Can you stipulate your way out of CAFA?

On January 7, 2013, the U.S. Supreme Court will hear oral argument in Standard Fire Insurance Co. v. Knowles, a case involving the Class Action Fairness Act (“CAFA”). This is the first time the Court has agreed to review a CAFA question since CAFA was enacted in 2005.

A little history as to why this case is before the Supreme Court: CAFA was enacted in response to perceived widespread abuse in filing large, nationwide class actions in state courts. CAFA altered class action litigation by providing, among other things, making it easier to bring these suits in federal court – or, for our purposes here, to remove these suits to federal court. While CAFA made no changes with regard to federal question class actions, it made big changes to diversity class actions, allowing federal court jurisdiction for classes with more than 100 members (with at least one of those members being diverse from at least one defendant) and an amount in controversy exceeding $5 million.

In Standard Fire, the plaintiff filed a class action in Arkansas state court with an attached affidavit stating that the plaintiff would not seek more than $5 million for the class – a clear attempt to circumvent CAFA. Following removal to federal court, the district court remanded it back to state court, reasoning that, based on a state statute, the plaintiff could file a binding stipulation regarding the amount in controversy in order to establish subject matter jurisdiction. After the Eighth Circuit denied Standard Fire’s petition to appeal, the U.S. Supreme Court granted certiorari. In doing so, the Court will consider whether “a named plaintiff [can] defeat a defendant’s right to removal under [CAFA] by filing 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” under CAFA.

This case presents several interesting issues involving the rights of putative class members and named plaintiffs that might affect class action litigation generally. More importantly, however, what the U.S. Supreme Court decides with regard to defeating this jurisdictional requirement by stipulation might test the limits of CAFA’s purpose as a response to perceived abuses in state court. We’ll continue to follow developments as the case progresses.

About Bose McKinney & Evans LLP

Bose McKinney & Evans LLP is a business law firm, headquartered in Indianapolis, Indiana, serving both publicly held and privately held businesses, governmental entities and high-growth industries. Our clients include Fortune 100 companies, international manufacturers, national and regional financial institutions, agribusinesses, sports teams, university-incubated start-ups, media, utilities, cities and schools, to name a few. We strive to build strong relationships with our clients as key business advisors, to exceed expectations in the quality of our work, to be knowledgeable about our clients’ businesses and sectors, to be responsive to service needs and to continually seek to improve the delivery of client services. Our ultimate focus is on our clients.
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