Supreme Court Closes a Loophole for Class Action Plaintiffs Who Want to Avoid Federal Court

On March 19, 2013, the Supreme Court held that a class action plaintiff cannot avoid federal jurisdiction under the Class Action Fairness Act (“CAFA”) by stipulating prior to class certification that he and the class will not seek damages exceeding $5 million in aggregate value. See Standard Fire Insurance Company v. Knowles. The central premise of the Court’s ruling is that a proposed class representative cannot legally bind the absent members of a putative class before the class is certified. Knowles deals a blow to plaintiff class action lawyers who have tactically employed such stipulations to keep their class actions in friendlier state court fora.

Should a Pre-Certification Stipulation Prevent Federal Jurisdiction Under CAFA?

In April 2011, plaintiff Greg Knowles filed a putative class action complaint in Arkansas state court, asserting state-law claims on behalf of Arkansas residents. Knowles alleged that the Standard Fire Insurance Company had unlawfully failed to include a general contractor fee when the company made certain homeowner’s insurance loss payments. Knowles sought to certify a class of hundreds, or possibly thousands, of similarly-harmed Arkansas policyholders. As alleged in the complaint, Knowles and the class sought to recover aggregate damages of less than $5 million. The complaint attached an affidavit from Knowles, further stipulating that he would not, at any time in the course of litigation, seek damages for the putative class exceeding $5 million in the aggregate.

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