Next Term, the U.S. Supreme Court will decide whether, or under what circumstances, a lawsuit brought by a state attorney general as a parens patriae action is removable as a “mass action” under the Class Action Fairness Act (CAFA). This week the Supreme Court granted certiorari in Mississippi ex rel. Hood v. AU Optronics Corp., No. 12-1036 (see SCOTUSblog page), a case emanating from the Fifth Circuit. The Fifth Circuit’s opinion, 701 F.3d 796, held that the case was removable as a “mass action.” The key question was whether the suit involved the claims of “100 or more persons,” because individual citizens of the state are real parties in interest, or whether the state itself was the sole real party in interest. Based on the allegations of the complaint and applicable state law, the Fifth Circuit concluded that the individual citizens were real parties in interest. The Fifth Circuit also addressed the provision in CAFA that provides an exception to jurisdiction where “all of the claims in the action are asserted on behalf of the general public (and not on behalf of individual claimants or members of a purported class) pursuant to a State statute specifically authorizing such action.” 28 U.S.C. § 1332(d)(11)(B)(ii)(III) (emphasis added). The Fifth Circuit found that exception inapplicable based on the allegations in this case because the individual consumers, not merely the general public, were real parties in interest. In a concurring opinion, Judge Elrod agreed that the court’s approach was consistent with circuit precedent in Louisiana ex. rel Caldwell v. Allstate Ins. Co., 536 F.3d 418 (5th Cir. 2008), but expressed some doubts about whether the Fifth Circuit’s approach was correct. She noted that the Fourth, Seventh and Ninth Circuits had disagreed with the Fifth Circuit’s approach. See AU Optronics Corp. v. South Carolina, 699 F.3d 385 (4th Cir.2012); Nevada v. Bank of Am. Corp., 672 F.3d 661 (9th Cir.2012); LG Display Co., Ltd. v. Madigan, 665 F.3d 768 (7th Cir. 2011).
Conventional wisdom by Court watchers here might suggest that the Supreme Court is granting review in this case with at least a tentative inclination to bring the Fifth Circuit in line with the several other circuits that have reached a different conclusion. But you never know how the Supreme Court will come out on this when it takes a fresh look at the issue, and it seems possible to me that the answer might not be black or white – the answer could conceivably depend in part on applicable state law governing parens patriae proceedings and how that interacts with CAFA. Given that the Supreme Court would be unlikely to itself take up issues of state law, its approach might be to take the Fifth Circuit’s conclusions of state law as established in this case and then apply it to CAFA.
So how is this case important for the insurance industry? The most common example of this kind of state attorney general lawsuit against insurers is one focusing on claim handling after a catastrophic event, such as the Caldwell case, which arose from Hurricane Katrina. There are various obstacles to attorneys general bringing that kind of litigation, but it is often important for insurers to try to achieve a federal forum. Allowing a state attorney general to bring a case that is, for all intents and purposes, equivalent to a class action, and keep it in state court, seems to create a large loophole in CAFA. Distinguishing between a lawsuit “on behalf of the general public” and one “on behalf of individual claimants” could be the focal point here.