U.S. Supreme Court Renders Its First CAFA Decision

by Ballard Spahr LLP
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In its first opinion interpreting the Class Action Fairness Act (CAFA), the U.S. Supreme Court has unanimously held that a class representative cannot prevent removal of a class action from state to federal court by stipulating that he will seek less than $5 million in damages for the class. Today’s decision in Standard Fire Insurance Co. v. Knowles will go a long way toward ending the gamesmanship in which certain plaintiffs' class action attorneys have engaged to prevent removal of their cases to federal court under CAFA.

Congress adopted CAFA in 2005 in response to perceived abuses of the class action process in certain state courts. Indeed, Standard Fire was filed in Miller County Circuit Court in Arkansas, which is a well-known magnet for plaintiffs' class action lawyers.

Under CAFA, a class action can be removed to federal court if the proposed class contains at least 100 members, minimal diversity exists between the parties, and the aggregate amount in controversy is at least $5 million. 

The Supreme Court had granted certiorari in Standard Fire to resolve a conflict in the circuit courts over whether CAFA jurisdiction could be defeated by the class representative’s stipulation in the complaint that limited the damages sought to less than $5 million. In Standard Fire, it was uncontested that the value of the putative class members’ claims would have exceeded $5 million, except for the stipulation purporting to limit the class recovery to less than that amount. 

The Supreme Court held that the plaintiff’s stipulation was not binding on the putative class members, and did not preclude defendant's removal of the case to federal court under CAFA. The Court emphasized that "a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified." Accordingly, the Court said, since the class representative's "precertification stipulation does not bind anyone but himself, [he] has not reduced the value of the putative class members' claims."

The Supreme Court stressed that its decision was consistent with "CAFA's primary objective: ensuring 'Federal court consideration of interstate cases of national importance.'" The Court acknowledged that in individual cases, a plaintiff, who is the "master" of his own complaint, can avoid removal to federal court "by stipulating to amounts at issue that fall below the federal jurisdictional requirement." The key distinction, however, is that such stipulations are legally binding on the individual plaintiff, while the stipulation in the Standard Fire complaint was not legally binding on the putative class members.

With this ruling, the Supreme Court has sent a strong signal to the lower courts that the Congressional goal of facilitating the removal of class actions to federal court under CAFA must be respected.

Ballard Spahr's Consumer Class Action Litigation Group defends companies nationwide against a range of consumer class actions. For more information about this decision and its impact on future class action cases, please contact Burt M. Rublin at 215.864.8116 or rublin@ballardspahr.com.

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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