"Class action plaintiff's effort to avoid CAFA jurisdiction goes up in smoke in Standard Fire case"

Date: March 20, 2013

On March 19, 2013, the U.S. Supreme Court held in Standard Fire Insurance Co. v. Knowles, 568 U.S. ___ (2013) that a named plaintiff cannot avoid federal jurisdiction by stipulating that he and the class will not seek more than $5 million, the threshold amount for  jurisdiction under the Class Action Fairness Act (CAFA).

Named plaintiff Greg Knowles filed a putative class action in an Arkansas state court in April 2011 against Standard Fire Insurance Company (Standard Fire) on behalf of “hundreds, and possibly thousands” of other policy holders, claiming that the insurer unlawfully failed to include a general contractor fee when it made certain payments under homeowner’s insurance policies.  According to the complaint, “Plaintiff and Class stipulate they will seek to recover total aggregate damages of less than five million dollars.”  In an affidavit attached to the complaint, Knowles stipulated that he “will not at any time during the case…seek damages for the class…in excess of $5,000,000 in the aggregate.”

Standard Fire removed the case to Federal District Court, citing CAFA’s jurisdictional provision.  Although the court found that the “sum or value” of the “amount in controversy” would have been just above the $5,000,000 threshold without the stipulation, the court remanded the case to state court in light of the stipulation.  The Court of Appeals for the Eighth Circuit declined to consider the appeal of the remand order.  The U.S. Supreme Court granted Standard Fire’s petition for writ of certiorari to resolve a split among lower courts, e.g., Frederick v. Hartford Underwriters Ins. Co., 683 F. 3d 1242, 1247 (10th Cir. 2012) (a putative class-action representative’s “attempt to limit damages in the com¬plaint is not dispositive when determining the amount in controversy”) and Rolwing v. Nestle Holdings, Inc., 666 F. 3d 1069, 1072 (8th Cir. 2012) (a precertification “bind¬ing stipulation limiting damages sought to an amount not exceeding $5 million can be used to defeat CAFA jurisdiction”).

Writing for the unanimous Court, Justice Breyer noted that the reason a named plaintiff cannot defeat federal jurisdiction under CAFA by stipulating to seek damages less than $5 million is “a simple one: Stipulations must be binding.”  The Court explained that the precertification stipulation Knowles submitted “does not speak for those he purports to represent” and “does not bind anyone but himself.”  The Court also explained that to permit putative class representatives to avoid federal jurisdiction under CAFA would defeat the purpose of the statute:  “[A]llowing the subdivision of a $100 million action into 21 just-below-$5-million state-court actions simply by including non-binding stipulations … would squarely conflict with the statute’s objective.”

The business community and class action attorneys watched this case closely because of the common knowledge that state courts are generally more favorable venues for class action plaintiffs than the federal courts.  As a result of Standard Fire, class action plaintiffs’ attorneys have one less tool at their disposal to attempt to avoid CAFA removal.