Knowing Where You Are Litigating is Half the Battle: The Supreme Court Hears Oral Argument in Knowles v. Standard Fire Insurance Co. to Decide Whether a Named Plaintiff Can Defeat Federal Jurisdiction Under CAFA by Stipulating Not to Seek Damages in Excess of $5 Million

Whether a putative class representative can block removal of his case to federal court by stipulating that class damages will not exceed the jurisdictional minimum under the Class Action Fairness Act (“CAFA”) will be addressed by the U.S. Supreme Court in Knowles v. Standard Fire Insurance Co., No. 11-1450 (U.S.). This is the first opportunity for the Court to directly address the scope of CAFA removal and attempts by the plaintiff bar to curtail such removal in order to remain in certain “plaintiff-friendly” state courts.

The U.S. Supreme Court is due to address a matter of first impression regarding the scope of the Class Action Fairness Act (“CAFA”) and a plaintiff’s ability to restrict removal of a putative class action to federal court forcing the defendant to litigate in “plaintiff friendly” state court. The Court recently heard argument in Knowles v. Standard Fire Ins. Co., No. 11-1450 (U.S.), to decide whether a putative class representative can block removal of his case to federal court by stipulating that class damages will not exceed the jurisdictional minimum under CAFA.

Before Congress enacted CAFA in 2005, a putative class action could only be filed in or removed to federal court if the case presented a federal question (typically involving a federal statutory or constitutional claim), or satisfied principles of traditional diversity jurisdiction. Under traditional diversity jurisdiction, federal courts can only exercise jurisdiction over a class action where (1) there is complete diversity among the named plaintiffs and defendants (i.e., no plaintiff is a citizen of the same state as any defendant), and (2) there is at least one named plaintiff whose amount in controversy exceeds $75,000. Before CAFA, defendants in exclusively state-law based class actions could face exposure of tens of millions of dollars, but could not be heard in federal court because no single named plaintiff had claims in excess of $75,000. Congress enacted CAFA to address at least two major trends in class action filings: first, that “cases involving large sums of money, citizens of many different States, and issues of national concern, have been restricted to State courts even though they have national consequences,” and second, that some plaintiffs and their attorneys were engaging in abusive, forum-shopping strategies that required foreign defendants to litigate in potentially biased state court jurisdictions.

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