Ballard Spahr LLP: Supreme Court To Decide Class Action Fairness Act Case - Can Plaintiff Limit Class Damages To Avoid Removal?

Ballard Spahr LLP: Supreme Court To Decide Class Action Fairness Act Case - Can Plaintiff Limit Class Damages To Avoid Removal?

By the Consumer Financial Services Group

On August 31, 2012, the U.S. Supreme Court granted a petition for certiorari in Standard Fire Insurance Co. v. Knowles (11-1450). The question presented by the petition is whether a named plaintiff in a state court class action can avoid removal to federal court under the Class Action Fairness Act of 2005 (CAFA) by filing a "stipulation" with the class action complaint that provides that the class will not seek damages in excess of the threshold for federal jurisdiction under CAFA. This case will represent the Court's first examination of CAFA since the statute was passed seven years ago.

To remove a class action under CAFA, the class damages must reach or exceed $5 million. The class representative in Knowles filed a stipulation with his class action complaint stating that he will not seek damages for himself or any other individual class member in excess of $75,000 (inclusive of costs and attorneys' fees) or seek damages for the class in excess of $5 million (inclusive of costs and attorneys' fees). Standard Fire argued that the actual amount in controversy, absent the stipulation, exceeded $5 million and that the class representative's stipulation could not be used to avoid federal jurisdiction. The district court disagreed with Standard Fire and relied on the stipulation to determine that there was no CAFA jurisdiction. The Eighth Circuit denied Standard Fire's petition for interlocutory review of the district court remand order.

Standard Fire's certiorari petition argued that the district court's reliance on the plaintiff's stipulation conflicted with the Supreme Court's 2011 decision in Smith v. Bayer Corp., where the Court held that a class representative does not represent the interests of the members of a putative class unless and until a court grants a motion for class certification and that "the mere proposal of a class . . . could not bind persons who were not parties." The Supreme Court's grant of certiorari even though there was no appellate decision in this case and even though Standard Fire had not asserted in its petition that there was now a true split in the circuits is rather unusual, and suggests that the Court may be inclined to reject stipulations of the type used by plaintiff in this case.

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). The CFS Group also produces CFPB Monitor, a blog that focuses exclusively on important Consumer Financial Protection Bureau developments. To subscribe to the blog, use the link provided to the right.

For more information, please contact Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, Burt M. Rublin at 215.864.8116 or rublin@ballardspahr.com, or Daniel J.T. McKenna at 215.864.8321 or mckennad@ballardspahr.com.


Copyright © 2012 by Ballard Spahr LLP.
www.ballardspahr.com
(No claim to original U.S. government material.)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.

This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

For more information about LexisNexis products and solutions, connect with us through our corporate site.