CALIFORNIA CLASS ACTION LAW

Category: Amount in Controversy

U.S. Supreme Court Rules a Putative Class Action Plaintiff May Not Use Stipulation to Defeat CAFA Amount in Controversy

Official portrait of Supreme Court Justice Ste...

Official portrait of Supreme Court Justice Stephen Breyer. (Photo credit: Wikipedia)

In a unanimous opinion written by Justice Breyer, the U.S. Supreme Court held today that a putative class representative’s stipulation that he and the class would seek less than $5 million in damages does not defeat federal jurisdiction under the Class Action Fairness Act of 2005 (“CAFA”).  Standard Fire Insurance Co. v. Knowles, No. 11-1450, 586 U.S. __ (Mar. 19, 2013).

The question presented concerned a class-action plaintiff who stipulates, prior to certification of the class, that he, and the class he seeks to represent, will not seek damages that exceed $5 million in total. Does that stipulation remove the case from CAFA’s scope?

The Court concluded no, reasoning that stipulations must be binding, and a “plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified.”

 We do not agree that CAFA forbids the federal court to consider, for purposes of determining the amount in controversy, the very real possibility that a nonbinding, amount-limiting, stipulation may not survive the class certification process. This potential outcome does not result in the creation of a new case not now before the federal court. To hold otherwise would, for CAFA jurisdictional purposes, treat a nonbinding stipulation as if it were binding, exalt form over substance, and run directly counter to CAFA’s primary objective: ensuring “Federal court consideration of interstate cases of national importance.” §2(b)(2), 119 Stat. 5. It would also have the effect of allowing the subdivision of a $100 million action into 21 just-below-$5-million state-court actions simply by including nonbinding stipulations; such an outcome would squarely conflict with the statute’s objective.

The Court concluded that “the stipulation at issue here can tie Knowles’ hands, but it does not resolve the amount-in-controversy question in light of his inability to bind the rest of the class.”

By CHARLES H. JUNG

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Eastern District Remands Class Action for Failure to Meet CAFA Amount in Controversy

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The United States District Court for the Eastern District of California remanded a class action case for failure to meet the $5,000,000 amount in controversy requirement under the Class Action Fairness Act (“CAFA”).  Rhoades v. Progressive Casualty Insurance Co., Inc., No. 2:10-cv-1788-GEB-KJM, 2010 WL 3958702 (E.D. Cal. Oct. 8, 2010).  Plaintiffs alleged that they and the members of the putative class were “employed in the State of California by the Defendant[ ] to adjust insurance claims and their positions were known as ‘Claims Adjuster,’ ‘Claims Generalist Associate,’ or similar titles” during the past four years. Id. Plaintiffs and members of the putative class were allegedly “not paid overtime wages for all hours worked” and were not “provided accurate itemized wage statements.” Id.

Apparently attempting to avoid federal court jurisdiction, Plaintiffs also alleged that “the individual members of the classes herein have sustained damages under the seventy-five thousand … jurisdictional threshold and that the aggregate claim is under the five million dollar … threshold, [and argue therefore] removal under the CAFA would be improper.” Id. Plaintiffs state in their prayer for relief: “Plaintiffs are informed and believe that the damages, back-wages, restitution, penalties, interest and attorneys’s [sic] fees do not exceed an aggregate of $4,999,999.99 and that Plaintiffs’ individual claims do not exceed $74,999.99.” Id. Read the rest of this entry »