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Supreme Court Limits Stipulations to Circumvent CAFA (Class Action Fairness Act)

The U.S. Supreme Court decided in State Fire Insurance Co. v. Knowles that a class representative plaintiff cannot use a precertification stipulation to evade the federal jurisdictional amount of CAFA. 28 U.S.C. 1332 (d)(2) &(6). In Knowles, plaintiff sued State Fire Insurance Co. but stipulated precertification that damages would not exceed $5 million dollars, the threshold limit to invoke CAFA jurisdiction. State Fire removed the case from Arkansas state court but the Federal District Court remanded it to the state court concluding that the amount in controversy fell below the CAFA threshold in light of plaintiff’s stipulation. The Supreme Court found that the stipulation could tie plaintiff’s hands because stipulations are binding on the party that makes them. However, such a stipulation would not be binding at this stage of the litigation because a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified. The Court therefore, vacated and remanded the case for further proceedings.

A good practice pointer learned from this case is that defendant’s should be mindful of the advantages of the CAFA and invoke federal court jurisdiction where possible. Also, a pretrial stipulation by the class representative does not prevent using CAFA if the other jurisdictional requirements for CAFA are met.

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