On Friday, August 31, 2012, the U.S. Supreme Court granted cert. in a CAFA case involving the $5 million amount-in-controversy requirement for federal diversity jurisdiction over putative class actions. The Standard Fire Ins. Co. v. Knowles, No. 11-1450.
Last Term, this Court held that in a putative class action "the mere proposal of a class ... could not bind persons who were not parties." Smith v. Bayer Corp., 131 S. Ct. 2368, 2382 (2011). In light of that holding, the question presented is:When a named plaintiff attempts to defeat a defendant's right of removal under the Class Action Fairness Act of 2005 by filing with a class action complaint a "stipulation" that attempts to limit the damages he "seeks" for the absent putative class members to less than the $5 million threshold for federal jurisdiction, and the defendant establishes that the actual amount in controversy, absent the "stipulation," exceeds $5 million, is the "stipulation" binding on absent class members so as to destroy federal jurisdiction?
In an unpublished order, District Judge P.K. Holmes, III, of the Western District of Arkansas accepted the stipulation and remanded the case back to state court. Knowles v. Standard Fire Ins. Co., 2011 WL 6013024 (W.D. Ark. Dec. 1, 2011). According to that order,
Exhibit A attached to the Complaint [was] a “Sworn and Binding Stipulation,” signed by Plaintiff, affirming that he will not at any time during the pendency of the case “seek damages for myself or any other individual class member in excess of $75,000 (inclusive of costs and attorneys' fees) or seek damages for the class as alleged in the complaint to which this stipulation is attached in excess of $5,000,000 in the aggregate (inclusive of costs and attorneys' fees).”
Id. at *2. In the face of that stipulation, the defendant presented evidence that the actual amount in controversy exceeded $5 million by approximately $24,000. As a result,
the burden shifts to Plaintiff to prove to a legal certainty that his claim falls under the $5 million threshold for remand to state court. The question is whether a plaintiff may meet his burden of proof by stipulating at the time the complaint is filed that he will not seek more than the federal jurisdictional minimum for himself and the putative class. Even though the Bell court did not specifically reference the legal certainty burden, it did conclude that a clear stipulation would meet the requirements for defeating removal. It follows, therefore, that if a stipulation is legally binding and made in good faith, it can satisfy the plaintiff's legal certainty burden and defeat removal. Bell [v. Hershey Co.], 557 F.3d [953,] 956 [(8th Cir. 2009)]; see also Tuberville v. New Balance Athletic Shoe, Inc., 2011 WL 1527716, *3 (W.D. Ark., April 21, 2011).
Id. at *4 (emphasis added). The court evaluated the stipulation and found it sufficient. On the specific issue that has caught the U.S. Supreme Court's attention, the court stated:
Defendant believes Plaintiff has exhibited bad faith in seeking to limit the as-yet-unknown class members to damages over a two-year period, rather than the full five years of damages potentially recoverable under the statute of limitations. See Doc. 9, p. 13. As the master of his complaint, Plaintiff may choose what claims to bring and what claims to leave out. “[A] removing defendant can't make the plaintiff's claim for him; as master of the case, the plaintiff may limit his claims (either substantive or financial) to keep the amount in controversy below the threshold.” Brill v. Countrywide Home Loans, Inc., 427 F.3d 446, 449 (7th Cir.2005). Defendant fails to cite any authority which states that a plaintiff may not seek to recover damages for a period of time shorter than the statute of limitations provides. Nor is the Court persuaded that Plaintiff's temporal limitation on recovery evidences his bad faith.
Defendant cites to the case of Bass v. Carmax Auto Superstores, Inc., 2008 WL 441962 (W.D. Mo., Feb. 14, 2008), for the proposition that a class plaintiff has no right to limit recovery for a class without court approval. However, the Bass case was decided before Bell, and the holding in Bass contradicts both the plain language and the spirit of the Eighth Circuit's holding in Bell. Furthermore, putative class members may simply opt out of the class and pursue their own remedies if they feel that the limitations placed on the class by Plaintiff are too restrictive. See Murphy, 2011 WL 1559234 at *3 (“... the plaintiffs in state court who choose not to opt out of the class must live with it,” quoting Morgan v. Gay, 471 F.3d 469, 477-78 (3rd Cir.2006), cert. denied, 128 S.Ct. 66 (2007)).
Id. at *6.
According to the cert. petition, the Eighth Circuit denied the defendant's petition for permission to appeal, and then denied both panel and en banc rehearing.
Consumer Law & Policy Blog has a post on the case.
The following links to materials from the case are courtesy of SCOTUSblog: