That is the question the Supreme Court recently answered in Standard Fire Insurance Co. v. Knowles, 133 S.Ct. 1345 (2013). The Class Action Fairness Act of 2005 gives federal district courts original jurisdiction over class actions in which, among other things, the matter in controversy exceeds $5 million. To determine whether a matter exceeds this jurisdictional amount, claims of individual class members must be aggregated.
Greg Knowles filed a class action in which he alleged that Standard Fire Insurance Company underpaid claims for real property damage to Arkansas homeowners. To forestall removal, he stipulated that he and the class would seek less than $5 million in damages. Standard nevertheless removed the case to federal court. The district court remanded to state court in light of Knowles’ stipulation. The Eighth Circuit declined to exercise its discretion to hear an appeal from the remand order. The Supreme Court granted writ of certiorari to resolve a split in the courts of appeal.
In non-class litigation, state court plaintiffs can prevent removal by limiting damages to below the jurisdictional threshold. That is the tactic Knowles attempted to use in the class action context. His attempt failed for the simple reason that a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified. Because his pre-certification stipulation did not bind anyone but himself, Knowles did not reduce the value of the putative class members’ claims. Thus, the amount to which Knowles had stipulated was contingent. For example, a state court might certify the class and permit it to proceed on the condition that the stipulation be excised, or a court might find that Knowles was an inadequate representative due to the artificial cap he purported to impose on the class recovery, or another class member could intervene without a stipulation and the district court might permit the action to proceed with a new representative. In short, there was a possibility that the non-binding amount-limiting stipulation might not survive the class certification process. Thus, Knowles’ attempt to stipulate his case out of federal court was unsuccessful.
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