The United States Supreme Court ruled unanimously in Standard Fire Ins. Co. v. Knowles that plaintiffs bringing class actions cannot avoid federal jurisdiction by representing that the class will seek less than $5 million in damages — the threshold beyond which defendants can remove a lawsuit initially filed in state court to federal court pursuant to the Class Action Fairness Act of 2005 (CAFA).
The Court held that a stipulation by the named plaintiff limiting damages “cannot legally bind members of the proposed class before the class is certified,” and therefore cannot defeat the $5 million federal jurisdiction requirement under CAFA.
The ruling clarified that a named plaintiff’s precertification stipulation as to damages “does not bind anyone but himself” and is an “artificial cap” on the class’ recovery. The named plaintiff lacks authority to concede the amount in controversy for absent class members. A federal district court cannot value the amount in controversy on the basis of a stipulation from a named plaintiff, but rather must follow the approach in cases with no stipulation: aggregate the individual class members’ claims without relying on a nonbinding stipulation.
Overall, the decision in Knowles is a victory for class action defendants desiring a federal venue, as the decision makes it harder for plaintiffs to escape federal jurisdiction. The decision also follows CAFA’s goal of ensuring broad federal jurisdiction for high-dollar multistate class actions of national importance. Class plaintiffs with an amount-in-controversy greater than $5 million (provided the other CAFA requirements are met) now will have to litigate in federal court regardless of any damages stipulations.
The Supreme Court decision in Knowles reinforces the court’s recent trend, begun in Wal-Mart v. Dukes, of holding that class actions must be managed based on individualized determinations concerning each class member, not based on facts plaintiffs allege to be characteristic of the class as a whole.