The Supreme Court Removes a Limit on Federal Court Jurisdiction Over Class Actions

In Standard Fire Ins. Co. v. Knowles, Case No. 11-1450 (decided Mar. 19, 2013), the United States Supreme Court removed a potential limit on the jurisdiction of federal courts over class actions.  The Court held that a potential class representative could not attempt to stipulate to the recovery of a lesser amount of damages in order to avoid hitting the threshold for a federal court’s exercising jurisdiction over the class action.

 The Class Action Fairness Act of 2005 (“CAFA”) gives federal courts jurisdiction over class actions in which there is minimal diversity between the parties (one plaintiff and one defendants are citizens of different states) and the amount in controversy exceeds $5 million.  All the claims of the potential class members considered in the aggregate.  In non-class action cases, plaintiffs can avoid federal court jurisdiction when there is diversity of citizenship between the parties by stipulating to a limitation on their damages.  Some plaintiffs in class action cases have attempted to avoid triggering federal court jurisdiction under CAFA by putting in their compliant a statement that the class would never seek damages in excess of $5 million.  The Standard Fire Insurance Company had removed Mr. Knowles’s case to the federal court, but the district court had ordered the case remanded to state court in light of Mr. Knowles’s statement that the class would never accept more than $5 million in damages.

 The Supreme Court ruled that Mr. Knowles’s attempt to limit the class’ damages would not automatically keep the case out of federal court.  Simply put, the Supreme Court held that the class representative could not make a binding stipulation as to what the yet uncertified class would not accept as damages.  Therefore, the district court was required to ignore the stipulation and make a determination of whether or not the aggregated damages claimed in the complaint would exceed the $5 million threshold.

 This case takes an important tool out of the toolbox of plaintiff’s lawyers seeking to keep defendants from invoking CAFA to remove class actions to federal court.

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