Will the Supreme Court Legalize Class Action Forum Shopping?

Next week, the U.S. Supreme Court will hear oral argument on whether federal removal jurisdiction under the Class Action Fairness Act (“CAFA” or the “Act”) may be circumvented by merely 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.  In other words, can a named plaintiff buy his – and absent class members’ – way out of federal jurisdiction?  In Standard Fire Ins. Co. v. Knowles, No. 11-1450, the Western District of Arkansas found that the plaintiff’s stipulation was binding and that the case must be remanded to state court.  The United States Court of Appeals for the Eighth Circuit declined to hear the appeal based on its decision to uphold a remand in a similar case.  The Supreme Court accepted certiorari and will hear oral argument on Monday, January 7.

Though the plaintiff has long been considered the master of his complaint, CAFA specifically defines how the amount in controversy must be calculated in class actions.  Specifically, CAFA provides that, “the claims of the individual class members shall be aggregated to determine whether the amount in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs.” 28 U.S.C. § 1332(d)(6) (emphasis added).  While this case raises a variety of issues, at its core, the case questions whether a plaintiff, and putative class representative, can unilaterally limit the amount of damages recoverable by absent class members at the pleading stage, regardless of the actual amount of potentially recoverable damages.  At the pleading stage, the court has not yet decided whether any of the Rule 23 prerequisites have been established, including whether the named plaintiff (and his counsel) is adequate.  Upholding this type of pleading practice lets the tail wag the dog.

Several states, including Ohio, filed a collective amicus brief on behalf of the petitioner Standard Fire.  The brief voices these states’ respective “concern about the novel use of class action procedures to abridge the rights of their citizens.”  In particular, these states are concerned that allowing plaintiffs to stipulate to the amount of damages recoverable in a putative class action “subvert[s] the interest of absent class members to the interests of the class’s lawyers.”  (Copies of the merits briefs and amici briefs may be accessed at: http://www.americanbar.org/publications/preview_home/11-1450.html, courtesy of the American Bar Association.)

While this case may not grab the media attention that other cases currently pending before the Supreme Court have garnered, the Court’s decision will have significant implications on state and federal class action practice nationwide.

 


Posted by Erin Rhinehart
Class Action
January 2, 2013