The Class Action Fairness Act (CAFA) plainly provides for federal-court jurisdiction over a putative class action if, among other things, the matter in controversy exceeds $5 million.1 To make that determination, CAFA requires a district court to “aggregate” the value of all putative class members’ claims.2
In Standard Fire Insurance Co. v. Knowles, No. 11-1450, 568 U.S. ___ (March 19, 2013), the named plaintiff in a state class action tried to thwart removal to federal court by stipulating to damages under $5 million for himself and for the class that he sought to represent. That clever gambit worked in the lower courts, but the Supreme Court saw through the ruse and rejected it.
The short of it: A named plaintiff cannot bind putative class members before class certification.
Writing for a unanimous Court, Justice Breyer explained that the named plaintiff’s stipulation was binding on him but not on putative class members “because a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified.”3 And if a named plaintiff can’t bind members of the proposed class before certification, the Court reasoned, then the district court should have ignored the named plaintiff’s stipulation and instead should have aggregated the putative class members’ claims to see if their combined value exceeded $5 million.4
The Standard Fire decision is a significant win for defendants. Congress designed CAFA to sweep big class actions into federal court, where the standards for class certification often are more stringent than under many states’ laws. If it had gained traction around the country, the lower court’s holding that a named plaintiff could avoid removal simply by filing a nonbinding stipulation about damages would have undercut Congress’s efforts to funnel huge class actions to the federal courts. The Supreme Court’s decision makes those stipulations irrelevant to the jurisdictional analysis—a result that is consistent with the Court’s teaching in Smith v. Bayer Corp., 564 U.S. __ (2011) that a proposed class action doesn’t bind unnamed class members, with the statutory command to “aggregate” the claims of putative class members, and with CAFA’s overriding objective of relaxing removal standards for class actions.
The long of it: We expect to see more class action filings in federal court and more searching inquiries into the value of plaintiffs’ claims.
We expect to see a couple things following the Court’s decision. First, the decision should cause an uptick in original class action filings in federal court. Class plaintiffs with ideas of stipulating away federal jurisdiction now have no incentive to file in state court if their case plainly meets the requirements for federal jurisdiction.
Second, we expect that as district courts continue to struggle with valuing putative class claims in their jurisdictional analysis, they will take a harder look at the financial realities of plaintiffs’ claims. Many district courts have refrained from undertaking a searching inquiry into the value of putative class claims. By emphasizing that courts must consider the value of each putative class member’s claims to determine the aggregate amount in controversy, the Standard Fire decision should make courts more willing to dig into the financial “facts” in deciding the jurisdictional question.
A reminder for defendants: You still bear the burden of establishing the jurisdictional amount.
Standard Fire takes stipulations about damages off the table, but it doesn’t change the burden of proof: Defendants seeking removal still must establish the $5 million jurisdictional amount.5 And excluding damages stipulations, they still face all the evidentiary hurdles that have sometimes made removal difficult in cases at the margins.