U.S. Supreme Court Issues Standard Fire Insurance Opinion: Stipulations Limiting Damages No Longer Insure Against Removal

The Supreme Court issued its much-anticipated opinion today in Standard Fire Insurance Co. v. Knowles, 568 U.S. __ (2013), holding unanimously that a class action plaintiff cannot avoid removal to federal court under the Class Action Fairness Act of 2005 (“CAFA”) by stipulating, prior to certification of the class, that he or she will not seek damages that exceed $5 million in total.

Under CAFA, defendants can remove a case to federal court if the aggregated amount in controversy exceeds $5 million and if there is minimal diversity between the parties. Shortly after CAFA’s enactment, the plaintiffs’ bar employed a strategy of avoiding CAFA jurisdiction by alleging in the complaint that the plaintiff and the class stipulate that they will not seek to recover total damages that exceed $5 million. This strategy was successful in the Eighth and Ninth Circuits, which held that such stipulations are effective in avoiding CAFA jurisdiction. The Fifth, Seventh, and Tenth Circuits, on the other hand, determined that such stipulations are not binding, particularly if the defendant is able to establish that the actual amount in controversy, absent the stipulation, exceeds $5 million. As a result, the plaintiffs’ bar flocked to the Eighth and Ninth Circuits, where many defendants have subsequently found themselves defending against class actions without any hope of removal. Until now.

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