Severance Under Rule 21 May Defeat CAFA Jurisdiction

State of Louisiana v. American National Property And Casualty Company , 2013 WL 5201146 (E.D. La. Sept. 11, 2013).

In this case, the District Court for the Eastern District of Louisiana held that, while subject matter jurisdiction is generally determined at the onset of litigation, when an action is severed under Federal Rule of Civil Procedure 21, the severed action must have an independent jurisdictional basis to remain in federal court.

Procedural History

In Louisiana v. AAA Insurance, Case No. 07-5528 (the "Road Home Litigation"), the State of Louisiana (the "State"), brought an action in state court to recover funds from over 200 insurers. Recipients of Road Home grants had assigned the disputed funds to the State pursuant to subrogation agreements with the recipients' insurers. In the aftermath of Hurricanes Katrina and Rita, the State, with funding from the United States Department of Housing and Urban Development, created The Road Home program to distribute federal grants to assist Louisiana residents in rebuilding their homes damaged by the storms.

Pursuant to CAFA, the defendant-insurers removed the Road Home Litigation to the Eastern District of Louisiana, where the case was consolidated with another pending class action, In re Katrina Canal Breaches Consolidated Litigation ("Katrina Canal Breaches Litigation").

The State initially filed a motion to remand, which the Katrina Canal Breaches court denied. The defendant-insurers then filed a motion to dismiss, which was granted in part and denied in part. Specifically, the Katrina Canal Breaches court dismissed the State's extra-contractual claims and claims for declaratory relief, but found that the subrogation agreements' anti-assignment clauses did not bar the State's subrogation claims. The defendant-insurers appealed the issue of the anti-assignment clauses' enforceability to the Fifth Circuit, which in turn certified the question to the Louisiana Supreme Court. Thereafter, the Road Home Litigation was deconsolidated from the Katrina Canal Breaches Litigation and transferred to another division in the Eastern District.

In the interim, the Katrina Canal Breaches court dismissed the class action in the master complaint in the Katrina Canal Breaches Litigation, which effectively dismissed the class allegations in Road Home Litigation as well by virtue of the State's stipulation agreeing to be bound by that ruling. Subsequently, the Louisiana Supreme Court, answering the Fifth...