SCOTUS Decision in Standard Fire Insurance v. Knowles

Today the Supreme Court issued a unanimous decision in Standard Fire Insurance Co. v. Knowles (No. 11-1450), covered earlier here. The Court concludes that removal under the Class Action Fairness Act (CAFA) is proper even if the named plaintiff in a state court class action stipulates that the class will not seek aggregate damages in excess of CAFA’s $5 million threshold.

Justice Breyer’s opinion (a quick read at 7 pages) emphasizes that—prior to class certification—the named plaintiff’s stipulation is not binding on the other class members:

[A] plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified. See Smith v. Bayer Corp., 564 U. S. ___, ___ (2011)…. Because 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,” Wisconsin Dept. of Corrections v. Schacht, 524 U. S. 381, 390 (1998). At that point, Knowles lacked the authority to concede the amount-in-controversy issue for the absent class members. [Slip Op. 4]

Justice Breyer is more sympathetic to a different argument against CAFA jurisdiction. He writes:  

The strongest counterargument, we believe, takes a syllogistic form: First, this complaint contains a presently nonbinding stipulation that the class will seek damages that amount to less than $5 million. Second, if the state court eventually certifies that class, the stipulation will bind those who choose to remain as class members. Third, if the state court eventually insists upon modification of the stipulation (thereby permitting class members to obtain more than $5 million), it will have in effect created a new, different case. Fourth, CAFA, however, permits the federal court to consider only the complaint that the plaintiff has filed, i.e., this complaint, not a new, modified (or amended) complaint that might eventually emerge. [Slip Op. 5-6]

But he is ultimately unpersuaded:

Our problem with this argument lies in its conclusion. We do not agree that CAFA forbids the federal court to consider, for purposes of determining the amount in controversy, the very real possibility that a nonbinding, amount-limiting, stipulation may not survive the class certification process. This potential outcome does not result in the creation of a new case not now before the federal court. To hold otherwise would, for CAFA jurisdictional purposes, treat a nonbinding stipulation as if it were binding, exalt form over substance, and run directly counter to CAFA’s primary objective: ensuring “Federal court consideration of interstate cases of national importance.” §2(b)(2), 119 Stat. 5. It would also have the effect of allowing the subdivision of a $100 million action into 21 just-below-$5-million state-court actions simply by including nonbinding stipulations; such an outcome would squarely conflict with the statute’s objective. [Slip Op. 6]

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