536 F.3d 418 (5th Cir. 2008), 08-30465, Louisiana ex rel. Caldwell v. Allstate Ins. Co.

Docket Nº:08-30465.
Citation:536 F.3d 418
Party Name:State of LOUISIANA, ex rel., James D. CALDWELL, Plaintiffs-Appellants, v. ALLSTATE INSURANCE CO., et al., Defendants-Appellees.
Case Date:July 18, 2008
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

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536 F.3d 418 (5th Cir. 2008)

State of LOUISIANA, ex rel., James D. CALDWELL, Plaintiffs-Appellants,


ALLSTATE INSURANCE CO., et al., Defendants-Appellees.

No. 08-30465.

United States Court of Appeals, Fifth Circuit.

July 18, 2008

Page 419

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Jane Bishop Johnson (argued), Office of Atty. Gen., Joseph J. McKernan, Ashley E. Philen, McKernan Law Firm, Baton Rouge, LA, John W. Houghtaling, Gauthier, Houghtaling & Williams, Metairie, LA, Stephen B. Murray, Murray Law Firm, Russ M. Herman, Stephen Jay Herman, Herman, Herman, Katz & Cotlar, T. Carey Wicker, III, Capitelli & Wicker, New Orleans, LA, Mark Philip Glago, The Glago Law Firm, New Orleans, LA, for Plaintiffs-Appellants.

Richard L. Fenton (argued), Steven M. Levy, Sonnenschein, Nath & Rosenthal, Chicago, IL, Judy Y. Barrasso, Susan M. Rogge, Barrasso, Usdin, Kupperman, Freeman & Sarver, New Orleans, LA, for Allstate Ins. Co.

Howard Bruce Kaplan, David M. McDonald, Bernard, Cassissa, Elliott & Davis, Metairie, LA, for Lafayette Ins. Co.

Joel M. Cohen, Daniel S. Kahn, Davis, Polk & Wardwell, New York City, Mark Aaron Cunningham, Jones Walker, New Orleans, LA, for Xactware Solutions, Ins. and Insurance Services Office, Inc.

Mark Raymond Beebe, Ronald J. Sholes, Adams & Reese, New Orleans, LA, for Marshall & Swift/Boeckh, LLC.

Wayne J. Lee, James C. Gulotta, Jr., Michael Quirk Walshe, Jr., Justin Paul Lemaire, Stone, Pigman, Walther & Wittmann, New Orleans, LA, Sheila L. Birnbaum, Skadden, Arps, Slate, Meagher & Flom, New York City, for State Farm Fire & Cas. Co.

Amelia Williams Koch, Alexander McVoy McIntyre, Jr., Steven Franklin Griffith, Jr., Baker, Donelson, Bearman, Caldwell & Berkowitz, New Orleans, LA, for USAA Cas. Ins. Co.

Marcy Hogan Greer, Michael Scott Incerto, Fulbright & Jaworski, Austin, TX, Charles S. McCowan, Jr., Bradley Charles Myers, Kean, Miller, Hawthorne, D'Armond, McCowan & Jarman, Baton Rouge, LA, Richard N. Carrell, Layne E. Kruse, Hannah DeMarco Sibiski, Fulbright & Jaworski, Houston, TX, for Farmers Ins. Exchange.

Harry A. Rosenberg, Phelps Dunbar, New Orleans, LA, Bryce L. Friedman, Simpson, Thacher & Bartlett, LLP, New York City, for Standard Fire Ins. Co.

James A. Brown, Kenneth Todd Wallace, Liskow & Lewis, New Orleans, LA, James L. Bernard, Stroock, Stroock & Lavan, New York City, for McKinsey & Co., Inc.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before STEWART, OWEN and SOUTHWICK, Circuit Judges.

CARL E. STEWART, Circuit Judge:

The State of Louisiana, through its former Attorney General, Charles C. Foti, Jr.,1 along with counsel from a number of private law firms 2 [collectively “Louisiana" ], filed a lawsuit which it styled as a

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parens patriae action against the following defendants: Allstate Insurance Company, Lafayette Insurance Company, Xactware Solutions, Inc. (“Xactware" ), Marshall & Swift/Boeckh, LLC (“MSB" ), Insurance Services Office, Inc. (“ISO" ),3 State Farm Fire and Casualty Company, USAA Casualty Insurance Company, Farmers Insurance Exchange, the Standard Fire Insurance Company, and McKinsey & Company, Inc. (“McKinsey" ) [collectively “Defendants" ] in the Civil District for the Parish of Orleans alleging violations of Louisiana's antitrust laws. Defendants removed the action to federal court pursuant to the Class Action Fairness Act (“CAFA" ), 28 U.S.C. § 1332(d)(2). 18 U.S.C. § 1453(b). Louisiana moved to remand the action back to state court, but the district judge denied the motion. Louisiana petitioned this court for permission to appeal the interlocutory order under CAFA, which we granted. For the following reasons, we AFFIRM.


On November 7, 2007, Louisiana filed a petition in state court seeking to “enforce the laws of this state, and more specifically, the Louisiana Monopolies Act [Louisiana Revised Statute § 51:123, et seq.], and to redress the wrongs committed by defendants against this state and its citizens," alleging that Defendants worked together to form a “combination" that illegally suppressed competition in the insurance and related industries. Specifically, Louisiana contends that “[i]n a scheme to thwart policyholder indemnity and in direct violation of their fiduciary duties, insurer defendants and others continuously manipulated Louisiana commerce by rigging the value of policyholder claims and raising the premiums held in trust by their companies for the benefit of policy holders to cover their losses as taught by McKinsey Company."

According to Louisiana, this combination started in the 1980s when McKinsey, a corporate advising company, engineered a strategy that undervalued insurance claims, allowing insurance companies and their shareholders to reap the profits. Initially, McKinsey advised insurers to stop “premium leakage" by undervaluing claims using the tactics of “deny, delay, and defend;" as a result, many insurers began hiring McKinsey for management advice on how to increase their profits. The combination was strengthened by ISO, “a leading provider of statistical, actuarial, and underwriting information for the property/casualty insurance and risk management industries," through the databases and other computer programs that ISO provided to insurers (such as Xactimate, which is manufactured by Xactware, and IntergriClaim, which is manufactured by MSB), because those programs were manipulated to reduce the value of claims. Louisiana alleges that the defendant insurance companies (and possibly others) have worked with McKinsey and ISO to undervalue and underpay policyholders' claims, particularly in the wake of Hurricanes Katrina and Rita. Louisiana asserts in its complaint: “An agreement, combination or conspiracy between all defendants, and other unnamed competing insurance companies, existed, at all material times herein, to horizontally fix the prices of repair services utilized in calculating the amount(s) to be paid under the terms of Louisiana insureds' insurance

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contracts with insurers for covered damage to immovable property." In its petition, Louisiana contends that such price-fixing constitutes anti-trust violations under the Louisiana Monopolies Act. Louisiana is seeking forfeiture of illegal profits, treble damages, and injunctive relief.

On December 7, 2007, Defendants timely removed the case to the United States District Court for the Eastern District of Louisiana; Louisiana filed a motion to remand back to state court on January 7, 2008. Before the district court, Defendants argued that this case is removable under CAFA. They argued that although labeled parens patriae, this case is in substance and fact a “class action" or a “mass action" as those terms are used in CAFA because the petition is seeking treble damages on behalf of Louisiana insurance policyholders. Defendants urged the district court to look beyond the labels used in the complaint and determine the real nature of Louisiana's claims, arguing that all of the procedural requirements of CAFA were satisfied: the putative class exceeds 100, the minimal diversity requirements are met, and the amount in controversy exceeds $5,000,000. See 28 U.S.C. § 1332(d). Defendants also argued that the fact that the Louisiana Attorney General is not proceeding under Federal Rule of Civil Procedure 23 or the analogous state rule is not determinative for CAFA purposes. Before the district court, Defendants highlighted that several other similar purported class actions are and/or were pending before the same federal district court, where the same group of lawyers filed, or attempted to file, nearly identical claims as those alleged in this case by the state of Louisiana, as further evidence that this lawsuit is in fact a class action. See Muzzy v. USSA Cas. Ins. Co., No. 06-4773, 2008 U.S. Dist. LEXIS 42870 (E.D.La. Feb. 20, 2008); Schafer v, State Farm Fire and Cas. Co., 507 F.Supp.2d 587 (E.D.La.2007); Mornay v. Travelers Ins. Co., No 07-5274 (E.D. La. filed Aug. 30, 2007).

On April 2, 2008, Judge Zainey held a hearing on the issue of removal. At the hearing, the district court was primarily concerned about who the real parties in interest are in this case. In noting that it was his responsibility to look to the substance of the complaint-to pierce the pleadings-and to determine the real nature of the claim asserted, he explained: “[I]t's the Court's responsibility to not just merely rely on who a plaintiff chose to sue, or, in this case, how the plaintiff chose to plead, but I have to look at the specific substance of ... the complaint ...." Judge Zainey concluded that, while the State was a nominal party, the real parties in interest were the citizen policyholders. Ultimately, he denied Louisiana's motion to remand the case back to state court, concluding that the lawsuit was properly removed under CAFA.

Subsequently, Louisiana filed the present petition, seeking permission to appeal the district court's denial of its motion to remand. This Court granted the petition pursuant to 28 U.S.C. § 1453(c).


CAFA, which was enacted in 2005, provides for removal of class actions involving parties with minimal diversity. 28 U.S.C. § 1332(d)(2). Under the statute “class action" is defined as: “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." 28 U.S.C. § 1331(d)(1)(B). CAFA defines a “mass action" as: “any civil action ... in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the...

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