The U.S. Supreme Court has agreed to hear argument in a case involving whether a named plaintiff in a putative class action may defeat federal jurisdiction under the Class Action Fairness Act (CAFA) by stipulating that damages for the class, including those for absent putative class members, are less than the $5-million threshold. The Standard Fire Ins. Co. v. Knowles, No. 11-1450 (U.S., cert. granted, August 31, 2012). The issue arises in the context of a breach of contract claim alleging that the defendant insurance company underpaid claims for loss or damage to real property brought under homeowners insurance policies.

The defendant insurance company contends that the named plaintiff cannot impose a binding limitation on the amount potentially recoverable by absent putative class members simply to deprive a defendant of its removal rights under CAFA. According to the defendant, “[t]he Eighth Circuit erred in upholding this tactic. The Constitution, CAFA, and basic principles of class action law do not allow a plaintiff to represent absent putative class members without any court authorization.” The defendant framed its issue in light of a case decided last year, in which the Court held that “the mere proposal of a class … could not bind persons who were not parties.” Smith v. Bayer Corp., 131 S. Ct. 2368 (2011).