Supreme Court Eliminates Jurisdictional Escape Hatch To The Class Action Fairness Act

The U.S. Supreme Court’s decision in Standard Fire Insurance Co. v. Knowles confirms that a plaintiff cannot avoid federal jurisdiction under the Class Action Fairness Act (“CAFA”) by stipulating that the class will seek less than CAFA’s $5 million amount in controversy threshold.

Under CAFA, federal courts have original jurisdiction over class actions if the proposed class has more than 100 members, the parties are minimally diverse, and the amount in controversy exceeds $5 million. In Standard Fire, the plaintiff’s state court class action complaint included an affidavit stipulating that the class would seek less than $5 million in damages. Citing CAFA, the defendant removed the case to federal district court and presented evidence that damages would exceed $5 million. Although the district court agreed that the amount in controversy exceeded CAFA’s $5 million threshold, it remanded the case based on plaintiff’s stipulation. The Eighth Circuit refused to hear the defendant’s appeal, but the Supreme Court accepted defendant’s petition citing a split among the circuit courts.

In a unanimous opinion, the Supreme Court rejected the plaintiff’s attempt to avoid CAFA’s jurisdictional requirements, explaining that a class action plaintiff cannot bind proposed class members until the case is certified. Because plaintiff’s pre-certification stipulation was not binding on the proposed class, plaintiff did not alter the amount in controversy and the district court “should have ignored the stipulation.” The Court thus vacated the district court’s judgment and remanded the case.

 

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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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