The Class Action Fairness Act (CAFA) was passed by Congress in 2005 in an effort, among other things, to curb abuse of the class-action device in state courts and ensure that high-value class-action matters were litigated in federal courts, where class certification jurisprudence has been more coherent and predictable. In Standard Fire Insurance Company v. Knowles, 568 U.S. ___ (2013), the Supreme Court of the United States, in its first decision interpreting CAFA, held that a named plaintiff and class representative cannot avoid federal court jurisdiction by stipulating to a limitation of damages on behalf of the class.
Under CAFA, a defendant can remove to federal court a class action filed in state court if the class has more than 100 members, the parties are minimally diverse (that is, if at least one plaintiff is from a different state than at least one defendant), and the amount in controversy exceeds $5 million. See 28 U.S.C. § 1332(d)(2), (5)(b). In determining the amount in controversy, the federal district court must aggregate the claims of each of the individual class members. Id. at § 1332(d)(6).
To avoid federal court in favor of traditionally plaintiff-friendly state court venues, clever plaintiffs’ lawyers crafted stipulations pursuant to which the named plaintiffs and class representatives would not seek damages in excess of $5 million on behalf of the class. In Knowles, the district court accepted the stipulation, found that the amount in controversy fell beneath the statutory threshold, and remanded the case back to the state court. The United States Court of Appeals for the Eighth Circuit declined to hear the appeal.
Recognizing the divergent opinions on this issue from the federal courts – see, e.g., Miller v. Volkswagen of America, 889 F. Supp. 2d 980 (N.D. Ohio 2012) (holding that post-removal stipulations do not divest a federal court of jurisdiction under CAFA) – the Supreme Court accepted review and rejected the plaintiff’s forum-shopping tactic. The Supreme Court explained that stipulations must be binding and, in the class-action context, a class representative, prior to class certification, “cannot legally bind members of the proposed class.” As such, any stipulation that limited damages to avoid removal was not binding on the absent class members and, therefore, ineffective to defeat federal court jurisdiction. That such a tactic arguably renders the named plaintiff an inadequate class representative and precludes certification was not substantively addressed, and that such a stipulation arguably violates each absent class members’ federal due process rights was not addressed at all.
Regardless, going forward, named plaintiffs in class actions cannot defeat removal to federal court simply by stipulating to a lower amount of damages. Not only will the Supreme Court’s decision ensure that CAFA will function as Congress intended, but class-action defendants will uniformly have access to the federal courts, traditionally more defendant-friendly venues.
If you have any questions regarding this opinion or need any guidance with the ever-evolving world of class-action jurisprudence, please contact Matt or one of the other members of our Mass Tort / Class Action Practice Group.