In a unanimous ruling, the U.S. Supreme Court has determined that the named plaintiff in a putative class-action lawsuit cannot keep his complaint in state court by purporting to limit the class damages to an amount lower than the federalcourt jurisdictional threshold set forth in the Class Action Fairness Act of 2005 (CAFA). Standard Fire Ins. Co. v. Knowles, No. 11-1450 (U.S., decided March 19, 2013). The issue arose in a suit involving claims by an insured against an insurance company filed in an Arkansas state court and removed before certification to federal court under CAFA. The federal court remanded the matter after determining that the plaintiff’s stipulation to limit damages for the class to less than $5 million fell beneath CAFA’s threshold and that the court therefore lacked jurisdiction to consider the claims. Additional case details appear in the September 13, 2012, November 8, 2012, and January 17, 2013, issues of this Report.
Granting the appeal to resolve a circuit court split on the issue, the U.S. Supreme Court said, “Stipulations must be binding … and [b]ecause his precertification stipulation does not bind anyone but himself, Knowles has not reduced the value of the putative class members’ claims. For jurisdictional purposes, our inquiry is limited to examining the case ‘as of the time it was filed in state court.’” Stating that “Knowles cannot yet bind the absent class,” the court determined that the district court erred by failing to ignore the stipulation when considering if the jurisdictional threshold had been met. The Court remanded the case for further proceedings. Given that the lower court has already found that, in the absence of the stipulation, the value of the amount in controversy was slightly higher than the $5 million threshold, it is likely the matter will remain in federal court.
While commentators have highlighted the significance of the case to class-action defendants facing plaintiffs intent on sidestepping CAFA and keeping their cases in state court, an open question under the Court’s ruling is whether certain agreements that a named plaintiff enters into with a defendant before a class is certified will later bind the class claimants. Among these agreements could be limitations on discovery or a narrowing of disputed issues.