The United States Supreme Court recently granted a writ of certiorari in Standard Fire Insurance Company v. Knowles, No. 11-1450, to address the issue of whether a class plaintiff can defeat federal jurisdiction under the Class Action Fairness Act of 2005 (CAFA) by filing a stipulation limiting the amount of damages the plaintiff will seek on behalf of the putative class to less than $5 million.1 Currently, there is a conflict in the circuits: the Eighth Circuit permits a named plaintiff to plead around CAFA by filing such a stipulation, while the Tenth Circuit has held that a named plaintiff’s attempt to limit damages in the complaint is not dispositive and that removal under CAFA is proper if a defendant proves jurisdictional facts by a preponderance of the evidence, including that the amount in controversy may exceed $5 million.
In Rolwing v. Nestle Holdings, Inc., 666 F.3d 1069 (8th Cir. 2012), the Eighth Circuit held that where a named plaintiff submitted a stipulation asserting that he would not seek or accept any recovery in excess of $4,999,999 on his own behalf or on the behalf of the putative class, and his attorney submitted a stipulation that stated no attorneys’ fees would be sought or accepted from any source other than the maximum recovery of $4,999,999, the plaintiff had established that it was a legal impossibility for the amount in controversy to exceed CAFA’s threshold. The Eighth Circuit relied heavily on the Missouri state-law doctrine of judicial estoppel that requires courts to enforce such stipulations. In contrast, the Tenth Circuit, in Frederick v. Hartford Underwriters Ins. Co., 683 F.3d 1242 (10th Cir. 2012), held that a plaintiff’s complaint that sought a total award that does not exceed $4,999,999.99 was not dispositive as to the amount in controversy. The Tenth Circuit reasoned that courts may not forgo an analysis of the defendant’s claims regarding the amount in controversy merely because a plaintiff pleads that he is seeking less than the jurisdictional minimum.
In Knowles v. Standard Fire Insurance Company, 2011 WL 6013024 (W.D. Ark. Dec. 2, 2011), the case in which the Supreme Court granted certiorari, the federal district court remanded the case to state court because the named plaintiff filed a stipulation along with the class action complaint stating that he would not “seek damages for the class as alleged in the complaint to which this stipulation is attached in excess of $5 million in the aggregate.” The defendant, Standard Fire, unsuccessfully petitioned for leave to appeal to the Eighth Circuit. Standard Fire sought rehearing from first the original panel and then en banc, but both requests for rehearing were denied. Standard Fire then filed a petition for writ of certiorari with the United States Supreme Court, which was subsequently granted.
The principal arguments against allowing such a stipulation to limit jurisdiction are that a named plaintiff, at the time of the filing of a complaint, does not have authority to cap the damages of proposed class members he or she does not represent and that allowing the stipulation violates the due process rights of the absent putative class members because they did not receive any notice or opportunity to be heard regarding the stipulation. The primary argument in favor of the position that a stipulation can defeat federal jurisdiction is that it is an extension of a plaintiff’s right to be “master of the complaint.” As “master of the complaint,” the argument is that a plaintiff is entitled to have his case heard in state court by limiting his claim, in this case the amount of damages he seeks on behalf of himself and the class, to avoid federal jurisdiction. Interestingly, Standard Fire also argues that the plaintiff could later prove up a greater damages amount, to which the plaintiff responded that such proof would give rise to a new grounds for removal under CAFA. See 28 U.S.C. 1453(b); see, e.g., Bartnikowski v. NVR, Inc., 307 F. App’x 730, 739 (4th Cir. 2009); see also Lowdermilk v. U.S. Bank Nat’l Assoc., 479 F.3d 994, 1002–03 (9th Cir. 2007).
CAFA is a direct response to the abuses and ineffectiveness of the former rules of federal diversity jurisdiction as applied to class actions, but it does contain limits on a defendant’s ability to remove a case to federal court, and resourceful plaintiffs continue to advance novel ways to expand the limitations and avoid federal court. Resolution of the issue presented in the Knowles certiorari petition, one way or the other, will likely reshape the boundary lines.