Class Action Update: Standard Fire Extinguishes Plaintiff’s Precertification Attempt to Avoid Federal Jurisdiction

The Supreme Court has put a stop to a tactic used by class action plaintiffs to avoid federal court. On Tuesday, the Court held that a named plaintiff’s precertification affidavit capping the damages could not bind the putative class members and thus could not defeat federal jurisdiction. Standard Fire Ins. Co. v. Knowles, 568 U.S. ___ (March 19, 2013) (slip opinion).

Backdrop: Class Action Fairness Act of 2005

The Class Action Fairness Act of 2005 (“CAFA”) considerably expanded the scope of federal jurisdiction over class actions. Under CAFA, federal district courts have original jurisdiction over putative class actions in which the amount in controversy exceeds $5 million. See 28 U.S.C. § 1332(d)(2). This amount-in-controversy threshold requires that the “claims of the individual class members shall be aggregated.” See 28 U.S.C. § 1332(d)(6).

Stipulations Must Be Binding, But Named Plaintiffs Cannot Bind Precertification Class Members.

The plaintiff filed a putative class action in Arkansas state court. Along with the complaint, the plaintiff filed an affidavit stipulating that he would not “seek damages for the class . . . in excess of $5,000,000 in the aggregate.” Standard Fire, Slip Op. at 2.

In spite of the affidavit, Standard Fire removed the case. See 28 U.S.C. § 1453. The plaintiff moved to remand and argued that, based on his affidavit, the amount in controversy did not meet the $5 million threshold. The district court remanded the case, finding that although Standard Fire presented evidence that the amount in controversy otherwise would have met the CAFA threshold, the affidavit ultimately controlled. The Eighth Circuit declined to hear Standard Fire’s appeal, and the Supreme Court granted Standard Fire’s petition for writ of certiorari in light of a circuit split on this issue.

The Supreme Court vacated the district court’s judgment and remanded the case. The Court reasoned that a named plaintiff cannot, prior to certification, bind putative class members. See id. at 4 (citing Smith v. Bayer Corp., 564 U.S. ___ (2011) (slip op., at 15)). Consequently, “[t]he stipulation Knowles proffered to the District Court . . . does not speak for those he purports to represent.” Standard Fire, Slip Op. at 4. The Court thus held that that the plaintiff’s precertification, individual affidavit could not operate to avoid CAFA jurisdiction.

Bottom Line

Standard Fire forecloses putative class plaintiffs from defeating CAFA jurisdiction via a precertification affidavit stipulating to the amount in controversy. However, it leaves intact the notion that individual plaintiffs may avoid removal to federal court and obtain remand by stipulating that they will claim less than the jurisdictional amount. See id. at 6-7. It also leaves open the question of whether a putative class plaintiff may avoid CAFA jurisdiction by limiting attorney’s fees so that the total amount in controversy remains below the threshold. See id. at 7. For more information, contact Ashley Bruce Trehan, a member of Fowler White’s Class Action Team.

 

Topics:  Amount in Controversy, CAFA, Class Action, Damages, Jurisdiction, SCOTUS

Published In: Civil Procedure Updates

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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