Supreme Court Rules That Policyholder Cannot Evade Federal Jurisdiction Under Class Action Fairness Act by Stipulating to Damages Below Jurisdictional Minimum

What you need to know: The Supreme Court ruled that plaintiffs cannot evade federal court jurisdiction by stipulating that class-wide damages are less than the Class Action Fairness Act’s $5 million jurisdictional minimum.

What you need to do: Insurers may wish to use the Court’s ruling, which makes it harder for plaintiffs to avoid federal court jurisdiction over large class actions, to oppose motions to remand to state court.

Background -

A policyholder filed a class action complaint in Arkansas state court asserting that the insurer breached homeowners insurance policies by underpaying claims. The insurer removed the action to federal court under the Class Action Fairness Act of 2005. CAFA provides that federal trial courts have original jurisdiction over class actions if, among other things, the “matter in controversy exceeds the sum or value of $5,000,000.” It further provides that to determine the amount in controversy, the “claims of the individual class members shall be aggregated.” The plaintiff sought to defeat federal court jurisdiction – and thereby force a remand to state court – by stipulating that he would seek to recover less than $5 million on behalf of the class. The trial court concluded, based on the insurer’s evidence, that the amount in controversy exceeded $5 million. The court nonetheless remanded the case to state court, concluding that the plaintiff’s stipulation was binding and showed that the aggregate damages claimed on behalf of the putative class did not exceed $5 million. The Eighth Circuit denied permission to appeal. The US Supreme Court vacated the judgment. See Standard Fire Ins. Co. v. Knowles, No. 11-1450, 2013 U.S. LEXIS 2370 (U.S. Mar. 19, 2013).

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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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