In an insurance class action, the U.S. Supreme Court now has another opportunity to take up the issue of federal due process protections in state court class actions.  The Court’s decisions last term in Wal-Mart v. Dukes and AT&T v. Concepcion are of limited help to defendants in state court because, while many state courts follow federal law on class certification, they are not required to do so.  As I’ve noted before, the only way the Supreme Court can rein in state court class actions in states that choose not to follow federal precedent on class certification is by taking up a Due Process Clause challenge in a petition for certiorari from a state supreme court.  The Court had two recent opportunities to address this issue in Farmers Ins. Co. of Oregon v. Strawn (see my blog post about Strawn) and Philip Morris USA Inc. v. Jackson (see my blog post about Jackson).  Justice Scalia, acting as circuit justice, had granted a stay in Jackson, writing an opinion on the stay application explaining that “The extent to which class treatment may constitutionally reduce the normal requirements of due process is an important question.”  Nevertheless, the Court denied certiorari in both Jackson and Strawn.  Given the repeated occurrence of this important issue, perhaps the third attempt might have success.

The case now before the Court is Louisiana Citizens Property Insurance Corp. v. Oubre, No.  11-1252 (here is Louisiana Citizens’ cert petition.pdf, and a link to the docket).  This is the case I wrote about in a December 22, 2011 blog post.  The plaintiffs sought penalties under Louisiana’s bad faith statutes against Louisiana Citizens Property Insurance Corporation, the state-created insurer of last resort.  Louisiana Citizens only sells policies to people who cannot obtain them in the private market, and is funded in part by assessments imposed on all Louisiana property insurance policyholders.  The claim was that Louisiana Citizens failed to initiate loss adjustment on claims of the class members within 30 days after receiving notice of a Hurricane Katrina or Rita claim.  The Louisiana Supreme Court, in a 4-3 decision, reinstated a trial court judgment (which had been reversed by an intermediate appellate court), imposing a penalty of $5,000 for each technical violation of the statute, without any proof of bad faith conduct by Louisiana Citizens.  Even if Citizens was one day late in starting the adjustment of a claim, after suffering an unprecedented disruption of its own business activities following Katrina and Rita, a $5,000 penalty was imposed.  The total judgment is nearly $93 million before interest.  A seemingly unfair result, on which the state’s elected insurance commissioner has spoke out strongly against the decision.

Louisiana Citizens hired Ted Olson, who argued Bush v. Gore and later became President George W. Bush’s Solicitor General, to prepare its cert petition.  The thrust of the petition is that by upholding these large penalties without any evidence from the plaintiffs as to the appropriateness of the penalties on the class members’ claims, and without allowing Louisiana Citizens any opportunity to present evidence in support of reduced penalties, the Louisiana Supreme Court violated due process.  Here is a key passage from the petition (p. 14):

By relieving respondents of their burden of proving the appropriate penalty to be awarded to each class member, and depriving Citizens of its right to mount a full defense on this issue, the Louisiana Supreme Court denied Citizens its fundamental due process rights and broke sharply from this Court’s due process precedents. See, e.g., Philip Morris USA v. Williams, 549 U.S. 346, 353 (2007) (“[T]he Due Process Clause prohibits a State from punishing an individual without first providing that individual with an opportunity to present every available defense.”) (internal quotation marks omitted). It is flatly at odds with the basic notions of fairness that animate this Court’s due process jurisprudence for courts to use procedural shortcuts that eliminate individual burdens of proof and individualized defenses in order to cram thousands of disparate claims into a class-action proceeding. Cf. Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2561 (2011) (rejecting a “Trial by Formula” class-action procedure that would have applied the results from a “sample set” of claims to “the entire remaining class” because the “novel project” would deny the defendant its right “to litigate its statutory defenses to individual claims”).

While the Court seems to have had some reluctance to take this issue up in Jackson and Strawn, perhaps Oubre is a better vehicle for doing so.  The issue presented by the Louisiana Supreme Court decision seems simple and clear cut.  We shall see, the Court might take this up before its term ends in June.  In the meantime, the plaintiffs’ lawyers are trying to execute on their massive judgment by obtaining funds held by Louisiana Citizens in a bank account, and Louisiana Citizens has been trying desperately to prevent execution of the judgment.  The latest news, explained in an article by Chad Hemenway on PropertyCaualty360, is that Louisiana Citizens obtained a temporary restraining order in a state trial court.  Prior efforts to obtain stays failed in an application to Justice Scalia and in a Louisiana Supreme Court order overturning a stay imposed by a lower state court.