SCOTUS Issues First-Ever Decision Interpreting CAFA

On Tuesday, March 19, 2013, the U.S. Supreme Court issued a unanimous decision in  Standard Fire Ins. Co. v. Knowles, No. 11-1450, and held that class action plaintiffs cannot plead around the Class Action Fairness Act's ("CAFA") jurisdictional amount in controversy requirement.  Agreeing with petitioner Standard Fire, the Court declined to permit circumvention of federal removal jurisdiction under CAFA by stipulating in the complaint that the named plaintiff/putative class representative will not seek damages in excess of $5 million, the requisite jurisdictional amount under the Act.

The Court held that plaintiff, Greg Knowles, lacked the power to speak for the putative class when he stipulated that he and the class would not ask for more than $5 million.  Justice Breyer, writing for the Court, explained that:

"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.  . . .  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."  (Citations omitted.)

Despite the narrow, straightforward holding, this decision is significant.  Standard Fire demonstrates the Court's resistance to any subversion of the interests of absent class members and reiterates that the class action mechanism is procedural – not a tool to be used to affect individuals' substantive rights.

About The Author

Erin Rhinehart | Faruki Co-Managing Partner