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July 25, 2014

Supreme Court Rules Class Action Plaintiffs Cannot Use Damage-Limiting Stipulations To Avoid Federal Court

In a landmark decision in the area of class action litigation, a unanimous U.S. Supreme Court held that plaintiffs cannot use damage-limiting stipulations to prevent their cases from being removed from state to federal court.  In its March 19, 2013, ruling in Standard Fire Insurance v. Greg Knowles, the nation’s highest court found that pre-certification stipulations purporting to limit damages in class actions do not eliminate a federal court’s jurisdiction under the Class Action Fairness Act (CAFA).

The Standard Fire decision is a significant ruling for class action defendants as it largely eliminates a procedural tactic frequently used by plaintiffs to thwart federal jurisdiction and keep class actions in plaintiff-friendly state courts. 

Under CAFA, a state court class action can be removed to federal court if there is “minimal diversity” between the parties and where the jurisdictional amount exceeds $5 million.  To prevent removal under CAFA, the plaintiff in Knowles filed a stipulation that he “will not at any time during this case seek damages for the class action in excess of $5,000,000 in the aggregate.”  Based solely on the stipulation, the trial court found that the amount in controversy fell below the jurisdictional threshold required under CAFA and remanded the case to state court.   The Supreme Court granted defendant’s writ of certiorari to address “divergent views” among lower courts as to the jurisdictional impact of damages-limiting stipulations in the class action context. 

The Court based its Standard Fire decision on the grounds that pre-certification stipulations cannot “legally bind members of the proposed class before the class is certified.”  According to the Court, “[b]ecause [plaintiff’s] precertification stipulation does not bind anyone but himself, [he] has not reduced the value of the putative class members’ claims.” 

© Copyright 2014 Armstrong Teasdale LLP. All rights reserved

About the Author

Matthew Kreutzer, Franchise Attorney, Armstrong Teasdale, law firm
Partner

Matt Kreutzer serves as Chair of the firm's Franchise, Distribution and Antitrust practice group and is a Certified Specialist in Franchise and Distribution Law by the California State Bar's Board of Legal Specialization. He has spent more than a decade working with individuals and companies on issues relating to franchise law and is well-versed in all stages of the franchise relationship. 

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