Can a Plaintiff Evade CAFA's Jurisdictional Threshold By Stipulating to the Amount of Damages the Plaintiff Will Seek on Behalf of the Class?

by Hinshaw & Culbertson LLP
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On August 31, 2012, the United States Supreme Court granted review in Standard Fire Ins. Co. v. Knowles. The issue presented is whether a plaintiff can preclude removal of his state class action complaint under the Class Action Fairness Action of 2005 (“CAFA”) (PDF) by stipulating that he will not seek damages for the class in excess of the $5 million jurisdictional threshold. 

Knowles attached to his putative class action complaint a signed stipulation in which he stated he will not “seek damages for the class as alleged in the complaint . . . in excess of $5,000,000 in the aggregate (inclusive of costs and attorneys’ fees).”

Although the Arkansas federal district court determined that the aggregated claims of the individual class members exceeded the $5 million threshold, it remanded the case to state court. Central to the district court’s ruling is the principle that the plaintiff is “master of his complaint” and can plead to avoid federal jurisdiction. It found dispositive the fact that plaintiff signed a stipulation that he would not seek damages in excess of the jurisdictional threshold and that he was bound by that stipulation. 

The stipulation comported with a recent Arkansas statute that permits a plaintiff to specify an amount in controversy in the complaint in order to establish subject matter jurisdiction. The district court further reasoned that should plaintiff amend its complaint down the road to seek additional damages that trigger CAFA, then Standard Fire could file another motion to remove the case.

In its opening brief, filed on October 22, 2012, Standard Fire hits hard on the Arkansas venue to support its arguments that plaintiff’s stipulation cannot circumvent CAFA. 

Plaintiff filed this putative class action . . . in Miller County Circuit Court, a court known to be a ‘magnet jurisdiction’ for class action plaintiffs’ lawyers because of its willingness to force defendants to engage in prohibitively expensive and wide-ranging discovery that coerces substantial settlements prior to class certification, and its willingness to certify classes that have been rejected in other jurisdictions.” 

Under this backdrop, Standard Fire presents several strong arguments. These include arguments that:

  1. the district court’s remand order violates the fundamental policy behind CAFA to curtail state court class action abuses by authorizing defendants to remove sizeable interstate class actions to federal court;
  2. CAFA, unlike traditional diversity jurisdiction, specifies a methodology for determining the jurisdictional threshold;
  3. under that methodology, which expressly permits aggregation of individual claims, if the aggregate total of the individual class member’s claims exceed $5 million, CAFA has been triggered and the jurisdictional inquiry ends; and,
  4. under basic class action doctrine and due process principles, a plaintiff has no authority to bind absent individual class members to a stipulation to reduce their individual claims before a class has been certified.

Knowles’ brief is due November 28, 2012. Amicus briefs will also be coming down the pipe, and indeed the National Association of Manufacturers filed an amicus brief on October 29 suggesting reversal of the district court’s remand to state court. We will report on future developments on this case.

 

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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