident” under the Federal Multiparty, Multiforum Trial Jurisdiction Act (MMTJA) and Defense Failed to Prove that Individual was Fraudulently Joined for Purposes of Defeating Diversity Jurisdiction over Class Action Louisiana Federal Court Holds

Plaintiffs filed a putative class action in Louisiana state court against their homeowners insurance carrier, State Farm, alleging that it wrongfully denied insurance benefits for damage caused by Hurricane Katrina. Roby v. State Farm Fire & Cas. Co., 464 F.Supp.2d 572, 574 (E.D. La. 2006). Specifically, after plaintiffs provided State Farm evidence that Hurricane Katrina caused them to suffer more than $400,000 in damages, State Farm tendered a $23,000 check to plaintiffs representing its “estimated damages for their claim for damages to their home” and ultimately refused to pay plaintiffs’ claim in full or to pay policy limits because it concluded that “[plaintiffs’] home sustained flood damage from Hurricane Katrina and that flood damages are excluded from the policy.” Id. State Farm also denied personal contents benefits on the ground that flood damage excluded coverage, id., at 574 n.5. Plaintiffs countered that their home had sustained damage caused by rain that entered through holes in the roof caused by the hurricane, and filed a class action complaint for a declaratory judgment that the exclusion relied upon by State Farm did not apply and, alternatively, that their State Farm agent should have informed them to obtain flood insurance. Id., at 574-75. Defense attorneys removed the class action to federal court, asserting both federal question and diversity jurisdiction. Id., at 575 and n.6. As to diversity, defense attorneys argued that plaintiffs had named the State Farm agent solely to defeat diversity. Id. Plaintiffs filed a motion for remand. The district court granted plaintiffs’ motion and remanded the class action to state court.

After noting that State Farm bore the burden of proof as the party invoking federal court jurisdiction, Roby, at 575, the district court addressed State Farm’s argument that federal jurisdiction exists under the Multiparty, Multiforum Trial Jurisdiction Act (MMTJA) – “specifically 28 U.S.C. § 1369 . . . and its corresponding removal statute, 28 U.S.C. § 1441(e),” id. As the district court explained at pages 575 and 576, “Section 1369 is a federal statute that establishes subject matter jurisdiction in federal court over a single accident in which at least 75 persons died. Section 1441 allows a defendant to remove a § 1369 case to federal court. Congress enacted the MMTJA to allow full consolidation of state and federal cases related to a common disaster in order to eliminate multiple or inconsistent awards arising from multiforum litigation.” (Footnote and citations omitted.) The district court held that MMTJA did not apply because a hurricane is not an “accident” within the meaning of the Act, id., at 576.

Defense attorneys alternatively argued that under § 1441(e)(1)(B) the district court had supplemental jurisdiction over the class action because State Farm was a defendant in another federal court class action arising out of Hurricane Katrina. As the district court explained, “This statute provides for removal in those situations where original federal subject matter jurisdiction does not exist by allowing a defendant to assert supplemental jurisdiction pursuant to the district court’s original jurisdiction under a § 1369(a) case pending in federal court.” Roby, at 576-77 (citation omitted). The district court rejected the defense argument, holding that it was based on a misunderstanding of the scope of the supplemental jurisdiction provision. Id., at 577.

The district court similarly rejected defense arguments that diversity jurisdiction exists because the State Farm agent had been fraudulently joined. Roby, at 577. It was State Farm’s burden to prove fraudulent joinder, id., at 578, and the district court concluded that State Farm failed to meet that burden, id., at 578-79. Accordingly, the district court granted plaintiffs’ motion and remanded the class action to state court. Id., at 580. In so doing, the district court denied plaintiffs’ request for an award of attorney fees, concluding that “State Farm had an objectively reasonable basis to seek removal,” id.

NOTE: Defense attorneys asked the district court to stay its remand order “to permit them to consider appellate review of such decision,” or to certify the order for interlocutory appeal. The district court rejected the request, observing that “the United States Supreme Court has ‘relentlessly repeated’ that any remand order for lack of subject matter jurisdiction is not subject to appellate review.” Roby, at 580 n.16 (citation omitted).

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