The Supreme Court issued the second decision this term that will impact class action law. The issue in Standard Fire Ins. Co. v. Knowles, No. 11-1450 (March 19, 2013) concerned the common practice of a plaintiff who files a class action in state court (typically in a “hell hole” jurisdiction for defendants), and in the complaint stipulates, prior to certification of the class, that he and the class he seeks to represent will not seek damages that exceed $5 million in total. The goal, of course, is to thwart the defendant’s ability to remove the case to federal court. The Court unanimously held that such a stipulation does not have its intended effect and neither binds the class nor removes the case from CAFA’s scope. 

The Supreme Court considered its reasoning to be “simple.” Stipulations must be binding to have effect. But the plaintiff’s pre-certification stipulation is not binding because a named plaintiff who files a proposed class action cannot legally bind the class before certification. Accordingly, because the plaintiff’s stipulation bound no one but himself, he had not reduced the value of the putative class members’ claims.

Beyond this simple reasoning, the Court envisioned a number of events that could cause the stipulation to be void. The state court could condition class certification on excising the stipulation. Or the court might find the named plaintiff inadequate because of the stipulation when the real value of the case well exceeds $5 million. Or another class member could intervene with an amended complaint without the stipulation and the court could substitute that party as the class representative. The bottom line is that the stipulation was not binding and the district court “should have ignored that stipulation.” This is a welcome development in removing yet another obstacle to federal court jurisdiction of CAFA cases.