On March 26, 2014, in State of Louisiana v. American National Property & Casualty Company, the US Court of Appeals for the Fifth Circuit held that a severed claim does not require an independent basis for federal jurisdiction at the time the action is severed for the case to remain in federal court, unless the federal court only had supplemental jurisdiction over the severed claim at the time of removal (No. 14-30071, (5th Cir. Mar. 26, 2014)).

The State of Louisiana commenced an action against several insurers in Louisiana state court under a state class action statute. The State sought to recover on homeowner insurance policies that were purchased by individual homeowners and assigned to the State in exchange for state aid in the aftermath of Hurricanes Katrina and Rita. The insurer defendants removed the case to the United States District Court for the Eastern District of Louisiana, asserting jurisdiction under CAFA. The State moved to remand, claiming that the court lacked subject matter jurisdiction. The district court held, and the Fifth Circuit affirmed, that the case qualified for federal jurisdiction under CAFA.

The defendants filed a motion in the district court to dismiss the State's claims on the grounds that, under Louisiana law, the homeowners were forbidden from assigning their recovery to the State. This issue was litigated in the district court and appealed to the Fifth Circuit, which certified the question to the Louisiana Supreme Court. The Louisiana Supreme Court held that the legality of the assignments should be evaluated on a policy-by-policy basis. Consequently, the district court severed the claims on behalf of each individual and ordered the State to file new amended complaints for each individual claim.

The State filed 1,504 amended complaints with the district court, each of which was given a new case number and randomly assigned to a district judge. The district judges ordered the insurers to show cause why the severed cases, no longer eligible for jurisdiction under CAFA, should not be remanded to state court. They rejected the insurers' argument that jurisdiction is assessed at the time of removal and that later events cannot divest a federal court of jurisdiction. The district court judges held that they lacked jurisdiction because under Honeywell International Inc. v. Phillips Petroleum Co., "a severed action must have an independent jurisdictional basis" (415 F.3d 429 (5th Cir. 2005)).

The Fifth Circuit acknowledged the long-standing rule that jurisdictional facts are determined at the time of removal. The court rejected the application of the Honeywell exception in this case. In Honeywell, the court had considered federal jurisdiction over a severed third-party claim over which the court never maintained original federal jurisdiction. The Honeywell court held that there must be an independent jurisdictional basis for a severed claim to remain in federal court. In reaching this conclusion, it relied on 28 U.S.C. § 1367, which permits courts to exercise supplemental jurisdiction over state claims that have been joined "in the action within such original jurisdiction."

The Fifth Circuit distinguished Honeywell from the case at bar, noting that here, the federal court had original jurisdiction over the claims at the time of removal under CAFA. Since the claims were subject to original federal jurisdiction at the time of removal and therefore, unlike in Honeywell, were not in federal court as related claims under § 1367, there was no need to demonstrate an independent basis for jurisdiction after severance.

The Fifth Circuit also noted that jurisdiction under CAFA must be assessed at the time of filing. The court analyzed the legislative history of CAFA and found that it demonstrates an intent that federal jurisdiction not be undone by later events. The claims at issue in this case initially were filed as a class action and were subject to federal jurisdiction at the time of removal. Therefore, the Fifth Circuit held that they should remain in federal court.

Practitioners should be aware that the prevailing rule that jurisdiction is determined at the time of removal is well entrenched. The Fifth Circuit's decision in Honeywell creates only a narrow exception to this rule, requiring a severed claim over which the federal court never had original jurisdiction to have an independent basis for jurisdiction after severance.