The U.S. Court of Appeals for the Fifth Circuit, affirming a district court's decision, has ruled that insurers failed to timely remove an insurance coverage action from state court and, therefore, that it should be remanded to state court.
The Case
In 2011, Cobalt International Energy, Inc., a Texas-based oil exploration and production corporation that engaged in offshore exploration in Angola, West Africa, disclosed that the U.S. Securities and Exchange Commission and the U.S. Department of Justice were investigating allegations of connections between the company's Angolan local partner and senior Angolan government officials.
Then, in 2013 and 2014, Cobalt disclosed that certain of its wells in Angola did not contain viable oil reserves.
Those disclosures led to a consolidated class action against Cobalt.
Cobalt and the class signed a settlement agreement in October 2018. Under the terms of the settlement agreement, Cobalt agreed to pay $220 million – exclusively from Cobalt's liability policies. The parties agreed that Cobalt and the lead plaintiffs in the class action would together pursue recovery against Cobalt's insurers. They further agreed to divide any proceeds from litigation against the insurers.
The district court granted preliminary approval of the agreement in November and approved the agreement after a hearing on February 13, 2019.
In May 2016, while the class action was pending, Cobalt filed suit in a Texas state court seeking insurance coverage for losses arising out of the class action. The lead plaintiffs in the class action intervened in the insurance coverage suit in January 2019, asserting a right to do so based on the proposed settlement agreement in the class action.
Illinois National Insurance Company, a defendant in the insurance coverage suit, filed a motion to strike the petition in intervention. It argued that the lead plaintiffs did not have standing in the coverage litigation because the class action settlement agreement had not yet received final court approval.
On February 1, 2019, before final court approval of the class action settlement agreement and before Illinois National's motion to strike was heard, Cobalt and the lead plaintiffs jointly filed a fifth amended petition joining Alterra America Insurance Company and Cobalt's 12 other remaining excess insurers to the insurance coverage action. Allied World Assurance Company, which had intervened in the insurance coverage action in September 2018, removed the insurance coverage action to federal court pursuant to the Class Action Fairness Act of 2005 ("CAFA" or the "Act"). Alterra joined in Allied World's removal three days later.
Cobalt moved to remand, arguing among other things that Allied World's removal was untimely because it was not filed within 30 days of the lead plaintiffs intervention.
The U.S. District Court for the Southern District of Texas agreed with Cobalt and concluded that it lacked subject matter jurisdiction over the insurance coverage action, and granted the motion to remand.
Allied World and Alterra appealed to the Fifth Circuit.
The Fifth Circuit's Decision
The Fifth Circuit affirmed.
In its decision, the circuit court explained that federal law required a defendant seeking to remove a civil action to federal court to file a notice of removal within 30 days of either (1) the defendant's receipt of a copy of the initial pleading, or (2) service of summons upon the defendant. 28 U.S.C. § 1446(b)(1). If a case is not removable based on its initial pleading, the 30-day deadline runs from the defendant's receipt of an amended pleading or other document "from which it may first be ascertained" that the case is eligible for removal. 28 U.S.C. § 1446(b)(3).
The circuit court then pointed out that the lead plaintiffs filed a petition in intervention in the insurance coverage action on January 22, 2019 – which was when the case was eligible for removal.
Therefore, the Fifth Circuit continued, a motion to remove to federal court had to be filed within 30 days of January 22 (that is, on or before February 21), and Allied World's notice of removal, which it filed on March 1, was untimely.
The circuit court also found that Alterra's later joinder in Allied World's untimely removal was "not curative." The "initial pleading" for purposes of Alterra's filing was the fifth amended petition, and the 30 days began to run on February 11, 2019, the date it was served. The Fifth Circuit pointed out that although Alterra's notice of joinder was filed within the deadline (on March 4, 2019), it did not file its own notice of removal, instead choosing to join the previous (and untimely) notice filed by Allied World.
The Fifth Circuit concluded that, given the clear language of the removal statute, which directs each defendant to file its own "notice of removal," Alterra's joinder was insufficient.
The case is Cobalt Int'l Energy v. Alterra America Ins. Co., No. 19- 20519 (5th Cir. Oct. 3, 2019).
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].