Class Action Plaintiffs Can't Avoid Federal Court By Stipulating To Damage Limits


A unanimous Supreme Court has made clear that the Class Action Fairness Act (CAFA) cannot be undermined by a plaintiff's attempt to seek damages of less than the jurisdictional amount. The Court resolved a Circuit split and definitively held that putative class members are not bound by plaintiff stipulations. As a result, the Court removed an obstacle that had prevented otherwise removable actions (under CAFA) from being litigated in federal court.

On March 19, 2013, the United States Supreme Court issued its opinion in The Standard Fire Ins. Co. v. Knowles, Case No. 11-1450, 568 U.S. _____ , ___S. Ct. _____, 2013 WL 1104735 (Mar. 19, 2013). The Court held that federal jurisdiction based upon the Class Action Fairness Act ("CAFA") cannot be avoided with stipulations limiting damages sought to less than the jurisdictional minimum.

CAFA, enacted in 2005, "enable[s] defendants to remove to federal court any sizeable class action involving minimal diversity of citizenship." Smith v. Bayer Corp., 564 U.S. __, __, 131 S. Ct. 2368, 2382 (2011). Congress thus intended to expand federal courts' jurisdiction over class actions and, in doing so, lowered the barriers to federal court by adjusting the amount in controversy requirement and dispensing with the rule that "complete diversity" exist among all plaintiffs and all defendants. Under CAFA, only "minimal diversity" must exist and the statute permits aggregation of putative class member claims to reach the $5 million benchmark.

The basis for the Supreme Court's ruling in Knowles rests primarily on the rule that stipulations, to be effective, must be binding. However, the plaintiff's precertification stipulation here could not speak for the putative class members he sought to represent. Absent class members are not bound by actions taken by the main plaintiff before certification. Thus, the stipulation could not reduce the value of putative class member claims. While an individual plaintiff is the master of his complaint and may freely stipulate to limit his own damages (and thereby avoid removal to federal court based upon ordinary diversity), the Knowles opinion confirms that representative suits are different, particularly in light of Congress' stated intent reflected in CAFA.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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