July 23, 2014

Supreme Court Ruling Reverses Bad 9th Circuit Precedent on Class Action Fairness Act (CAFA)

On March 19, 2013, the U.S. Supreme Court handed down Standard Fire Insurance v. Knowles, a short, narrow, and unanimous opinion addressing removal of class actions to federal court under the Class Action Fairness Act (“CAFA”).  The central holding of the case is that a district court should “ignore” representations by the plaintiff that the amount in controversy is under $5 million and instead consider the actual evidence concerning the number of class members and potential claims.  Although the Court did not expressly address Lowdermilk v. U. S. Bank Nat'l Ass'n, 479 F.3d 994 (9th Cir. 2007)—a 9th Circuit case that held that the defendant must establish with "legal certainty" that the amount in controversy exceeds $5 million when the plaintiff pleads that the amount in controversy is lower—the Supreme Court's reasoning effectively reverses the Lowdermilk line of cases.

The Relevant Facts in Standard Fire Insurance

As relevant, the defendant removed a class action and made a showing through an analysis of the allegations in the complaint that the amount in controversy slightly exceeded $5 million.   The district court found no fault with the analysis, but noted that the Plaintiff had made a formal stipulation that the amount in controversy was less than $5 million. Invoking the old adage that the plaintiff is “the master of the complaint,” the district court held that it was bound to remand the case based on the Plaintiff’s purportedly binding representation that the class was seeking less than $5 million. 

The Supreme Court’s Holding

The limited question the Supreme Court answered was, assuming the evidence otherwise indicated that the class’s potential recovery exceeds the minimum $5 million, did the formal stipulation defeat federal jurisdiction.  The Court answered this question “no.”  The plaintiff, as a mere potential representative for an uncertified class, had no power to bind the class and to require them to agree to the reduced recovery.  This is to be contrasted from where an individual stipulates that his damages are below the amount in controversy in an individual action, which does bind all relevant parties (i.e., there are no absent contingent parties).  The Court went so far as to say that the district court “should have ignored that stipulation.” Instead, the Court directed district court’s the proper process is simply “to add[] up the value of the claim of each person who falls within the definition of [the] proposed class and determine whether the resulting sum exceeds $5 million. If so, there is jurisdiction and the court may proceed with the case.”  In so concluding, the Court cited with approval Frederick v. Hartford Underwriters, 683 F.3d 1242, 1247 (10th Cir. 2012), where the Tenth Circuit rejected an attempt by a plaintiff to avoid federal jurisdiction by pleading in the prayer that the class was seeking only “a total award for compensatory and punitive damages [that] does not exceed $4,999,999.99.”  

How This Impacts Ninth Circuit Precedent

Although I have never encountered a purportedly “binding stipulation” that the amount in controversy is less than $5 million in a class action, it is common in wage/hour cases filed in California for the plaintiff’s counsel simply to plead in an unverified complaint that the amount in controversy is less than $5 million. Under binding 9th Circuit precedent, Lowdermilk v. U. S. Bank Nat'l Ass'n, 479 F.3d 994, 995 (9th Cir. 2007), where a plaintiff includes such a statement in the complaint, the burden on the defendant to establish the $5 million amount in controversy is greatly raised to a “legal certainty” standard, meaning that “the party seeking removal must prove with legal certainty that CAFA's jurisdictional amount is met.” This is contrasted with the general rule where the complaint is silent on amount in controversy that the employer merely must “prove by a preponderance of the evidence that the amount in controversy requirement has been met.” A key rationale for the Lowdermilk rule was that “it is well established that the plaintiff is ‘master of her complaint’ and can plead to avoid federal jurisdiction.”

There is no way to reconcile this reasoning with the Supreme Court’s in Standard Fire Insurance. Implicit in the Supreme Court's reasoning is that pronouncements by the plaintiff about the amount in controversy should have no binding effect, but rather the district court should simply consider the claims pleaded, the number of potential class members, and the potential aggregate recovery for this class while “ignoring” the plaintiff’s asserted conclusions on amount in controversy. There is no logical reason why a formal stipulation to limit jurisdiction should have no impact on the CAFA analysis, while a mere statement in an unverified complaint that the amount in controversy falls below $5 million should have the impact of altering the burden of proof and making it harder for the defendant to establish amount in controversy.

Copyright © 2014, Sheppard Mullin Richter & Hampton LLP.

About the Author


Mr. Kaufman is a partner in the Labor & Employment Practice Group in the firm's Century City office.


Boost: AJAX core statistics

Legal Disclaimer

You are responsible for reading, understanding and agreeing to the National Law Review's (NLR’s) and the National Law Forum LLC's  Terms of Use and Privacy Policy before using the National Law Review website. The National Law Review is a free to use, no-log in database of legal and business articles. The content and links on are intended for general information purposes only. Any legal analysis, legislative updates or other content and links should not be construed as legal or professional advice or a substitute for such advice. No attorney-client or confidential relationship is formed by the transmission of information between you and the National Law Review website or any of the law firms, attorneys or other professionals or organizations who include content on the National Law Review website. If you require legal or professional advice, kindly contact an attorney or other suitable professional advisor.  

Some states have laws and ethical rules regarding solicitation and advertisement practices by attorneys and/or other professionals. The National Law Review is not a law firm nor is  intended to be  a referral service for attorneys and/or other professionals. The NLR does not wish, nor does it intend, to solicit the business of anyone or to refer anyone to an attorney or other professional.  NLR does not answer legal questions nor will we refer you to an attorney or other professional if you request such information from us. 

Under certain state laws the following statements may be required on this website and we have included them in order to be in full compliance with these rules. The choice of a lawyer or other professional is an important decision and should not be based solely upon advertisements. Attorney Advertising Notice: Prior results do not guarantee a similar outcome. Statement in compliance with Texas Rules of Professional Conduct. Unless otherwise noted, attorneys are not certified by the Texas Board of Legal Specialization, nor can NLR attest to the accuracy of any notation of Legal Specialization or other Professional Credentials.

The National Law Review - National Law Forum LLC 4700 Gilbert Ave. Suite 47 #230 Western Springs, IL 60558  Telephone  (708) 357-3317 If you would ike to contact us via email please click here.