Standard Fire Ins. Co. v. Knowles

Brief Fact Summary.

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Synopsis of Rule of Law.

Under CAFA, a plaintiff’s stipulation as to damages being sought prior to the certification of a class may not bind the members of the class and overcome a finding that the amount in controversy exceeds the jurisdictional amount.

Facts.

Plaintiff filed a proposed class action lawsuit against Defendant in an Arkansas state court, alleging that the insurance company failed to compensate homeowners for a general contractor fee when claims were paid. He sought to certify a class of hundreds and possibly thousands of similarly harmed Arkansas policyholders. The lawsuit stated that Plaintiff and the class sought to recover damages of no more than $5 million. Plaintiff also attached an affidavit to the complaint that again stipulated that they would not seek damages for the class in excess of $5 million, in the aggregate. Defendant removed the lawsuit to federal court based on the Class Action Fairness Act (CAFA). The trial court determined that the claim would likely exceed $5 million but accepted the stipulations of Plaintiff regarding the amount of damages that would be sought. The trial court remanded the case back to state court. Defendant appealed the remand order to the United States Court of Appeals for the Eighth Circuit, which declined to hear the appeal. Defendant then sought review by the United States Supreme Court.

Issue.

Under CAFA, may a plaintiff’s stipulation as to damages being sought prior to the certification of a class bind the members of the class and overcome a finding that the amount in controversy exceeds the jurisdictional amount?

Held.

No. The court reversed the judgment of the trial court, holding that the stipulation must be binding to defeat jurisdiction and Plaintiff who was bringing a proposed class action could not bind members of the proposed class before the class was certified

Discussion.

Under CAFA, a plaintiff’s stipulation as to damages being sought prior to the certification of a class may not bind the members of the class and overcome a finding that the amount in controversy exceeds the jurisdictional amount. In removal cases, the inquiry into subject-matter jurisdiction is limited to the case as of the time it was filed in state court. The stipulation must be binding to defeat jurisdiction. A plaintiff who is bringing a proposed class action cannot bind members of the proposed class before the class is certified, because the members are not yet joined into the litigation. Even if the class is certified, the purported stipulation may not survive the class certification process. For instance, the state court could find that Plaintiff was not an adequate representative of the class due to the artificial cap that has been placed on the action, or the state court could certify the class only on the condition that Plaintiff would remove the stipulation. Because the stipulation made by Plaintiff was not binding upon the class, the stipulation cannot overcome a finding that the amount in controversy exceeds $5 million. Therefore, the court reversed the judgment of the trial court.