In Standard Fire Insurance Co. v. Knowles, case No. 11-1450, the United States Supreme Court held that a precertification stipulation by putative class counsel purporting to limit the amount in controversy may not preclude the defendant from removing the case under CAFA if removal would otherwise be appropriate. The Supreme Court vacated the judgment of the District Court and remanded the case for further proceedings consistent with the court's ruling.
In Knowles, the respondent filed a putative class action on behalf of himself and all others similarly situated who received homeowner's insurance loss payments that failed to include a general contractor fee. In the complaint, and in an accompanying affidavit, class counsel and the representative of the putative class stipulated that they would not seek damages in excess of $5 million on behalf of the class.
Petitioner removed the case to federal court pursuant to CAFA, which gives federal district courts original jurisdiction over class actions in which, among other things, the matter in controversy exceeds $5 million. The District Court remanded the case based on the stipulation limiting the requested relief to under $5 million dollars. The District Court did so even though it recognized that the amount in controversy would have exceeded the jurisdictional requirement absent the stipulation. Petitioner appealed the District Court's order and petitioned for a writ of certiorari after the Eighth Circuit Court of Appeals declined to hear the appeal.
The Supreme Court considered whether the precertification stipulation, limiting the relief sought to below $5 million, could defeat CAFA jurisdiction. The Supreme Court held that stipulations as to the amount in controversy in putative class actions cannot defeat an otherwise proper removal because such stipulations are not binding on the putative class nor absent class members. The Supreme Court explained that plaintiffs who file proposed class actions are unable to legally bind members of the proposed class prior to class certification. As a result, the Supreme Court concluded that an otherwise proper removal cannot be defeated by precertification stipulations.
The Supreme Court vacated the District Court's remand order, and sent the case back with instructions for the District Court to ignore the stipulation and to assess the amount in controversy by aggregating the claims of the individual class members as required by CAFA.
The Knowles decision closes an important loophole that class action plaintiffs' lawyers have exploited to avoid federal court jurisdiction and to keep cases in certain extremely plaintiff-biased state courts.
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