On March 18, 2013, the Supreme Court of the United States unanimously held that, prior to class certification, a stipulation that the plaintiff and members of the purported class he claims to represent would seek less than $5 million in damages does not defeat removal jurisdiction under the Class Action Fairness Act of 2005 (CAFA). Standard Fire Ins. Co. v. Knowles, 568 U.S. ____ (2013). As the court noted, CAFA provides, among other things, that federal "district courts shall have original jurisdiction of any civil action in which the matter in controversy exceeds the sum or value of $5,000,000." 28 U.S.C. ?? 1332(d)(2). CAFA further provides that, in determining whether that sum or value is exceeded, the "claims of the individual class members shall be aggregated." ? 1332(d)(6).
The plaintiff in Knowles filed his proposed class action in state court in Arkansas, stating in his complaint and an accompanying affidavit that he and his proposed class would not seek in excess of $5 million. The defendant removed the case to federal court, but the court remanded, finding that the stipulation defeated jurisdiction under CAFA, and the Court of Appeals declined to hear an appeal. The Supreme Court unanimously reversed, reasoning that the stipulation was ineffective because the plaintiff could not bind members of the proposed class before it was certified. This reasoning followed from the court's holding in Smith v. Bayer Corp., 564 U.S. ____ (2011), that members of a proposed class cannot be bound by a class action before the class is certified.
This is an important victory for defendants because prior to this decision plaintiffs had, like Knowles, sometimes avoided removal to federal court under CAFA by stipulating they would seek damages below the $5 million threshold. The Supreme Court's ruling now prevents them from doing so. Rather than treating a class representative's precertification stipulation of damages as binding, it is now clear that district courts must determine the actual value of the matter in controversy by aggregating the claims of the individual class members.