Burr & Forman

04.2.2013   |   Blog Articles, Class Action, Consumer Finance Litigation, U.S. Supreme Court

U.S. Supreme Court Finds Plaintiff Cannot Prevent CAFA Removal Through Stipulation Seeking Less than $5 Million in Damages

The U.S. Supreme Court recently decided that a named class action plaintiff cannot prevent removal by stipulating to seek less than $5 million in damages before class certification, in Standard Fire Ins. Co. v. Knowles, 11-1450, — U.S. —-, 2013 WL 1104735 (Mar. 19, 2013). The Class Action Fairness Act of 2005 (“CAFA”) provides federal district courts original jurisdiction over civil class action lawsuits when “the matter in controversy exceeds the sum or value of $5,000,000.” 28 U.S.C.A. § 1332(d)(2). The class must have more than 100 members and those members must be minimally diverse. 28 U.S.C.A. § 1332(d). In order for the U.S. district court to determine whether the matter in controversy exceeds that statute’s minimum requirements, “the claims of the individual class members shall be aggregated.” 28 U.S.C.A. § 1332(d)(6). “Class members” includes named or unnamed persons in the certified or proposed class. U.S.C.A. § 1332(d)(1)(D). In Knowles, the plaintiff filed suit in Arkansas state court claiming that the defendant insurance company had failed to include general contractor fees in its loss payments to homeowners. Plaintiff sought to certify a class of “hundreds, and possibly thousands” of Arkansas policyholders. In an effort to keep the action in Arkansas state court, the plaintiff stipulated in the complaint that the class would “seek to recover total aggregate damages of less than five million dollars.” The named plaintiff attached an affidavit reiterating the same. Attempting to invoke CAFA, the defendant removed the action to federal court. Although the district court found that the aggregate claims of the class exceeded CAFA’s $5 million threshold, the court found that the stipulation held the amount in controversy below that threshold and subsequently remanded the case back to state court. The Eighth Circuit declined hearing the defendant’s interlocutory appeal, but the U.S. Supreme Court granted writ of certiorari based on conflicting views in the district courts. The Supreme Court noted that it is possible for an individual plaintiff to avoid removal by stipulating to amounts lower than those necessary to meet federal jurisdictional requirements. However, in this case the critical flaw in the district court’s decision to remand was that the plaintiff’s stipulation was not binding. As the U.S. Supreme Court had found before, “a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified.” Thus, for jurisdictional purposes, the plaintiff’s stipulation only reduced the amount of his own claim and not the claims of the class members because the class had not yet been certified. The Supreme Court reasoned if the original complaint stood and the non-binding stipulation prevented removal, that once the class was certified the class members could amend the complaint. At that time the aggregate amount could again rise above the $5 million threshold, but CAFA, which only allows for jurisdiction based on the original complaint, would have been circumvented. The Supreme Court found this undermined CAFA’s purpose, which is to give “[f]ederal court consideration of interstate cases of national importance.” In short, the Supreme Court held that U.S. district courts must continue to analyze the aggregate amount of the class members’ claims to determine whether there is original jurisdiction under CAFA and non-binding stipulations by named plaintiffs must be ignored absent a certified class. For more information on consumer finance litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.

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