Opinion
Civil Action No: 03-2944 Section "R" (2).
December 14, 2004
ORDER AND REASONS
Before the Court is plaintiffs' motion to remand this action to state court for lack of subject matter jurisdiction. Defendants removed this proceeding to this Court on October 21, 2003. Because plaintiffs' federal claim has been dismissed, plaintiffs' remaining claim does not present a federal question, and the Court declines to exercise supplemental jurisdiction over plaintiffs' state law claim, the Court GRANTS the motion to remand and remands the case to the Twenty-Second Judicial District Court for the Parish of St. Tammany.
I. BACKGROUND
Before September 25, 2002, plaintiffs Harry and Lynn Corliss purchased flood insurance for their residence in Slidell, Louisiana through defendant South Carolina Insurance Company, a foreign corporation authorized to do business in Louisiana. SCIC apparently sold the insurance through Steve Farris, an insurance agent employed by Martin Insurance Agency. Both Farris and Martin reside in Louisiana. On September 25, 2002, plaintiffs' residence was flooded as a result of Tropical Storm Isadore. SCIC reimbursed plaintiffs in an amount less than the damage that their residence sustained.
On September 23, 2003, plaintiffs sued SCIC, Steve Farris and Martin Insurance Agency in state court. They alleged that SCIC acted in bad faith by failing to reimburse them for the flood losses allegedly covered by the policy. Plaintiffs also alleged that Farris and Martin acted negligently when (1) they advised plaintiffs that the flood policy would provide coverage for the loss of the contents of plaintiffs' residence, and (2) they provided contents coverage of only $15,000, when it was apparent that the value of the contents of plaintiffs' residence was well in excess of that amount. Plaintiffs do not assert policy claims against Farris and Martin.
On October 21, 2003, defendant SCIC, with Farris and Martin's consent, removed the action to this Court under 28 U.S.C. § 1441(a), (b) and (c). SCIC invoked the Court's federal question jurisdiction under 28 U.S.C. § 1331 because plaintiffs' claims against SCIC were brought under a Standard Flood Insurance Policy issued by SCIC as a Write-Your-Own carrier participating in the National Flood Insurance Program. That program and claims for losses covered by flood insurance issued under it are subject to the original exclusive jurisdiction of the federal courts. 42 U.S.C. § 4072.
On July 29, 2004, plaintiffs resolved and voluntarily dismissed their claim against SCIC, which left only their state law negligence claims against Farris and Martin. On November 5, 2004, plaintiffs moved to remand this case to state court under 28 U.S.C. § 1367 for lack of subject matter jurisdiction because the federal claim on which the Court's jurisdiction was based had been dismissed. Defendants Farris and Martin oppose the motion to remand, arguing that the Court should exercise its discretion to retain supplemental jurisdiction over the state law negligence claims.
II. LEGAL STANDARD
The Court must have statutory authority to adjudicate every claim presented to it. See Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377 (1994). The Court must therefore either establish that it has congressional authorization to retain plaintiff's lawsuit or remand the case for lack of subject matter jurisdiction. See 28 U.S.C. § 1447(a). The removing party bears the burden of establishing the existence of federal jurisdiction. See Allen v. R H Oil Gas Co., 63 F.3d 1326, 1335 (5th Cir. 1995). Section 1441 is to be narrowly construed to restrict removal because "a defendant's use of that statute deprives a state court of a case properly before it and thereby implicates important federalism concerns." Frank v. Bear Stearns Co., 128 F. 3d 919, 922 (5th Cir. 1997).
As this case does not meet the requirements of diversity jurisdiction, removal is justified only if the suit presents a federal question. A cause of action arises under federal question jurisdiction only if the plaintiffs' well-pleaded complaint raises an issue of federal law. See Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987). A defendant may not remove a case on the basis of an anticipated federal defense. Aaron v. National Union Fire Ins. Co., 876 F.2d 1157, 1161 (5th Cir. 1989). At the same time, when federal law so completely preempts a field of state law, a complaint is recharacterized as stating a federal cause of action. Id. (citing Avco Corp. v. Aero Lodge No. 735, 390 U.S. 557 (1968)).
III. DISCUSSION
Defendants predicated jurisdiction on the National Flood Insurance Act when they removed this case to federal court. 42 U.S.C. §§ 4001-129. Congress created the National Flood Insurance Program in 1968 to make it easier for individuals who live in flood-prone areas to obtain flood insurance. The federal government subsidizes the program, and the Federal Emergency Management Agency administers it. The flood insurance policies issued under the NFIA are called Standard Flood Insurance Policies. FEMA promulgated regulations that enable the agency to use private insurers as intermediaries in providing flood insurance. 42 U.S.C. § 4071; 44 C.F.R. § 61.13(f). These insurance companies are called Write-Your-Own insurance companies. WYOs issue SFIPs in their own names, but they may not alter, vary or waive the terms of the SFIPs. Id.; 44 C.F.R. § 62.23(c). WYOs keep the premiums that they collect on SFIPs in segregated accounts from which they pay claims and refunds on SFIPs. If the funds in the account fall below a sufficient amount, the WYO pays claims by drawing on FEMA letters of credit. 44 C.F.R. § 62, App. A. WYOs keep a portion of the premiums collected as reimbursement for operating expenses and receive commissions on payments of claims.
The NFIA grants federal courts original exclusive jurisdiction over lawsuits against insurance companies for disallowing claims made by insureds under SFIPs. 42 U.S.C. § 4072. Thus, when an insured sues over the handling of its claim under the policy, that suit must be brought in federal court. Id.; Spence v. Omaha Indem. Ins. Co., 996 F.2d 793, 796 (5th Cir. 1993). Because plaintiffs originally asserted a claim against SCIC that challenged the way SCIC handled plaintiffs' claim under the SFIP, removal to this Court was proper.
Since removal, however, plaintiffs have dismissed their claim against SCIC. What remains is plaintiffs' state law negligence claim against Farris and Martin, which is not a claim for flood damages or for coverage under the policy. Rather, it is a state law tort claim asserting that Farris and Martin were negligent in advising plaintiffs when plaintiffs procured the policy. ( See Pl.s' Compl. at ¶ 10). Farris and Martin acknowledge that the federal claim has been dismissed, and they do not appear to assert that this Court continues to have federal question jurisdiction over the remaining state law claim. In any event, the Court finds that it does not have federal question jurisdiction over the remaining state law claim.
The Fifth Circuit has held that because 42 U.S.C. § 4072 "addresses itself solely to actions arising from partial or complete disallowance of flood insurance policy claims," the NFIA does not preempt state law tort claims that arise from policy procurement. See Spence, 996 F.2d at 796. These claims are thus not governed by federal law, but by state law, and they provide no basis for federal question jurisdiction. See id.; Elizabeth v. USAA General Indem. Co., No. Civ. A. 02-2021, 2002 WL 31886719, at *2 (E.D. La. Dec. 19, 2002); Powers v. Autin-Gettys-Cohen Ins. Agency, Inc., No. Civ.A. 00-1821, 2000 WL 1593401, at *3-4 (E.D. La. Oct. 24, 2000).
The Court notes that since Spence was decided, effective December 31, 2000, FEMA revised the regulation that contains the SFIP to state that "[t]his policy and all disputes arising from the handling of any claim under the policy are governed exclusively by the flood insurance regulations issued by FEMA, the National Flood Insurance Act of 1968 . . . and Federal common law." 44 C.F.R. Pt. 61, App. A(1), Art. XI (2003) (emphasis added). Here, plaintiffs' claim is for negligence in policy procurement, not claims handling. Thus, the revised regulation does not apply to this claim, nor does it affect the holding in Spence, which applied to state law claims relating to policy procurement. Accordingly, plaintiffs' remaining state law claim does not present a federal question, and the Court does not have federal question jurisdiction over it.
Nevertheless, defendants argue that the Court should exercise supplemental jurisdiction over plaintiffs' state law claim. Absent an independent basis for federal jurisdiction over plaintiffs' state law claim, that claim may remain in federal court only if this Court decides to exercise supplemental jurisdiction over it under 28 U.S.C. § 1367. Under section 1367, the Court may decline to exercise supplemental jurisdiction over a pendent state law claim if (1) the claim raises a novel or complex issue of state law; (2) the claim substantially predominates over the claim over which the district court has original jurisdiction; or (3) the district court has dismissed all claims over which it has original jurisdiction. 28 U.S.C. § 1367(c) (1) — (3).
The federal claim over which the Court has original jurisdiction has been dismissed. A district court has wide discretion in determining whether to retain supplemental jurisdiction over a state claim once all federal claims are dismissed. Robertson v. The Neuromedical Center, 161 F.3d 292, 296 (5th Cir. 1998); Noble v. White, 996 F.2d 797, 799 (5th Cir. 1993). The general rule is that a district court should decline jurisdiction over state law claims when all federal claims are dismissed. Smith v. Amedisys Inc., 298 F.3d 434, 447 (5ht Cir. 2002). As the Supreme Court has stated,
[n]eedless decisions of state law should be avoided both as a matter of comity and to promote justice between the parties, by procuring for them a surer-footed reading of the applicable law . . . Certainly, if the federal claims are dismissed before trial, even though not insubstantial in a jurisdictional sense, the state claims should be dismissed as well.United Mine Workers v. Gibbs, 383 U.S. 715, 726 (1966).
Here, the Court has not addressed the merits of plaintiffs' state law claim, and there thus has been no commitment of judicial resources to the state law claim that would weigh in favor of exercising supplemental jurisdiction. The parties have submitted no pretrial order, and trial is not imminent. Nor have they conducted much discovery, since they have deposed only one person. Further, any discovery that has been done can be used in state court. Although the lawsuit has been pending over a year in this Court, on balance, the Court finds that the rule counseling against the exercise of supplemental jurisdiction applies in this situation.
IV. CONCLUSION
For the foregoing reasons, the Court GRANTS the motion to remand and remands this proceeding to the Twenty-Second Judicial District Court for the Parish of St. Tammany.