U.S. Supreme Court to Decide Whether Putative Class Representative Can Stipulate to Lower Damage Amounts to Evade Federal Jurisdiction of Class Action Under CAFA
The United States Supreme Court has agreed to hear an appeal brought by a defendant insurance company to determine whether a named plaintiff’s stipulation to seek less than the $5 million jurisdictional limit under the Class Action Fairness Act of 2005 (“CAFA”), 28 U.S.C. § 1332(d), is binding upon other putative class members.
In Knowles v. the Standard Fire Ins. Co., No. 4:11-cv-4044, 2011 U.S. Dist. LEXIS 139077 (W.D. Ark. Dec. 2, 2011), the United States District Court for the Western District of Arkansas, following Eighth Circuit precedent, remanded the case to state court on the grounds that the plaintiff’s stipulation to seek less than $5 million deprived the Court of jurisdiction under CAFA. A copy of the Court’s opinion is attached for your reference. Troutman Sanders LLP was not involved in the litigation.
In Knowles, Plaintiff filed a putative class action against The Standard Fire Insurance Company alleging breach of contract due to alleged underpayment of claims for loss or damage to real property. Plaintiff alleged that Standard Fire failed to fully reimburse him for charges related to obtaining the services of a general contractor to repair damage to his property caused by hail.
In his Complaint, Plaintiff claimed that neither his claim nor any individual class member’s claim was equal to or exceeded the federal individual jurisdictional minimum of $75,000, inclusive of attorneys’ fees and costs. Plaintiff also asserted that the total aggregate damages for Plaintiff and all class members, including attorneys’ fees and costs, was less than $5 million, and that he and the class members “stipulate they will seek to recover total aggregate damages of less than” $5 million. Plaintiff also limited recovery for the class to two years, even though the statute of limitations for breach of contract is five years.
Standard Fire removed the case to federal court. In remanding the case back to state court, the U.S. District Court ruled that “[a]s the master of his complaint, Plaintiff may choose what claims to bring and what claims to leave out.” The Court found that Plaintiff had the right to limit recovery to a two-year period for purposes of calculating damages. Further, the Court held that the stipulation executed by Plaintiff barred removal of the class action to federal court because it limited damages below the amount in controversy required for federal jurisdiction under CAFA.
In response to Standard Fire’s concern that Plaintiff would simply amend his Complaint to seek more damages after remand, the Court noted that CAFA had been amended to allow cases to be removed at any time once they become removable (previously, CAFA cases had to be removed within one year). To address concerns that Plaintiff’s imposed limits on the class were unfair to class members, the Court noted that class members could opt out of the class and pursue their own remedies if they believed that the limitations placed on the class were too restrictive.
The Supreme Court’s decision to grant certiorari in this case is significant as its decision will be certain to impact a plaintiff’s ability to forum shop and manipulate the parameters of a putative class to thwart federal jurisdiction under CAFA and maximize the potential for obtaining a sizable recovery. The Court’s decision will also affect the defense of class actions. Should the Court choose to affirm the district court’s ruling, it will hamper a defendant’s ability to limit exposure by having all claims resolved in a single forum with as broad a class as possible, and to take advantage of the more stringent dispositive motions practice of the federal courts.
We will continue to monitor this case as it proceeds through the Supreme Court.
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