Supreme Court Ruling Reverses Bad 9th Circuit Precedent On CAFA

On March 19, 2013, the U.S. Supreme Court handed down Standard Fire Insurance v. Knowles, a short, narrow, and unanimous opinion addressing removal of class actions to federal court under the Class Action Fairness Act ("CAFA"). The central holding of the case is that a district court should "ignore" representations by the plaintiff that the amount in controversy is under $5 million and instead consider the actual evidence concerning the number of class members and potential claims. Although the Court did not expressly address Lowdermilk v. U. S. Bank Nat'l Ass'n, 479 F.3d 994 (9th Cir. 2007)—a 9th Circuit case that held that the defendant must establish with "legal certainty" that the amount in controversy exceeds $5 million when the plaintiff pleads that the amount in controversy is lower—the Supreme Court's reasoning effectively reverses the Lowdermilk line of cases.

The Relevant Facts in Standard Fire Insurance

As relevant, the defendant removed a class action and made a showing through an analysis of the allegations in the complaint that the amount in controversy slightly exceeded $5 million. The district court found no fault with the analysis, but noted that the Plaintiff had made a formal stipulation that the amount in controversy was less than $5 million. Invoking the old adage that the plaintiff is "the master of the complaint," the district court held that it was bound to remand the case based on the Plaintiff's purportedly binding representation that the class was seeking less than $5 million.

The Supreme Court's Holding

The limited question the Supreme Court answered was, assuming the evidence otherwise indicated that the class's potential recovery exceeds the minimum $5 million, did the formal stipulation defeat federal jurisdiction. The Court answered this question "no." The plaintiff, as a mere potential representative for an uncertified class, had no power to bind the class and to require them to agree to the reduced recovery. This is to be contrasted from where an individual stipulates that his damages are below the amount in controversy in an individual action, which does bind all relevant parties (i.e., there are no absent contingent parties). The Court went so far as to say that the district court "should have ignored that stipulation." Instead, the Court directed district court's the proper process is simply "to add[] up the value of the claim of each person who falls within the definition of [the] proposed class and...