In a rare display of consensus, a unanimous Supreme Court this week upheld the right of defendants to remain in federal court in a putative class action removed under the Class Action Fairness Act (CAFA) in Standard Fire Ins. Co. v. Knowles, No. 11-1450, 2013 WL 1104735 (Mar. 19, 2013); see Kaye Scholer Class Action Deskbook, CAFA Section (3d ed.), at 62 n.57 (noting grant of certiorari).† Resolving a Circuit split and reversing a lower court’s decision to remand the action to state court, the Supreme Court held that a “stipulation” provided by the named class plaintiffs unilaterally purporting to limit the class recovery to less than CAFA’s jurisdictional minimum (in excess of $5 million) does not defeat removal under CAFA because the stipulation was not binding on the absent class members.
Relying on the well-established precedent that “a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified,” the Court held that the named plaintiffs could not bind class members and limit their ultimate recovery. Accordingly, the district court “wrongly concluded that plaintiff’s precertification stipulation could overcome its finding that the CAFA jurisdictional threshold had been met.” Instead, the district court should have ignored the stipulation and proceeded to analyze whether CAFA’s jurisdictional threshold had been met just as the court would have done in the absence of a stipulation.
Although the underpinning for the decision was the nonbinding nature of the purported stipulation on absent putative class members, the decision is also significant because of the Supreme Court’s acknowledgement of the expansive nature of CAFA and of Congress’s intent to promote federal jurisdiction over class actions. Indeed, the Court emphasized what it termed “CAFA’s primary objective of ensuring ‘[f]ederal court consideration of interstate cases of national importance.’” The Court refused to allow the named class plaintiff to override the mandate of CAFA’s plain language, which is to “‘aggregat[e]’ the ‘claims of the individual class members.’” (quoting, 28 U.S.C. § 1332(d)(6)). The Supreme Court also observed that giving credence to a nonbinding stipulation would enable plaintiffs to make an end-run around CAFA by effectively “allowing the subdivision of a $100 million action into 21 just-below-$5-million state-court actions simply by including nonbinding stipulations; such an outcome would squarely conflict with the statute’s objective.”
Time will tell whether Knowles marks either (1) an unremarkable decision restricting the rights of named class plaintiffs to bind unnamed class members prior to certification; or (2) a green light from a unanimous high court that CAFA reflects a broad expansion of defendants’ removal rights and the general presumptions against removal should be disregarded in considering the host of removal issues that courts and litigants confront under CAFA.