Last year, in Smith v. Bayer Corp., 131 S. Ct. 2368 (2011) (Kagan, J.), the Supreme Court held that “the mere proposal of a class … could not bind persons who were not parties” to that proposed class. Id. at 2382. On August 31, 2012, the Supreme Court granted certiorari to determine whether, in light of Smith, “a named plaintiff [can] defeat a defendant’s right of removal under [CAFA] by filing … a ‘stipulation’ that attempts to limit the damages he ‘seeks’ for the absent putative class members to less than the $5 million threshold for federal jurisdiction” under CAFA.1 Question Presented, Standard Fire Ins. Co. v. Knowles (No. 11-1450). This marks the first time that the Court has agreed to review a question arising under CAFA.
The plaintiff in this action originally filed a proposed class action complaint in Miller County Circuit Court, Arkansas. The complaint included an affidavit signed by the plaintiff stating that he “will not at any time during the pendency of the case … ‘seek damages for the class as alleged in the complaint to which this stipulation is attached in excess of $5,000,000 in the aggregate (inclusive of costs and attorneys’ fees).’” Knowles v. Standard Fire Ins. Co., 2011 WL 6013024, at *2 (W.D. Ark. Dec. 2, 2011) (Holmes, III, J.).
Standard Fire removed the case to the Western District of Arkansas, and the plaintiff moved to remand. The District of Arkansas found that Standard Fire had “satisfied its initial burden of proving by a preponderance of the evidence that the actual amount in controversy reaches, if not exceeds, the federal court’s minimum threshold for jurisdiction [of $5,000,000] pursuant to CAFA.” Id. at *3. However, the court found “[t]he law in [the Eighth] [C]ircuit … clear that a binding stipulation sworn by a plaintiff in a purported class action will bar removal from state court if the stipulation limits damages to the state jurisdictional minimum.” Id. at *4 (citing Bell v. Hershey Co., 557 F.3d 953, 958 (8th Cir. 2009) (Murphy, J.) (noting that “[i]n order to ensure that any attempt to remove would have been unsuccessful, [the plaintiff] could have included a binding stipulation with his petition stating that he would not seek damages greater than the jurisdictional minimum upon remand”)). The district court also found it significant that the Arkansas legislature had enacted a statute earlier that year that “explicitly allows a plaintiff to file a binding stipulation ‘with respect to the amount in controversy’ in order to establish subject matter jurisdiction.” Id. at *5 (quoting Ark. Code Ann. § 16- 63-221(a)). The district court therefore remanded the action.
Standard Fire petitioned the Eighth Circuit for permission to appeal the district court’s decision, a request the Eighth Circuit denied. Subsequently, in Rolwing v. Nestle Holdings, Inc., 666 F.3d 1069 (8th Cir. 2012) (Gruender, J.), the Eighth Circuit affirmed an order of remand under CAFA of a proposed class action based on the plaintiff’s stipulation that the damages would be under the $5 million threshold. The Eighth Circuit held that “remand based on CAFA’s amount-in-controversy requirement was appropriate” because the plaintiff had “shown that it [was] legally impossible for the amount in controversy to meet CAFA’s threshold[.]” Id. at 1073-74. After issuing its decision in Rolwing, the Eighth Circuit denied Standard Fire’s petition for rehearing.
Standard Fire then petitioned the Supreme Court for certiorari of the District of Arkansas’ decision. The Court granted Standard Fire’s petition on August 31, 2012.
Standard Fire Contends That a Named Plaintiff Has No Authority to Limit the Damages of Proposed Class Members Prior to Class Certification
Standard Fire argued that under the Supreme Court’s decision in Smith and “longstanding principles of class action law, putative class members are not bound by actions taken by named plaintiffs or litigation outcomes before certification.” Petition for Writ of Certiorari, Standard Fire Ins. Co. v. Knowles, 2012 WL 1979957, at *10 (U.S. May 30, 2012) (No. 11-1450). In Smith, “[t]he Court adopted a rule that ‘in the absence of certification … [n]either a proposed class action nor a rejected class action may bind nonparties,’ and ‘the mere proposal of a class … could not bind persons who were not parties.’” Id. at *11 (quoting Smith, 131 S. Ct. at 2380, 2382).2 Standard Fire contended that “[u]nder Smith, [the] [p]laintiff’s unauthorized ‘stipulation’ on behalf of people he ha[d] not been authorized to represent [was] a legal nullity.” Id.
Standard Fire emphasized that “the amount in controversy is determined at the time of removal, and cannot be based on any events that may occur subsequent to removal.” Id. at *10 (citing St. Paul. Mercury Ins. Co. v. Red Cab Co., 303 U.S. 283, 293 (1938) (Roberts, J.)). “[B]ecause the stipulation was [concededly] not binding [on proposed class members] at the time of removal, the stipulation must be disregarded in determining whether federal jurisdiction exists.” Id. at *13.
Standard Fire Argues That Permitting Damages Stipulations to Govern in the CAFA Removal Context Violates the Due Process Rights of Absent Putative Class Members
Standard Fire further contended that “[a]llowing a named plaintiff to bind absent putative class members to a limitation on damages, and giving effect to such a ‘stipulation’ as of the time of removal, plainly violates basic due process rights of the absent putative class members.” Id. at *13-14. “This Court has held that a state court cannot bind members of a putative class before providing them with adequate notice and an opportunity to be heard.” Id. at *14 (citing Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 811-12 (1985) (Rehnquist, J.). (“If the forum State wishes to bind an absent plaintiff [class member] concerning a claim for money damages … [t]he plaintiff must receive notice plus an opportunity to be heard and participate in the litigation.”)). “Here, the absent putative class members did not receive any notice, and therefore had no opportunity to be heard.” Id.
Standard Fire Asserts That the District of Arkansas’ Ruling and the Eighth Circuit’s Decision in Rolwing Contravene CAFA
Standard Fire argued that the District of Arkansas’ remand order and the Eighth Circuit’s decision in Rolwing do not comport with CAFA. “There is nothing in the text of CAFA that permits a plaintiff to limit the damages of putative class members he or she is not authorized to represent.” Id. at *15. CAFA “requires the aggregation of the full claims of the putative class members as alleged in the complaint.” Id. “It does not provide that full aggregation is optional, or that aggregation can be followed by a reduction of the aggregate amount to under $5 million based on a ‘stipulation’ of a putative class representative not yet appointed to represent a class.” Id. at *15-16. “If federal courts permit the use of stipulations by plaintiffs to avoid CAFA, ‘Congress’s obvious purpose in passing [CAFA]—to allow defendants to defend large interstate class actions in federal court—can be avoided almost at will … .’” Id. (citation omitted).
Standard Fire Cites a Circuit Split on Whether Damages Stipulations May Defeat Removal Under CAFA
After Standard Fire filed its Petition for Writ of Certiorari (but before it filed its reply), the Tenth Circuit held that “a plaintiff’s attempt to limit damages in the complaint is not dispositive when determining the amount in controversy” for purposes of removal under CAFA. Frederick v. Hartford Underwriters Ins. Co., 683 F.3d 1242, 1247 (10th Cir. 2012) (Lucero, J.). The Tenth Circuit ruled that “[r]egardless of the plaintiff’s pleadings, federal jurisdiction is proper if a defendant proves jurisdictional facts by a ‘preponderance of the evidence’ such that the amount in controversy may exceed $5,000,000.” Id. Standard Fire argued that “Frederick is at odds with the decision of the Eighth Circuit in Rolwing, which allowed the plaintiff’s limitation on damages to control over the defendants’ evidence.” Reply to Brief in Opposition to Petition for Writ of Certiorari, Standard Fire Ins. Co. v. Knowles, 2012 WL 2917967, at *6 (U.S. July 16, 2012) (No. 11-1450). Standard Fire also contended that “[s]everal [other] circuits, at least in dicta, have rejected the Eighth Circuit’s view on the effect of ‘stipulations’ that purport to limit damages in putative class actions.” Petition for Writ of Certiorari, Standard Fire, at *17-18.
The Plaintiff Contends That Smith Is Inapposite
In opposition to Standard Fire’s Petition for Writ of Certiorari, the plaintiff contended that Smith “did not involve a binding stipulation or subject-matter jurisdiction under CAFA.” Brief in Opposition to Petition for Writ of Certiorari, Standard Fire Ins. Co. v. Knowles, 2012 WL 2645080, at *11 (U.S. July 2, 2012) (No. 11-1450). While Smith involved “a decision to enjoin a state-court proceeding and the implications of the Anti-Injunction Act[,]” this case “involves a question of removal under CAFA.” Id. at *12. The plaintiff further asserted that “this case is different from Smith … because here there has been no ruling on class certification by any court” and, moreover, Smith “did not involve a case at the time of removal.” Id. at *12-13.
The Plaintiff Argues That Limiting Damages Is Just One of Many Case-Determinative Decisions Made by a Lead Plaintiff
The plaintiff contended that “the decision to stipulate to damages of a certain size is no different from innumerable other decisions that class representatives inevitably make as masters of their complaints.” Id. at *14. “Named plaintiffs bringing putative class actions necessarily ‘limit’ the recovery of the proposed class by, for example, picking and choosing which defendants to sue, which causes of action and elements of damages to include, and what kinds of litigation tactics to pursue in discovery, pretrial motions, and beyond.” Id. “Nothing that Congress included in CAFA suggests that a plaintiff bringing a class action is no longer the master of her complaint or is somehow prevented from ‘suing for less than the jurisdictional amount.’” Id. at *22 (citation omitted). “‘[A]ny putative class members who disagree with the [plaintiff’s] limitation of damages have the ability to opt out from the class at the appropriate time.’” Id. at *23 (citation omitted).
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The Court will review the Standard Fire case this coming term. A date for oral argument has not yet been set.