U.S. Supreme Court Hears Oral Arguments on Setting Damage Limitations

WASHINGTON, D.C.- (Mealey's) Courts must calculate the amount in controversy in class suits rather than focus on the amount being sought by a class representative in deciding in which jurisdiction a class complaint belongs, Theodore J. Boutrous Jr. of Gibson, Dunn & Crutcher in Los Angeles argued before the U.S. Supreme Court Jan. 8 (The Standard Fire Insurance Company v. Greg Knowles, et al., No. 11-1450, U.S. Sup.; See 12/6/12, Page 5) (lexis.com subscribers may access Supreme Court briefs for this case).

Representing the defendant, The Standard Fire Insurance Co., Boutrous told the justices, "I believe that the Court's decision in Hertz[Corp. v. Friend (130 S. Ct. 1181 [2010])] said if there is a sign of manipulation that is meant to thwart jurisdiction or affect jurisdiction, the Court can look through that to look to competent proof of what the actual facts are.  And I think that what has happened here is the plaintiff's lawyers, in addition to these stipulations, they're slicing and dicing the classes up into pieces to thwart jurisdiction and manipulate jurisdiction."

While he admitted when questioned that it was an odd position to be in-a defendant arguing that the amount in controversy is more than the plaintiff claims-he argued that a court must "look at the complaint and say what's the maximum amount the plaintiff can get on their best day under the claims they've pled based on the facts and the proof and the evidence.  Here, the uncontradicted evidence, put aside the statute of limitations question or any other claim they could have brought, it exceeds $5 million."

Damage Claims

On April 13, 2011, Greg Knowles filed a putative class complaint in the Miller County, Ark., Circuit Court against Standard Fire Insurance Co.  Knowles alleged breach of contract due to Standard's underpayment of claims for loss or damage to real property made pursuant to certain homeowners insurance policies. 

Knowles' home was damaged by hail in March 2010.  Knowles requested payment from Standard Fire for the damage.  He claimed that Standard Fire failed to pay for charges reasonably associated with retaining the services of a general contractor to repair or replace damaged property. 

Standard Fire removed the case to the U.S. District Court for the Western District of Arkansas on May 18, 2011.  It argued that Knowles fraudulently framed the definition of the purported class in order to limit recovery to two years, rather than the five years available under the applicable statute of limitations.  Standard Fire also asserted that although Knowles signed a stipulation limiting his recovery and the purported recovery for the class, Knowles' counsel failed to sign a stipulation that they would not seek or accept an award of attorney fees that would allow the total amount in controversy to exceed state court jurisdictional limits.  Moreover, Standard Fire argued that Knowles lacked the authority to place a limit on recovery that would bind the other class members.

Jurisdictional Ruling

On June 6, 2011, Knowles moved to remand the case to state court, citing his binding stipulation executed prior to removal that limited his and the class' recovery to within state jurisdictional limits. 

The District Court held that Standard Fire satisfied its burden of establishing that the $5 million threshold was satisfied.  However, the District Court went on to find that Knowles' stipulation was sufficient for him to prove to a "legal certainty" that the amount in controversy fell below $5 million.  It further held that a named plaintiff may avoid removal under Class Action Fairness Act (CAFA) by stipulating to a purportedly "binding" limit on the damages being sought. 

Standard Fire petitioned the Eighth Circuit U.S. Court of Appeals for permission to appeal pursuant to CAFA.  The Eighth Circuit denied permission to appeal without explanation.  Standard Fire then petitioned for rehearing en banc.  That petition also was denied after the appellate court issued its ruling Rolwing v. Nestle Holdings, Inc. (666 F.3d 1069 [8th Cir. 2012]).  In that case, the appellate court affirmed an order of remand under CAFA based on a stipulation by the named plaintiff purporting to limit the damages of putative class members to below $5 million.  Such a stipulation was allowed to defeat federal jurisdiction even where the actual amount in controversy otherwise was over $12 million, more than twice the $5 million threshold. 

Standard Fire then petitioned the U.S. Supreme Court.

Amount In Controversy

David C. Frederick, representing Knowles, argued before the high court justices that the decision about the amount in controversy needs to be made by the person bringing the complaint.  "What we do know is that there is a civil action, it has been filed by a putative class representative, that putative class representative in good faith, the district court found had acted in good faith in stipulating to a lower amount than $5 million -- and the question is should that be given legal effect, where everybody knows it will be binding if the class is certified, and it will be binding on the class representative if the class is not certified," he argued.  

Frederick conceded, when questioned by Chief Justice John G. Roberts Jr. that should an adequacy hearing ever occur and it was demonstrated that the amount in controversy was, in fact, $10 million, that Knowles would no longer be considered an adequate representative.  "A second outcome could be at that point, if an alternate class member comes in and files an intervened complaint and says:  This case really is worth $10 million, at that point [28 U.S. Code] section 1453(b) applies and they can remove to federal court," Frederick said.

Counsel

Boutrous and Wystan M. Ackerman of Robinson & Cole in Hartford, Conn., represent Standard Fire.  Frederick of Kellogg, Huber, Hansen, Todd, Evans & Figel in Washington and Jonathan S. Massey of Massey & Gail in Washington represent Knowles.

Cory L. Andrews of Washington Legal Foundation in Washington filed an amicus brief on behalf of Washington Legal Foundation, Allied Education Foundation and International Association of Defense Counsel.  Jess Askew of Williams & Anderson in Little Rock, Ark., filed an amicus brief on behalf of Arkansas State Chamber of Commerce.Deputy Solicitor General Andrew L. Brasher of the Office of Alabama Attorney General in Montgomery, Ala., filed an amicus brief on behalf of Alabama, Arizona, Colorado, Connecticut, Florida, Georgia, Indiana, Kansas, Michigan, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Texas, Utah, Washington and West Virginia.Brian G. Brooks of Greenbrier, Ala., filed an amicus brief on behalf of Arkansas Trial Lawyers Association.G. Eric Brunstad Jr. of Dechert in Hartford, Conn., filed an amicus brief on behalf of Professors E. Donald Elliott and John J. Watkins.Charles J. Cooper of Cooper & Kirk in Washington filed an amicus brief on behalf of Partnership for America.Senior Assistant Attorney General Eric B. Estes of Little Rock filed an amicus brief on behalf of Arkansas,et al.  Gregory G. Katsas of Jones Day in Washington filed an amicus brief on behalf of the National Association of Manufacturers.

Jeffrey A. Lamken of MoloLamken in Washington filed an amicus brief on behalf of Chamber of Commerce of the United States of America and the Retail Litigation Center Inc.Scott L. Nelson of Public Citizen Litigation Group in Washington filed an amicus brief on behalf of Public Citizen Inc. and Public Justice P.C.  David B. Rivkin Jr. of Baker & Hostetler in Washington filed an amicus brief on behalf of Cato Institute.Thomas T. Rogers of Austin, Texas, filed an amicus brief on behalf of 21st Century Casualty Co., 21st Century Insurance Co., 21st Century Insurance Company of the Southwest and 21st Century Insurance Group.Jeremy B. Rosen of Horvitz & Levy in Encino, Calif., filed an amicus brief on behalf of Manufactured Housing Institute, American National Property and Casualty Co., American National General Insurance Co., Anpac Louisiana Insurance Co., Pacific Property &Casualty Co. and American National County Mutual Insurance Co.Mary M. Ross of Defense Research Institute in Bloomfield Hills, Mich., filed an amicus brief on behalf of Defense Research Institute.  Paul H. Schwartz of Boulder, Colo., filed an amicus brief on behalf of Hartford Underwriters Insurance Co.  J. Tracy Walker of McGuire Woods in Richmond, Va., filed an amicus brief on behalf of Center for Class Action Fairness.

Lexis.com subscribers can access enhanced versions of the opinions and annotated versions of the statutes cited in this article:

Hertz Corp. v. Friend, 130 S. Ct. 1181 (2010)

Rolwing v. Nestle Holdings, Inc., 666 F.3d 1069 (8th Cir. 2012)

28 U.S.C. § 1453

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