The United States Supreme Court’s 2012-13 docket included five cases that should have a major impact upon class action jurisprudence. Recently, the Supreme Court issued decisions in two of these matters -- Standard Fire Ins. Co. v. Knowles and Comcast v. Behrend. These cases promise to significantly affect how class actions are brought and litigated, largely in favor of defendants.

Standard Fire Ins. Co. v. Knowles

The Supreme Court held in Knowles that putative class representatives cannot avoid removal to federal court by stipulating in the complaint that the class would not seek damages at or over the Class Action Fairness Act’s (CAFA) $5 million amount in controversy threshold. In so doing, the Court eliminated a tool that plaintiffs in certain jurisdictions had successfully employed to keep putative class actions in state court.

Following Knowles, there are two primary options for plaintiff and their counsel to keep putative class actions in state court, neither of which is particularly attractive to a plaintiffs’ attorney:

  1. A plaintiff can file an action that falls within the “local controversy” exception to CAFA, which applies when at least twothirds of a putative class and at least one of the defendants reside within the state that the concerning conduct primarily occurred.1 This option may be feasible in cases that concern the violation of a single state’s laws or regulations, particularly when a defendant corporation resides in a highly-populated state. However, for the large number of putative class actions that challenge a corporation’s national or multi-state practices, limiting class membership to residents of the corporation’s home state may prove too high a price for keeping a matter in state court. Even if counsel is willing to limit a putative class in this manner, the “local controversy” exception is only available if no other putative class action regarding the same subject matter has been filed against any of the defendants within the past three years.
  2. A plaintiff can file an action that is certain to fall below the $5 million in controversy threshold – but, such a task is easier said than done. Plaintiffs’ efforts to defeat removal to federal court by placing caps on damages implicitly acknowledge the increasing skill of defendants and their counsel in demonstrating that classwide damages could exceed $5 million. To preclude any possibility of removal, plaintiffs would likely need to bring a case with a perceived value well below this threshold. Again, such a sacrifice may not be justified by the potential benefits of preventing removal. Furthermore, as pointed out during oral argument in Knowles, this tactic could raise issues as to whether the putative class representative would be improperly limiting other class members’ damages.

By eliminating one of the most feasible options for plaintiffs seeking to prevent removal under CAFA, Knowles may ultimately increase the number of putative class actions heard before federal courts. The decision should also result in more disputes regarding the value of particular cases. As discussed on pages 2 and 3 of this newsletter, federal courts have adopted a variety of approaches to determine whether the amount in controversy reaches $5 million for purposes of removal pursuant to CAFA. In this way, Knowles may ultimately prompt the Supreme Court to adopt a consistent standard for ascertaining whether a putative class action qualifies for CAFA removal.

Comcast v. Behrend

In 2011, the Supreme Court issued a landmark opinion in Walmart Stores, Inc. v. Dukes, finding that a class certification analysis may often mandate consideration of the merits. This spring, the Court clarified in Behrend that merits issues can also be relevant to proving damages on a class-wide basis.

In Behrend, the Supreme Court held that the lower court’s grant of class certification improperly relied upon a damages model that was untethered to the plaintiff’s remaining theory of liability. While Behrend does not mandate that courts always take merits into account in their analysis of a plaintiff’s ability to prove damages on a class-wide basis, the decision will encourage district courts to require a feasible and fact-based classwide damages model.

Accordingly, plaintiffs and their counsel may place a renewed emphasis upon crafting persuasive damage models and retaining expert witnesses to develop and testify in support of such models. This may also lead to Daubert challenges regarding the admissibility of such testimony at the certification stage.

Indeed, the Supreme Court initially accepted the review of Behrend to decide whether such challenges were appropriate at the class certification stage, but declined to address the question for procedural reasons. While this issue remains unresolved by the Supreme Court, a growing number of district and circuit courts have held that parties may challenge expert opinions under the strict Daubert standard at the class certification stage. By emphasizing the frequent relevance of merits issues to the ability to offer class-wide proof of damages, Behrend will encourage courts to continue this trend.

In light of Behrend’s emphasis on the importance of merits at class certification, courts may be less willing to defer merits discovery until after certifying a class. While this approach could prove more costly to defendants, it may be a small price to pay for ensuring that unmanageable actions are not certified.

Although Behrend and Knowles concern two different aspects of class actions, they share the common goal of curbing the gamesmanship that often pervades this type of litigation. While Knowles precludes plaintiffs from manipulating pleadings to avoid removal under CAFA, Behrend makes clear that plaintiffs cannot obtain class certification through unrealistic damages theories.