On Tuesday, the U.S. Supreme Court handed down an opinion in which it considered CAFA for the first time. The Standard Fire Ins. Co. v. Knowles, ___ S.Ct. ___ (Mar. 19, 2013).
The Court held that a pre-certification stipulation not to seek damages exceeding $5 million (CAFA's jurisdictional minimum) was not binding on absent class members; therefore, the district court should have disregarded the stipulation when it ruled on the remand motion:
As applied here, the statute tells the District Court to determine whether it has jurisdiction by adding up the value of the claim of each person who falls within the definition of Knowles’ proposed class and determine whether the resulting sum exceeds $5 million. If so, there is jurisdiction and the court may proceed with the case. The District Court in this case found that resulting sum would have exceeded $5 million but for the stipulation.
And we must decide whether the stipulation makes a critical difference. In our view, it does not. Our reason is a simple one: Stipulations must be binding. [Citations.] The stipulation Knowles proffered to the District Court, however, does not speak for those he purports to represent.
That is because a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified. See Smith v. Bayer Corp., 564 U. S. ___, ___ (2011) ....
Because his precertification stipulation does not bind anyone but himself, Knowles has not reduced the value of the putative class members’ claims. For jurisdictional purposes, our inquiry is limited to examining the case “as of the time it was filed in state court,” Wisconsin Dept. of Corrections v. Schacht, 524 U. S. 381, 390 (1998). At that point, Knowles lacked the authority to concede the amount-in-controversy issue for the absent class members. The Federal District Court, therefore, wrongly concluded that Knowles’ precertification stipulation could overcome its finding that the CAFA jurisdictional threshold hadbeen met.
Slip op. at 3-4.
The opinion suggests that no pre-certification stipulations or concessions can ever bind absent class members. Such a holding could have ramifications that extend far beyond the context of CAFA jurisdiction.
The opinion also contains this paragraph:
Knowles argues in the alternative that a stipulation is binding to the extent it limits attorney’s fees so that the amount in controversy remains below the CAFA threshold. We do not consider this issue because Knowles’ stipulation did not provide for that option.
Slip op. at 7. Although not mentioned in the opinion, apparently the $5 million threshold was reached in this case only by adding a potential attorneys' fees award to the potential class members' potential damages. The district court will have to consider on remand whether the attorneys' fees should be counted in the calculation (and if so, what amount should be assumed). In other words, even disregarding the stipulation, the defendant will still have to establish as a factual matter that the amount in controversy exceeds $5 million.
A blog reader emailed me to suggest that Knowles overruled the Ninth Circuit's opinion in Lowdermilk v. United States Bank, N.A., 479 F.3d 994 (9th Cir. 2007) (discussed in this blog post). I have not had an opportunity to go back to the Lowdermilk opinion and consider that idea.