In Re: Katrina Canal ( 2010 )

Case: 09-31071 Document: 00511291342 Page: 1 Date Filed: 11/11/2010
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
November 11, 2010
No. 09-31071 Lyle W. Cayce
Clerk
IN RE: KATRINA CANAL BREACHES LITIGATION
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GLADYS CHEHARDY; CHUCK MORRIS; DAY MORRIS; SPENCER
FALOU; HEATHER FALOU; ET AL,
Plaintiffs-Appellants
v.
STATE FARM FIRE & CASUALTY COMPANY.; ALLSTATE INDEMNITY
COMPANY; ALLSTATE INSURANCE COMPANY; AMERICAN
INSURANCE COMPANY; LAFAYETTE INSURANCE COMPANY;
LIBERTY MUTUAL FIRE INSURANCE COMPANY; CHUBB CUSTOM
INSURANCE COMPANY; AAA HOMEOWNERS AUTO CLUB FAMILY
INSURANCE COMPANY; LOUISIANA CITIZENS PROPERTY
INSURANCE CORP; LEXINGTON INSURANCE COMPANY; ENCOMPASS
INSURANCE COMPANY OF AMERICA; AEGIS SECURITY INSURANCE
COMPANY; GREAT NORTHERN INSURANCE COMPANY; HANOVER
INSURANCE COMPANY; STANDARD FIRE INSURANCE COMPANY,
Defendants-Appellees
Appeal from the United States District Court
for the Eastern District of Louisiana
USDC No. 2:05-CV-4182
Before JONES, Chief Judge, and REAVLEY and HAYNES, Circuit Judges.
Case: 09-31071 Document: 00511291342 Page: 2 Date Filed: 11/11/2010
No. 09-31071
PER CURIAM:*
Plaintiffs-Appellants, who are policy holders of the various insurance
company defendants, appeal following the district court’s grant of a motion to
strike class action allegations and subsequent dismissal of Plaintiffs’ case. When
the Plaintiffs declined the opportunity to refile their claims as individual actions,
the district court dismissed. The claims stem from the Hurricane Katrina
disaster in Louisiana. Plaintiffs sought, inter alia, certification of statutory
penalty claims for the Defendants’ alleged bad faith in adjusting their Katrina-
related insurance claims. The district court held that class certification was
improper because the claims required an analysis of myriad individualized, fact-
specific issues. We AFFIRM.
The district court’s denial of class certification is reviewed for an abuse of
discretion, but we review the legal standards employed by the court de novo. See
Archdiocese of Milwaukee Supporting Fund, Inc. v. Halliburton Co., 597 F.3d
330, 334 (5th Cir. 2010).
“All classes must satisfy the four baseline requirements of Rule 23(a):
numerosity, commonality, typicality, and adequacy of representation.” Anderson
v. U.S. Dep’t of Housing & Urban Dev., 554 F.3d 525, 528 (5th Cir. 2008); see
F ED. R. C IV. P. 23. In addition, a putative class must also be one of the three
types of class actions listed in Rule 23(b). See Maldonado v. Ochsner Clinic
Found., 493 F.3d 521, 523 (5th Cir. 2007). The issue in this appeal is whether
the Plaintiffs’ proposed class satisfied Rule 23(b)(3), which requires the court to
find that “the questions of law or fact common to class members predominate
over any questions affecting only individual members[.]” F ED. R. C IV. P. 23(b)(3).
The predominance inquiry is more demanding than the Rule 23(a) question of
*
Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
R. 47.5.4.
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commonality. O’Sullivan v. Countrywide Home Loans, Inc., 319 F.3d 732, 738
(5th Cir. 2003). The court must assess “how the matter will be tried on the
merits, which ‘entails identifying the substantive issues that will control the
outcome, assessing which issues will predominate, and then determining
whether the issues are common to the class.’” In re Wilborn, 609 F.3d 748, 755
(5th Cir. 2010) (citation omitted).
The Plaintiffs’ underlying claims in this case are based on the Defendants’
duties under state law to pay or make written offer to settle claims within thirty
days after receipt of satisfactory proof of loss. See L A. R EV. S TAT. A NN. § 22:658
(now codified at L A. R EV. S TAT. A NN. § 22:1892). A cause of action for statutory
penalties for violation of § 22:658 “requires a showing that (1) an insurer has
received satisfactory proof of loss, (2) the insurer fails to tender payment within
thirty days of receipt thereof, and (3) the insurer’s failure to pay is arbitrary,
capricious or without probable cause.” La. Bag Co. v. Audubon Indem. Co., 999
So. 2d 1104, 1112–13 (La. 2008). Penalties may not be assessed unless “the facts
negate probable cause for nonpayment.” Id. at 1114 (internal quotation marks
and citation omitted). This standard requires an assessment of the
reasonableness of the defendant insurer’s conduct, and “when there are
substantial, reasonable and legitimate questions as to the extent of an insurer’s
liability or an insured’s loss, failure to pay within the statutory time period is not
arbitrary, capricious or without probable cause.” Id.The district court held, and we agree, that class certification is not
appropriate in this case because each Plaintiff’s claim turns on the
reasonableness of the Defendants’ conduct in deciding whether to make
payments to each individual Plaintiff. Such a determination is a fact-specific
inquiry that will vary based on the individualized circumstances of each claim.
Plaintiffs contend that the Defendants’ bad faith may be adjudicated on a class-
wide basis because they have alleged an over-arching scheme among the
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Defendants with respect to adjusting Hurricane Katrina claims. But even in the
face of such a scheme, individualized issues will predominate, such as the nature
and extent of a class member’s damage, whether and how much a class member
was paid and for what type of damage, and whether any payment was sufficient
and timely. There will also be issues as to whether the class member fulfilled
his duty to timely notify the insurer of the claim and whether there was
sufficient proof of loss. All of these individual inquiries will be part of the overall
determination of whether the insurer acted arbitrarily and capriciously, and
therefore defeat class certification. See, e.g., Maldonado, 493 F.3d at 525(holding that class certification not appropriate where reasonableness of medical
fees charged to class members depended on multiple factors).
Plaintiffs contend that the reasonableness of Defendants’ actions may be
determined on a class-wide basis by focusing on a minimal standard of conduct
under state law rather than merely the desired conduct of the insurers. We are
unpersuaded. As noted by the district court, Plaintiffs’ distinction between these
purported standards for reasonableness is not supported by legal authority.
Moreover, the Louisiana Supreme Court has defined the necessary inquiry into
reasonableness as dependent “on the facts known to the insurer at the time of
its action.” La. Bag, 999 So. 2d at 1114. This inquiry will necessarily involve
detailed and individualized considerations of each class members’ claim.
Furthermore, because the state law provides an adequate basis for consideration
of the case, Plaintiffs’ request for certification of the issues in this appeal to the
Louisiana Supreme Court fails. See In re Katrina Canal Breaches Litig., 495
F.3d 191, 208 n.11 (5th Cir. 2007).
Plaintiffs also argue that certification is proper in order to avoid a
disparity between the federal courts and the Louisiana state courts, which have
permitted similar class actions. Federal class action certification is controlled
by federal procedural rules, notwithstanding state law. See Shady Grove
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Orthopedic Assocs. v. Allstate Ins. Co., 130 S. Ct. 1431, 1437 (2010). Because
Rule 23 governs the instant actions, and we conclude that the district court
correctly applied the rule, reliance on state court decisions in support of
certification is unavailing.
Finally, Plaintiffs argue that the district court erroneously denied their
request to order Defendants to notify individual policyholders of the district
court’s decision and the existence of their individual rights. They contend that
the court was empowered to order such notice by F ED. R. C IV. P. 23(d)(1)(B).
Even assuming that the district court had the power to issue such an order,
which we do not decide, there is nothing that requires the court to order notice
of the denial of class certification, and we find no abuse of discretion in the
court’s refusal to do so. See, e.g., Pearson v. Ecological Science Corp., 522 F.2d
171, 177 (5th Cir. 1975) (“[W]here a court has ruled under Rule 23(c)(1) that an
action cannot properly be maintained as a class action the notice requirements
of Rule 23(e) do not apply . . . .”); see also Eisen v. Carlisle & Jacquelin, 417 U.S.
156, 178, 94 S. Ct. 2140, 2153 (1974) (“The usual rule is that a plaintiff must
initially bear the cost of notice to the class.”).
AFFIRMED.
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