U.S. High Court: Class Rep’s Damages Limit Doesn’t Defeat Federal Jurisdiction

U.S. High Court: Class Rep’s Damages Limit Doesn’t Defeat Federal Jurisdiction

WASHINGTON, D.C. - (Mealey's) A class representative's stipulation that damages being sought were less than $5 million does not defeat federal jurisdiction under the Class Action Fairness Act (CAFA), a unanimous U.S. Supreme Court ruled March 19 (The Standard Fire Insurance Company v. Greg Knowles, et al., No. 11-1450, U.S. Sup.; See 1/18/13, Page 4) (lexis.com subscribers may access Supreme Court briefs and the opinion for this case).

"Our reason is a simple one:  Stipulations must be binding.  . . .  The stipulation [plaintiff Greg] Knowles proffered to the District Court, however, does not speak for those he purports to represent.  . . .  Because his precertification stipulation does not bind anyone but himself, Knowles has not reduced the value of the putative class members' claims.  For jurisdictional purposes, our inquiry is limited to examining the case 'as of the time it was filed in state court,' Wisconsin Dept. of Corrections v. Schacht, 524 U.S. 381, 390 (1998).  At that point, Knowles lacked the authority to concede the amount-in-controversy issue for the absent class members.  The Federal District Court, therefore, wrongly concluded that Knowles' precertification stipulation could overcome its finding that the CAFA jurisdictional threshold had been met," Justice Stephen G. Breyer wrote for the court.

Damage Claims

On April 13, 2011, Knowles filed a putative class complaint in the Miller County, Ark., Circuit Court against Standard Fire Insurance Co.  Knowles alleged breach of contract because of 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 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 before removal that limited his and the class's 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 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.  Oral arguments were held Jan. 7.

Counsel

Theodore J. Boutrous Jr. of Gibson, Dunn & Crutcher in Los Angeles and Wystan M. Ackerman of Robinson & Cole in Hartford, Conn., represent Standard Fire.  David C. 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 curiae 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 the U.S. Chamber of Commerce 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.

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