In a case that could affect whether limits on the exercise of original federal jurisdiction will continue to be applied when putative class actions are removed to federal court under the Class Action Fairness Act (CAFA), amicus briefing is complete and the matter is scheduled for argument before the U.S. Supreme Court on January 7, 2013. Standard Fire Ins. Co. v. Knowles, No. 11-1450 (U.S., cert. granted August 31, 2012).
The issue before the Court, as stated by the petitioner, is whether a named plaintiff may bind absent putative class members and thus defeat a defendant’s right of removal under CAFA by stipulating to class-wide damages less than the $5 million threshold for federal jurisdiction, where the defendant establishes that the actual amount in controversy exceeds $5 million. In Smith v. Bayer, the Court held that an “uncertified class action cannot bind proposed class members,” and the petitioner argues that under this principle a plaintiff lacks authority to stipulate to a reduction in the claims of class members. Here, the district court remanded a breach-of-contract suit to state court relying on the putative class representative’s stipulation that he would not seek damages in excess of $5 million, concluding that he had “shown to a legal certainty that the aggregate damages claimed on behalf of the putative class shall in good faith not exceed the … jurisdictional limitation of $5,000,000.” The Eighth Circuit denied a petition for interlocutory review.
Online legal commentators have been discussing the merits of the amicus brief filed on behalf of the National Association of Manufacturers (NAM) which argues that the wrong question is before the court. According to NAM, the parties and district court erroneously “assume that the scope of a federal court’s removal jurisdiction over a class-action suit is no broader than its original jurisdiction over similar suits.” NAM claims that CAFA “expressly allows class-action defendants to remove various suits to federal court even if the plaintiffs could not have filed those same suits in federal court initially.” In its view, CAFA loosens “the requirements for federal courts to exercise jurisdiction over class actions” and “the statutory architecture shows how CAFA expands federal jurisdiction over class actions.”
The American Lawyer’s senior writer Alison Frankel observes that the question on which certiorari was granted is “important, since class action lawyers in certain jurisdictions (most notably in the 8th Circuit) have used such stipulations to stay in state court, where they’ve been able to force defendants into settlements of more than $5 million in litigation before plaintiff-friendly judges.” But she suggests that if the Court decides to consider NAM’s perspective and adopts its position, then defendants would have the right “to remove every class action from state court as long as diversity jurisdiction exists … [and] class action lawyers would have no route to state court unless they were suing corporations headquartered in the same state as the class.” See Thomson Reuters News & Insight, October 31, 2012.
On November 5, the Court heard argument in two cases that raise equally significant class-action questions, including if “a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis,” (Comcast Corp. v. Behrend), and whether shareholders must provide evidence of the materiality of the defendant’s alleged misstatements to win certification in a securities class action (Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds).