Antitrust Law Daily Wrap Up, ANTITRUST—M.D. Fla.: Louisiana’s claims against State Farm for business practices with auto repair shops remanded, (Aug 19, 2015)

By Linda O’Brien, J.D., LL.M.

The State of Louisiana was entitled to remand of its action against State Farm Insurance Company for allegedly engaging in unfair business practices aimed at controlling the auto repair industry. The federal district court in Orlando, Florida ruled that the State’s claims did not arise under federal law and that removal was improper (State of Louisiana v. State Farm Fire and Casualty Company, August 18, 2015, Presnell, G.).

In August 2014, the State of Louisiana filed suit in state court, claiming State Farm Insurance’s automobile repair claims practices violated the Louisiana Unfair Trade Practices Act and Monopoly Law. Specifically, the state alleged that the insurance company entered into repair agreements with auto repair shops that allowed State Farm to dictate how long the repair should take, what types of repairs are made, and the quality of replacement parts. State Farm would steer consumers to their preferred repair providers, who were forced by their agreements with State Farm to perform vehicle repairs cheaply and quickly, rather than in accordance with consumer safety and vehicle manufacturer performance standards.

In September 2014, State Farm removed the case to the federal district court, asserting that Louisiana’s claims arose under federal law. The State then moved to remand.

A case arises under federal law where federal law creates the cause of action or where a substantial disputed issue of federal law is a necessary element of a state law claim. According to the court, the State’s complaint asserted two claims based on state law — that State Farm used its direct repair program contracts with auto repair shops and the threat of exclusion from its list of recommended service providers to under pay repair shops and pressure them to use lower quality parts or forego needed repairs.

State Farm asserted that the state’s claims arose under federal law because the complaint sought injunctive relief to restrain activities in violation of the 1963 consent decree between the Department of Justice and three insurance trade associations. The court disagreed, noting that the state’s causes of action did not arise under the 1963 consent decree, since the state did not allege that State Farm violated its terms and was not seeking to have the decree enforced.

Moreover, the state’s claims for relief were based on alleged violations of state law and not violations of the consent decree. Although some of the alleged activities resembled those at issue in the 1963 consent decree, the state did not contend that State Farm’s practices violated the decree. Since State Farm failed to show that either of the state’s claims depended upon the resolution of a substantial question of federal law, such as an interpretation of the 1963 consent decree or the Sherman Act, removal was improper, the court concluded.

The case is No. 6:14-cv-6017-Orl-31TBS.

Attorneys: Allison P. Fry (John Arthur Eaves, Attorneys at Law) and James David Caldwell, Sr., Louisiana Attorney General’s Office, for State of Louisiana. Hal K. Litchford (Baker, Donelson, Bearman, Caldwell & Berkowitz, PC), Michael L. McCluggage (Eimer Stahl LLP) and Wayne J. Lee (Stone, Pigman, Walther, Wittmann, LLC) for State Farm Fire and Casualty Co., State Farm General Insurance Co., and State Farm Mutual Automobile Insurance Co.

Companies: State Farm Fire and Casualty Co.; State Farm General Insurance Co.; State Farm Mutual Automobile Insurance Co.

Cases: Antitrust StateUnfairTradePractices FloridaNews