Standard Fire Ins. Co. v. Knowles, 133 S.Ct. 1345 (2013). Class action plaintiffs often prefer, for strategic or tactical reasons, to bring their cases in state courts, while class action defendants normally favor federal courts. As a result, when plaintiffs bring class actions in state court, defendants try to remove those cases to federal court, while plaintiffs maneuver to keep the cases in state court. In this case, a unanimous Supreme Court of the United States, speaking through Justice Breyer, rejected one tactic that some plaintiffs have used to maintain their cases in state rather than federal court.
The Class Action Fairness Act, 28 U.S.C. §1332 (“CAFA”), gives federal courts original jurisdiction over class actions in which the amount in controversy, aggregating the value of the claims of all class members, exceeds $5 million. As a result, some class plaintiffs, believing that they and the class are better off in state court, have been expressly alleging in ther complaints, and/or stipulating, that the amount in controversy in the case does not exceed $5 million. Plaintiff here did both. Nonetheless, defendant removed the case to federal court. But plaintiff successfully moved to remand the case to state court and the Eighth Circuit Court of Appeals declined to hear defendant’s appeal. Defendant sought review in the Supreme Court, which reversed the decisions below.
The Court’s reasoning, in a very short opinion, was simple: plaintiff lacked authority to bind absent class members to the stipulation limiting the amount in controversy. “[A] plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified.” The jurisdictional inquiry under CAFA is limited to examining the case as of the time it was filed in state court. At that point, plaintiff lacked the authority to “concede the amount-in-controversy issue for the absent class members.” The Court rejected plaintiff’s contention that just as plaintiffs in non-class cases, as the masters of their complaints, can avoid federal jurisdiction by stipulating to a low enough amount in controversy, so too should class action plaintiffs be able to do that. Justice Breyer observed that stipulations in non-class cases bind only the named plaintiff. A stipulation in a putative class action, however, cannot bind anyone besides the named plaintiff.
The Court’s decision essentially takes away a plaintiff’s strategy decision as to state vs. federal venue and leaves that decision to defendants instead. A plaintiff in a putative class action may legitimately consider that he or she and the class have a better chance of recovery, even if that recovery is capped at $5 million, in state court, than they do in federal court, even though there is no upper limit on recovery there. Plaintiffs and the class are bound by other allegations of a class action complaint. It is not clear why allegations as to the amount in controversy being sought cannot also have effect beyond the named plaintiff.
The Court emphasized the stipulation and its limited effect. But would the result have been different if plaintiff had merely included allegations about amount in controversy in the complaint, rather than also filing a stipulation? It does not seem so.
This is one of several ways in which courts allow defendants to influence, or even override, class action plaintiffs’ strategy decisions. While the Court’s reasoning as to the limited effect of stipulations seems plain enough, the result, and the pattern of which it is a part, is troubling.