The Class Action Fairness Act of 2005 (CAFA) gives federal district courts original jurisdiction in class actions in which there are more than 100 class members, the parties are minimally diverse, and the amount in controversy exceeds $5 million in value.28 U.S.C. § 1332(d)(2). CAFA further provides that to determine whether the amount in controversy exceeds that number, the claims of the individual class members must be aggregated. 28 U.S.C. § 1332(d)(6). The recent U.S. Supreme Court decision in Standard Fire Insurance Company v. Knowles, (Mar. 19, 2013) (http://www.scotusblog.com/case-files/cases/the-standard-fire-insurance-co-v-knowles/) questioned whether a class-action plaintiff’s pre-certification stipulation that the class would not seek damages exceeding $5 million in total would determine the amount in controversy. The Court held that that such stipulation does not defeat CAFA jurisdiction.
Plaintiff Knowles filed a proposed class action in an Arkansas state court against Standard Fire Insurance Company in April 2011. Knowles sought to certify a class of “hundreds, possibly thousands” of similarly harmed Arkansas policyholders. The complaint stated: “Plaintiff and Class stipulate they will seek to recover total aggregate damages of less than five million dollars.” Named plaintiff’s attached affidavit further stipulated that Knowles would not “at any time during the case . . . seek damages for the class . . . in excess of $5 million in the aggregate.” Standard Fire Insurance Company removed the case to federal district court, relying on CAFA. The court ordered the case be remanded to the state court, and the Eighth Circuit later declined to hear the appeal.
The U.S. Supreme Court, however, held that stipulations like Knowles’ do not prevent removal of the case to federal court under CAFA when the defendant has shown that, except for the stipulation, the amount in controversy might exceed $5 million. The Court reasoned that a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified. Knowles’ pre-certification stipulation did “not bind anyone but himself,” and therefore could not effectively reduce the value of the putative class members’ claims.
The Supreme Court held that CAFA did not forbid the District Court from considering the possibility that a nonbinding, amount-limiting, stipulation might not survive the class certification process. To hold otherwise would “treat a nonbinding stipulation as if it were binding, exalt form over substance, and run directly counter to CAFA’s primary objective” of ensuring federal court consideration of “interstate cases of national importance.” Further, the stipulation could have the effect of subdividing a $100 million action into 21 just-below-$5-million state court actions, squarely conflicting with CAFA’s objectives.
A recent case in the Northern District Court of Ohio reached the same result on a different basis. In Pate v. Huntington Nat. Bank, http://law.justia.com/cases/federal/district-courts/ohio/ohndce/5:2012cv01044/188432/84, although the original complaint was not subject to removal, one defendant removed the case on diversity grounds pursuant to CAFA after plaintiffs filed an amended complaint contending that the proposed class collectively lost more than $15 million. In conjunction with a motion to remand, however, plaintiffs filed a second amended complaint, purporting to disclaim damages beyond $4,999,999.99. The court found that plaintiffs’ claim of damages exceeding the federal amount in controversy (as stated in the first amended complaint) was presumed correct, unless shown to a legal certainty that the amount was actually less than the federal standard. Absent such proof, the plaintiff could not subsequently defeat federal jurisdiction after it attached by further amending the complaint to limit its claimed damages.
These opinions are of particular interest when considered in conjunction with recent amendments to the federal removal statutes. The amendments apply to all actions “commenced” in state court on or after January 6, 2012. Under the amended statutes, when multiple defendants are sued in state court, each defendant now has thirty days to file a notice of removal to federal district court starting from the date that particular defendant was served.
Defendants seeking removal to federal court under 28 U.S.C. § 1441 must do so according to the procedures described in 28 U.S.C. § 1446, which now clarifies that each “defendant shall have 30 days after receipt by or service on that defendant of the initial pleading or summons . . . to file the notice of removal.” 28 U.S.C. § 1446(b)(2)(B) (2012). The previous Section 1446(a) referred to a “defendant or defendants,” while Section 1446(b) referred only to “receipt by the defendant,” raising the question of whose receipt of the complaint would trigger the clock for removal.
Even if the initial complaint is not removable, a notice of removal may be filed within thirty days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or “other paper” from which it may first be ascertained that the case is one which is or has become removable under 28 U.S.C. § 1446(b)(3). Amended 28 U.S.C. § 1446(c)(3)(A) clarifies that if the case is not removable on the initial complaint solely because the amount in controversy does not exceed $5 million, information relating to the amount in controversy in the record of the state proceeding, or in responses to discovery, shall be treated as “other paper” under subsection (b)(3).
Courts will likely be wary of future plaintiffs’ after-the-fact attempts by amendment or stipulation to avoid federal-court jurisdiction, a result favorable to businesses which are frequently named as defendants in these class action lawsuits. Under Knowles, courts are no longer required to treat a pre-certification stipulation that the amount in controversy will not exceed $5 million as binding. Further, under the amended removal statutes, a notice of removal may still be filed within thirty days after receipt by a defendant of discovery responses or “other paper” confirming that the total amount in controversy meets the CAFA jurisdictional requirements.