Classy Move: The Supreme Court Rebuffs Class Action Forum Manipulation

The U.S. Supreme Court recently issued its first decision reviewing the scope of removal jurisdiction under the federal Class Action Fairness Act (CAFA). In Knowles v. Standard Fire Insurance Co., No. 11-1450 (U.S.), the Supreme Court unanimously held that a putative class representative cannot avoid federal jurisdiction by stipulating that the class will not seek damages in excess of the CAFA $5 million jurisdictional minimum. Specifically, the Court ruled that a putative class representative cannot bind the putative class before a class is certified. In doing so, the Court eliminated plaintiffs’ use of stipulations aimed at manipulating CAFA’s jurisdictional provisions in an attempt to confine cases to “plaintiff friendly” state courts.

Before Congress enacted CAFA, a putative class action could only be filed in or removed to federal court if the case presented a federal question or satisfied principles of traditional diversity jurisdiction. Traditional diversity jurisdiction requires, among other things, that at least one named plaintiff have an amount in controversy in excess of $75,000. Importantly, the claims of named plaintiffs and putative class members pre-CAFA could not be aggregated to satisfy the amount in controversy threshold. Because class actions involving millions of dollars and issues of national concern could be restricted to state courts, Congress enacted CAFA to expand the ability of federal courts to preside over class actions.

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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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