Supreme Court's Standard Fire Insurance Decision Eliminates Plaintiffs’ Ability to Avoid CAFA Jurisdiction through Pre-Certification Stipulations Limiting Amount in Controversy

On Tuesday, the Supreme Court published a unanimous decision in Standard Fire Insurance Co. v. Knowles, No. 11-1450 (Mar. 19, 2013), authored by Justice Breyer, holding that a pre-certification putative class representative may not avoid federal jurisdiction under the Class Action Fairness Act of 2005 (“CAFA”) by stipulating that the amount in controversy is less than CAFA’s $5 million floor. The Court’s reasoning rested on the premise that a pre-certification class representative cannot bind potential members of the yet-to-be-certified class, and therefore cannot enter into a “stipulation” on their behalf.

The case, brought in Arkansas state court, involved a proposed class action alleging that the defendant insurer had unlawfully failed to include a general contractor fee when making certain homeowner’s insurance loss payments. Named plaintiff Knowles sought to certify “hundreds, and possibly thousands” of similarly harmed policyholders. The complaint stated that “Plaintiff and Class stipulate they will seek to recover total aggregate damages of less than five million dollars,” and an attached affidavit by Knowles stipulated that he would “not at any time during this case … seek damages for the class … in excess of $5,000,000 in the aggregate.”

The defendant removed, but the district court remanded, holding that although the amount in controversy would have slightly exceeded the $5 million threshold, the stipulation deprived the federal court of jurisdiction under CAFA. Although the Eighth Circuit declined to hear an appeal from the remand order, the Supreme Court reached to take the case, evidencing a continued interest in defining the scope of plaintiffs’ class action remedies.

By holding that plaintiffs may not enter into pre-certification stipulations to limit the amount-in-controversy, the Court eliminated an arrow from plaintiffs’ quiver, making it more difficult to ensure that class claims are litigated in the class’s forum of choice. The Court was unswayed by the fact that plaintiffs proceeding on a non-class basis are free to stipulate that their damages will not exceed a specified amount-in-controversy.

As a result of the ruling, some class actions that would otherwise have proceeded in state court will presumably be forced into federal court. Plaintiffs may thus be deprived of more lenient state certification requirements and forced to proceed under Federal Rule 23, as interpreted by Wal-Mart v. Dukes, 564 U.S. __ (2011). Other “procedural” advantages of proceeding in state court, such as the availability of non-unanimous jury verdicts, will also become unavailable to such classes. And in some states, the federal bench tends to view class claims less favorably than the state. The Court’s ruling suggests an interest in reaching out to circumscribe the options of plaintiff classes. Nonetheless, in the Northern District of California, where Bryan Schwartz Law is located and frequently practices, the excellent federal bench may mitigate any damage that may be done by Standard Fire in other jurisdictions.

If you have questions about your class action rights, contact Bryan Schwartz Law today.

Disclaimer: Nothing in the foregoing commentary is intended to provide legal advice in any particular case. The author and Bryan Schwartz Law cannot represent you unless you have a signed representation agreement with the firm.