Supreme Court Action: Class Action Jurisdiction and State Medicare Liens

The Supreme Court issued one other opinion on Tuesday when they announced the Kirtsaeng case.  The second case is Standard Fire Insurance Co. v. Knowles (11-1450).  That case involves whether a nominal plaintiff in a class action can bind a class with a stipulation on the amount in controversy.  The answer depends on whether the case can be heard in federal or state court.  Knowles filed a proposed class action in Arkansas state court against Standard on issues related to homeowner’s insurance.  He stipulated at the time that the amount the class would seek is less than $5 million.  Standard removed the case to federal court.  The Class Action Fairness Act of 2005 (CAFA) gives federal court jurisdiction over class actions in amounts over $5 million.  The District Court remanded the case back to state court because of the stipulation even though the Court found that the damages amount would exceed $5 million absent the stipulation.  The Eight Circuit declined to hear the appeal.

The Supreme Court reversed the District Court, holding that a stipulation at the pre-class certification stage binds no one in the class.  The Court said that stipulations are indeed binding on the parties who make them.  At the same time, the stipulation in these circumstances is merely contingent at this stage.  The District Court Judge has the power to consider the amount in controversy as if the stipulation was non-binding.  Justice Breyer delivered the opinion for a unanimous Court.

There were two cases decided on Wednesday.  The first of these is Wos v. E.M.A. (12-98).  The Court considered the anti-lien provision of the federal Medicaid statute as it conflicted with a North Carolina statute that requires up to one-third of any recovery by a beneficiary for tortious injuries to be given to the State as reimbursement.  E.M.A was born with serious birth injuries and North Carolina paid part of her care through the state Medicaid program.  Her case was settled for $2.8 million.  The state judge placed one-third of the judgment in escrow under the North Carolina statute.  E.M.A. sought relief in federal district court that the escrow was in conflict with the federal anti-lien provision.  The District Court judge agreed with North Carolina precedent that the lien and its amount were reasonable.  The Fourth Circuit reversed, holding the ruling conflicted with the statute and Supreme Court precedent.

The Supreme Court held the federal statute pre-empts North Carolina’s recovery statute.  The Court said that under its precedent in Arkansas Dept. of Health and Human Servs. v. Ahlborn, 547 U. S. 268, 284, the federal statute set a floor and ceiling for state recovery of expenses.  The figure of one-third of the recovery is arbitrary as it could take part of the recovery that was not designated for medical expenses paid by the State.  Justice Kennedy delivered the opinion of the Court and was joined by Justices Ginsburg, Breyer, Alito, Sotomayor, And Kagan.  Chief Justice Roberts filed a dissenting opinion and was joined by Justices Scalia and Thomas.

I’ll file a post on the second case from Wednesday, Decker v. Northwest Environmental Defense Center, on Friday.  [MG]