Supreme Court Rejects Stipulation By Proposed Class Representative As Defeating Federal Removal Under Class Action Fairness Act Of 2005

The Supreme Court's decision in Standard Fire eliminates one method by which a class action plaintiff can mold his or her claim to achieve this goal.

In a decision strengthening the ability of defendants in state court class actions to remove those cases to federal court, on March 19, 2013, a unanimous U.S. Supreme Court held in Standard Fire Insurance Company v. Knowles1 that a representative plaintiff in a class action filed in state court cannot defeat removal under the Class Action Fairness Act of 2005 (CAFA)—which permits removal of state-law based class actions to federal court if, among other things, the matter in controversy exceeds $5 million—through a stipulation that the class "will seek to recover total aggregate damages of less than" that jurisdictional threshold, regardless of the class' actual claimed damages. Building on its 2011 decision in Smith v. Bayer Corp.2 which held that a class representative has no power to bind absent class members prior to class certification, the Supreme Court determined that the stipulation was not binding on any of the absent class and, therefore, district courts should ignore such stipulations in the future. The effect of this decision is to broaden a class action defendant's ability to invoke federal jurisdiction by eliminating a device by which class action plaintiffs sought to prevent removal.

In the Standard Fire case, Greg Knowles filed a proposed class action in the Circuit Court of Miller County, Arkansas, in April 2011, contending that when Standard Fire had made certain homeowner's insurance loss payments, it had unlawfully failed to include a general contractor fee. As part of his suit, Knowles sought to certify a class of "hundreds, and possibly thousands" of similarly harmed Arkansas policyholders. Notwithstanding the size and scope of the class proposed, Knowles stipulated that he and the class "will seek to recover total aggregate damages of less than five million dollars." Moreover, Knowles himself submitted an affidavit stating that he "will not at any time during this case . . . seek damages for the class . . . in excess of $5,000,000 in the aggregate."

After Standard Fire removed the case to federal court, Knowles argued for remand on the ground that the district court lacked jurisdiction because his stipulation demonstrated that the "sum or value" of the "amount in controversy" fell beneath CAFA's $5 million threshold. On the basis of evidence presented by the company, the...