In Standard Fire Insurance Company v. Knowles, 2013 WL 1104735 (Mar. 19, 2013), a policyholder sued an insurer in Arkansas state court on behalf of a putative class for allegedly failing to include general contractor fees in its homeowner’s insurance loss payments. Plaintiff’s complaint purported to stipulate on behalf of himself and the class that they would seek to recover total aggregate damages of less than $5 million. Defendant removed the matter to the United States District Court for the Western District of Arkansas, and plaintiff filed a motion to remand arguing the amount in controversy fell below the $5 million threshold for federal court jurisdiction under the Class Action Fairness Act (“CAFA”). Although the trial court found the actual amount in controversy would have exceeded $5 million, the court nevertheless ordered remand because, in light of plaintiff’s stipulation, the CAFA threshold had not been satisfied. The United States Court of Appeals for the Eighth Circuit declined to hear defendant’s appeal from the remand order and the United States Supreme Court granted certiorari.
The Court first noted that 28 U.S.C. §§ 1332(d)(2) and (d) (6), as amended by CAFA, provide original federal court jurisdiction to class actions that, among other things, have an amount in controversy greater than $5 million, as calculated by aggregating the claims of the individual class members. In holding that a damages-limiting stipulation by a putative class representative cannot trump the statutorily-prescribed calculation, the Court observed that until a class is certified, the class representative lacks authority to bind the absentee class, including through a stipulation. The Court pointedly noted the possibilities that (1) the putative class representative might later be rejected by a court because his agreement to the artificial damages cap makes him an inadequate class representative, (2) another class member might be allowed to intervene with an amended complaint that lacks a damagelimiting stipulation, or (3) the court might reject or modify the stipulation, thus allowing class members to seek more than $5 million. Were any of these events to occur, federal court jurisdiction under CAFA would be appropriate.
Conceding that future events could modify the nature of the class and/or the binding nature of the stipulation, plaintiff argued that such possibilities were irrelevant because, for purposes of evaluating the amount-in-controversy requirement, CAFA permits the federal court to consider only the complaint as filed, not a modified complaint that might eventually emerge. The Court rejected this argument, however, holding that to treat a non-binding stipulation as if it were binding would “exalt form over substance,” and contravene the primary purpose of CAFA to ensure “Federal court consideration of interstate cases of national importance.” The Court noted that to hold otherwise would allow a $100 million action to be subdivided into 21 just-below-$5 million state court actions simply by including non-binding stipulations in the original complaints, which surely would conflict with CAFA’s objective.