Fifth Circuit Court hears appeal to move Farmers Insurance price-fixing case back to state court

The Fifth U.S. Circuit Court of Appeal heard arguments Thursday afternoon on whether a price-fixing lawsuit filed in November by former Louisiana Attorney Charles Foti against insurance companies and their vendors should proceed in state or federal court.


The suit, filed Orleans Parish Civil District Court under the Louisiana Monopolies Act, alleges that seven major insurance companies (including Farmers Insurance), their claims adjusting software manufacturers and other associates conspired to artificially depress the price to repair damage from Hurricane Katrina by manipulating construction values in computer programs, enriching insurance companies and leaving Louisiana homeowners without enough money to repair their homes.

Insurance companies successfully removed the case from state to federal court in December, and won a hearing in April that it should stay in U.S. District Court because of the application of a 2005 law known as the Class Action Fairness Act that overhauled the rules for filing class action lawsuits.

The State of Louisiana appealed that ruling by U.S. District Court Judge Jay Zainey in hopes of moving it back to state court.

Insurance companies, who were represented by 35 lawyers from around the country, argued that Foti's suit is actually a class action in disguise, and therefore should be subject to CAFA rules, which means that it must proceed in federal court.

Richard Fenton, an Allstate attorney from Chicago who argued on behalf of all of the defendants, said that the State of Louisiana's name may appear on the suit, but the real beneficiaries are individual policyholders.

"It's a class action," Fenton said. "The real parties at interest are the citizens, who will be the beneficiaries of any recovery."

But Jane Bishop Johnson, assistant attorney general for anti-trust issues, argued that state attorneys general were not intended to be subjected to CAFA rules, and should have the freedom to choose whether to take action in state or federal court to most effectively protect the interests of their citizens and the state's economy.

"They're trying to force us into federal court," Johnson said. "The constitution says the attorney general can file any action he deems appropriate."

The case was heard by a panel of three judges: Priscilla Richman Owen of Texas, who was nominated to the court in 2005 by President George W. Bush; Carl E. Stewart of Louisiana, who was nominated to the court in 1994 by President Bill Clinton; and Leslie Southwick, a former Mississippi judge who was nominated by President Bush last year.

Owen told Johnson that the case represented no threat to the police power of the state, and said that she was confusing questions of power with questions of jurisdiction. "No one's saying the attorney general doesn't have the authority. We're talking about jurisdiction. It's a simple choice of forum," she said.

Southwick, meanwhile, questioned insurer arguments that the case needed to be in federal court because it met the CAFA definition of a class action regardless of whether it actually proceeded as a class action, and pushed Fenton to explain why state court shouldn't be the one to evaluate the substance of the case. "Why isn't that a matter to be determined in state court?" Southwick asked.

Another insurance suit filed by Foti, one that seeks to give the state the power to pursue insurance companies on behalf of the Road Home Program if it appears that grant recipients left money on the table, was moved to federal court. The state failed in its efforts to move it back, and the case is now proceeding in U.S. District Court Judge Stanwood Duval's court.

If the anti-trust suit has to stay in federal court and proceed as a class action, it will be much more cumbersome for the state to prosecute.

Attorney General Buddy Caldwell, who won a runoff election for Attorney General just nine days after the price-fixing suit was filed, told the Baton Rouge Press Club earlier this week that he was awaiting the outcome of this ruling before deciding how to proceed with the cases.

Named in the suit are insurers State Farm Fire & Casualty Co., Allstate Insurance Co., Farmers Insurance Exchange, USAA Casualty Insurance Co., Lafayette Insurance Co. and the Standard Fire Insurance Co., better known as Travelers; software makers Xactware Solutions Inc. and Marshall & Swift/Boeckh LLC; data aggregator Insurance Services Office Inc.; and consulting firm McKinsey & Co. Inc. United States. \\

More information about the lawsuit can be found at Farmers Insurance and Xactware Xactimate

Source: nola.com