The Class Action Fairness Act of 2005 provides the federal district courts with original jurisdiction to hear a class action if the class has more than 100 members, the parties are minimally diverse, and the matter in controversy exceeds the sum or value of $5,000,000. 28 U.S.C.S. § 1332(d)(2), (5)(B). To determine whether the matter in controversy exceeds that sum, the claims of the individual class members shall be aggregated. 28 U.S.C.S. § 1332(d)(6). And those class members include persons (named or unnamed) who fall within the definition of the proposed or certified class. 28 U.S.C.S. § 1332(d)(1)(D).
In April 2011 respondent, Greg Knowles, filed this proposed class action in an Arkansas state court against petitioner, the Standard Fire Insurance Company. Knowles claimed that, when the company had made certain homeowner's insurance loss payments, it had unlawfully failed to include a general contractor fee. And Knowles sought to certify a class of “hundreds, and possibly thousands” of similarly harmed Arkansas policyholders. App. to Pet. for Cert. 66. In describing the relief sought, the complaint says that the “Plaintiff and Class stipulate they will seek to recover total aggregate damages of less than five million dollars.” An attached affidavit stipulates that Knowles “will not at any time during this case . . . seek damages for the class . . . in excess of $5,000,000 in the aggregate.” Knowles filed a proposed class action in state court against petitioner insurer, stipulating that the class would seek less than $5 million in damages. After removal, a district court remanded, finding that the amount in controversy fell below the threshold of 28 U.S.C.S. § 1332(d)(2), (5), (6), of the Class Action Fairness Act (CAFA). The U.S. Court of Appeals for the Eighth Circuit declined to hear the appeal. Certiorari was granted.
Does a pre-certification stipulation of damages of less than five million dollars remove the case from CAFA's scope?
The insured's stipulation did not remove the case from CAFA’s scope. The insured could not legally bind members of the proposed class before certification. Because the precertification stipulation did not bind the absent class, the value of the putative class members’ claims had not been reduced. When the case was filed, the insured lacked the authority to concede the amount-in-controversy issue for the absent class members. Thus, it was error to find that the precertification stipulation could overcome its finding otherwise that the CAFA jurisdictional threshold was met. The stipulated amount was in effect contingent. CAFA did not forbid considering, for purposes of determining the amount in controversy, the very real possibility that a nonbinding, amount-limiting, stipulation might not survive certification. To ignore a nonbinding stipulation did no more than require the federal judge to do what she had to do in cases without a stipulation and what the statute required, namely “aggregate” the claims of the individual class members under § 1332(d)(6). The insured could not yet bind the absent class, thus the district court should have ignored the stipulation.