City’s Unexplained Failure to Name State as a Party Prevents Remand of Removed Case to State Court Under 28 U.S.C. § 1447, Holds Fifth Circuit

In New Orleans City v. Aspect Energy, LLC, No. 24-30199 (5th Cir. Jan. 23, 2025), the Fifth Circuit holds that the unexplained failure of the City of New Orleans to add the State of Louisiana as a party to its complaint meant that the federal court had diversity jurisdiction over the removed case.

“Appellant, New Orleans City (the ‘City’), alleges that Appellees, several pipeline operators (the ‘Operators’), and Entergy New Orleans LLC (‘Entergy’) have engaged in oil and gas production and transportation activities that have caused damage to the City’s coastal zone . . . . The City sued the Operators and Entergy in state court asserting claims under Louisiana’s State and Local Coastal Resources Management Act of 1978 (‘SLCRMA’).”

This case is one of reportedly forty similar lawsuits filed in Louisiana state court. “In other suits by coastal parishes, the named plaintiffs were the particular parish and the State of Louisiana. Here, however, only the City is a named plaintiff.” The panel reinforces (in a footnote) that “the City fails to explain why it neglected to name Louisiana as a plaintiff.”

“The Operators removed the suit to federal court on the basis of diversity jurisdiction [28 U.S.C. § 1332], arguing that Entergy—the only in-state defendant—was improperly joined.” The City moved to remand the case to state court under 28 U.S.C. § 1447. The district court denied remand, holding that there was no basis to conclude that the City could obtain relief from defendant Entergy “because the City alleged no conduct by Entergy that was not lawfully commenced prior to SLCRMA’s effective date. Thus, the district court held that it could disregard the Louisiana citizenship of Entergy, the only in-state defendant in the case, and assert diversity jurisdiction”

The Fifth Circuit affirms denial of remand. After holding that Entergy was indeed misjoined in the case, and could be disregarded for diversity purposes, it addresses a new argument presented on appeal by an amicus brief by a group of seven parishes (counties): that Louisiana, though not named as a formal party to the action, was nevertheless a party of interest. Because states are never “citizens” for diversity purposes, the inclusion of a state as party automatically destroys complete diversity.

“The Parishes, and by adoption the City, ground their argument in the fact that SLCRMA divides ‘uses’ into uses of state concern and uses of local concern—with the State authorized to issue permits for uses of state concern and parishes authorized to issue permits for uses of local concern. Entergy’s pipeline, the Parishes contend, is a ‘use of state concern.’ Because they believe the City sued on issues of state concern, they argue that Louisiana is the real party in interest to this suit.”

Nevertheless, the Fifth Circuit holds that even if “SLCRMA authorizes parishes to file suit to enforce uses of state concern . . . . it is not clear that the City exercised that purported authorization in this case.”

Ultimately, the City is haunted by its unexplained failure to include the state as a party. Plaintiffs are “masters of their complaint[s]” and “[i]n this case, the City chose to file this suit on its own behalf. Indeed, the City filed this suit expressly ‘exercis[ing] the authority of the Parish of Orleans . . . under [SLCRMA].’ As discussed, in approximately forty other suits filed by coastal parishes alleging that oil-and-gas companies violated SLCRMA, the plaintiffs were the parish and the State of Louisiana. The City listed only itself as a plaintiff despite dozens of examples of similar suits by parishes that included Louisiana as a plaintiff as well.”

“Because the City filed this suit on its own behalf under SLCRMA, and because the City stands to benefit from a favorable ruling, the district court did not err in considering the City to be the sole party in interest.”