Health Net, Inc. v. Wooley

• Citation: 534 F.3d 487
• Decision Date: 08 July 2008
• Docket Number: No. 07-30607.,No. 07-31128.,07-30607.,07-31128.
• Parties: HEALTH NET, INC., Plaintiff-Appellant, James C. Percy; Jones, Walker, Waechter, Poitevent, Carrere & Denegre, Appellants, v. J. Robert WOOLEY, Former Commissioner of Insurance for the State of Louisiana in His Capacity as Liquidator of AmCare Health Plans of Louisiana, Inc.; Marlon Harrison, as Receiver of AmCare Health Plans of Louisiana, Inc.; Kim Holland, Oklahoma Insurance Commissioner, as the Receiver of AmCare Health Plans of Oklahoma, Inc.; Jean Johnson, Special Deputy Receiver of AmCare Health Plans of Texas, Inc., and AmCare Management, Inc.; James J. Donelon, Louisiana Commissioner of Insurance, as Successor-in-Interest to and in the Capacity as Liquidator of AmCare Health Plans of Louisiana, Inc., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

534 F.3d 487

HEALTH NET, INC., Plaintiff-Appellant James C. Percy; Jones, Walker, Waechter, Poitevent, Carrere & Denegre, Appellants, v. J. Robert WOOLEY, Former Commissioner of Insurance for the State of Louisiana in His Capacity as Liquidator of AmCare Health Plans of Louisiana, Inc.; Marlon Harrison, as Receiver of AmCare Health Plans of Louisiana, Inc.; Kim Holland, Oklahoma Insurance Commissioner, as the Receiver of AmCare Health Plans of Oklahoma, Inc.; Jean Johnson, Special Deputy Receiver of AmCare

Health Plans of Texas, Inc., and AmCare Management, Inc.; James J. Donelon, Louisiana Commissioner of Insurance, as Successor-in-Interest to and in the Capacity as Liquidator of AmCare Health Plans of Louisiana, Inc., Defendants-Appellees.

No. 07-30607.

No. 07-31128.

United States Court of Appeals, Fifth Circuit.

July 8, 2008.

James Conner Percy, Leon Gary, Jr., David Matthew Kerth, Brandon Kelly Black, Jones Walker, Baton Rouge, LA, Edward H. Bergin, Robert B. Bieck, Jr., R. Patrick Vance (argued), Virginia W. Gundlach, Jones Walker, New Orleans, LA, for all Appellants.

J.E. Cullens, Jr. (argued), Moore, Walters, Thompson, Thomas, Papillion & Cullens, Baton Rouge, LA, for Wooley, Harrison, Holland and Donelon.

Joseph J. McKernan, McKernan Law Firm, Baton Rouge, LA, Robert H. Nunnally, Jr. (argued), Wisener Nunnally, Garland, TX, for Johnson.

Appeals from the United States District Court for the Middle District of Louisiana.

Before REAVLEY, SMITH and DENNIS, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

After a trial in state court, Health Net, Inc. ("Health Net"), sued in federal court to block the enforcement of the state court's judgments. Relying on Louisiana state law, Health Net alleged that the judgments were null because of improper ex parte communication between the defendants and the state court judge. The defendants argued the federal court lacked jurisdiction and that the suit was frivolous. The district court agreed with the defendants, dismissed for want of jurisdiction, and sanctioned Health Net's counsel, Jones, Walker, Waechter, Poitevent, Carrere, & Denegre, and James Percy, a Jones Walker partner (collectively "Jones Walker").

Health Net appeals the dismissal. Jones Walker appeals the sanctions. We affirm the dismissal and vacate the sanctions.

I.

In June 2003, the Louisiana receiver of AmCare Health Care Plans of Louisiana ("AmCare-Louisiana"), a defendant-appellee in this suit, sued Health Net in state court to enforce a parental agreement between AmCare-Louisiana and Health Net. The receiver alleged, inter alia, that Health Net had breached its fiduciary duty, committed fraud, participated in a conspiracy, and deepened AmCare-Louisiana's insolvency. In October 2004, the respective receivers of AmCare Health Plans of Texas and AmCare Health Plans of Oklahoma intervened. Judge Clark held a trial, with the Texas claims tried to a jury and the Oklahoma and Louisiana claims tried to the court.

The jury returned a verdict for the Texas receiver and awarded $52.4 million in compensatory and $65 million in exemplary damages. Clark reduced the awards to $36.6 million and $45.5 million, respectively. She awarded the Oklahoma receiver approximately $17.1 million in compensatory damages and the Louisiana receiver approximately $9.5 million in compensatory damages. The Oklahoma and Louisiana receivers unsuccessfully sought attorneys' fees.

While preparing its appeal, Health Net discovered billing statements from the Louisiana receiver that indicated the receiver had communicated ex parte with Clark before, during, and after trial. Health Net alleges that the Texas and Oklahoma receivers also communicated with her ex parte; alternatively, Health Net contends the receivers benefited from the Louisiana receiver's communications, because Clark approved an agreement among the three receivers to share equally in any recovery from Health Net.

Health Net asserts that the awards granted to the Oklahoma and Louisiana receivers were the result of the improper ex parte communication and that Clark dismissed the Louisiana and Oklahoma receivers' request for attorneys' fees sua sponte to moot the issue and thereby thwart Health Net's efforts to uncover the improper communications. Health Net contends Clark has issued other orders to prevent it from learning the content of certain ex parte communications. The receivers acknowledge that there have been ex parte communications and the transmittal of privileged work product to Clark, but only because this suit involves the receivership and liquidation of an insurer, and state laws and regulations authorize, even require, such communication.

Though Health Net appealed the verdicts and awards to the Louisiana Court of Appeal, it also sought an injunction in the federal district court declaring the verdicts a nullity under Louisiana Code of Civil Procedure article 2004, because the judgments were obtained by fraud or ill practices. Health Net filed the same motion, on the same day, in Clark's court. The federal district court, adopting a report of the magistrate judge ("MJ"), dismissed the suit, holding that it did not have jurisdiction because Louisiana Code of Civil Procedure article 2006 dictates that the exclusive venue for an action brought under article 2004 is the trial court that rendered the judgment. The district court, through the MJ's report, also noted that the Anti-Injunction Act, 28 U.S.C. § 2283, might deprive it of jurisdiction.

The MJ recommended sanctioning Health Net and its counsel because it was so obvious that article 2006 precluded this suit. She concluded that the plaintiff had violated Federal Rule of Civil Procedure 11(b)(2)'s requirement that its "claims, defenses and other legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law." The MJ recommended monetary sanctions in the amount of the receivers' attorneys' fees and court costs. The district court adopted the MJ's report but modified it so that only Jones Walker was sanctioned. The court referred the matter to the MJ to determine the receivers' attorneys' fees.

The MJ reviewed evidence of the receivers' attorneys' fees, adjusted the reasonable hourly fee downward for all three receivers, and added a ten-percent increase to the lodestar under Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir.1974), because of the undesirability of defending against this action and the distraction from the other litigation in this case. The court adopted the MJ's report and awarded the Texas receiver $16,360 and the Oklahoma and Louisiana receivers together $50,737.50.

II.

We review de novo a dismissal for want of subject matter jurisdiction. LeClerc v. Webb, 419 F.3d 405, 413 (5th Cir. 2005). Health Net claims the district court erred, because it has jurisdiction over this suit under 28 U.S.C. §§ 1331 and 1332. The district court, though briefly mentioning the federal question, presumed diversity of citizenship and concluded that Louisiana Code of Civil Procedure article 2006 deprived it of jurisdiction.

A.

It is not contested that complete diversity exists among Health Net and the defendants. Health Net attempted to invoke diversity jurisdiction to exercise its state-law cause of action to annul a judgment obtained by fraud or ill practices. The district court held that article 2006 deprived it of jurisdiction by mandating an exclusive venue, the trial court that rendered the judgment, for relative nullity actions¹ brought under article 2004. The court supported its conclusion in part by drawing a negative inference from Movifone, Inc. v. Target Ad, Inc., 1999 WL 319209 (E.D.La. May 19, 1999) (unpublished). There, in a one-page order, the court concluded it had jurisdiction because the allegation was that the state court proceeding was an absolute nullity, thereby exempting the action from the article 2006 venue requirement. Id. The Movifone court did not address federal jurisdiction over relative nullity actions brought under article 2004 and shed no light on the instant question.

The court also relied on Dulien Steel Products, Inc. v. Connell, 252 F.2d 556, 559 (5th Cir.1958), in which, in addressing the statutory forerunners of articles 2004 and 2006, we held that the district court lacked subject matter jurisdiction. At the time, Louisiana law did not permit a party to seek an annulment from the trial court if the judgment had been affirmed by the Louisiana Supreme Court, as the judgment in Dulien had been. Id. at 558-59. Because the plaintiff could not seek an annulment under state law, Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), forbade the district court from offering such an opportunity in federal court. Dulien, 252 F.2d at 558-59.

Louisiana law has changed since then. Article 2006 pellucidly offers the opportunity to annul a judgment in the trial court "even though the judgment sought to be annulled may have been affirmed on appeal, or even rendered by the appellate court." LA.CODE CIV. P. art. 2006. Applying the Dulien rationale, we would reach a conclusion opposite to that of the district court. Because annulment is available in state court, Erie suggests the same opportunity is available in federal courts exercising their diversity jurisdiction. Whether Erie actually makes available, in federal court, the opportunity to annul a judgment for "ill practices" depends, however, on whether article 2006 is a matter of substance or procedure, an issue the district court did not address and need not have addressed, because the Anti-Injunction Act controls.

The district court's reliance on Movifone and Dulien was misplaced, and its conclusion that it did not have subject matter jurisdiction was erroneous. In a footnote, however, the court held that the Anti-Injunction Act also justified dismissal by depriving the court of...