Class action plaintiffs have sometimes been able to avoid federal jurisdiction under the Class Action Fairness Act (“CAFA”) by stipulating that they will not seek more than $5 million for the putative class – the jurisdictional threshold under CAFA. The Supreme Court has now put an end to that form of forum-shopping by holding that these stipulations are not binding on absent class members and, hence, do not preclude federal jurisdiction.
The issue arose in the Supreme Court’s first CAFA opinion, Standard Fire Insurance Co. v. Knowles.1 The plaintiff filed a class action in Arkansas state court against an insurance company, alleging that the company underpaid claims to hundreds or possibly thousands of Arkansas residents. The complaint asserted no federal claims, and the plaintiff explicitly stated that the class would seek less than $5 million in damages.2
CAFA provides federal district courts with jurisdiction over class actions only if the amount in controversy exceeds $5 million in the aggregate.3 (The law also requires minimal diversity of citizenship, but that requirement is met in most class actions.) In Knowles, the defendant removed the case to federal court and submitted estimates of possible recovery and an affidavit showing that the amount in controversy exceeded $5 million. Nonetheless, the district court concluded that the amount in controversy fell below $5 million because of the plaintiff’s stipulation to that effect.4
In a unanimous opinion, the Supreme Court reversed and found that the plaintiff’s stipulation did not defeat CAFA jurisdiction.5 This conclusion rested on two principles. First, the Court relied on the well-established rule that stipulations, to be meaningful, must be binding.6 Second, the Court reiterated the holding in Smith v. Bayer Corp. that representative plaintiffs cannot bind members of a putative class before a class is certified.7 Considering these two principles together, the Court held that the plaintiff’s stipulation could not bind the putative class and prevent another class representative from seeking more than $5 million. As a result, the district court should have ignored the stipulation when assessing the amount in controversy.
Key takeaway: Ever since CAFA was enacted in 2005, plaintiffs and defendants have jousted over its scope. The Supreme Court’s opinion in Knowles removes one issue from that ongoing battle: Plaintiffs cannot preempt CAFA jurisdiction by disclaiming any intention of seeking more than the jurisdictional amount. Other issues, including the question of exactly how courts should assess how much money is genuinely in controversy, remain open to debate.