That is the question the Supreme Court recently answered in
Standard Fire Insurance Co. v. Knowles, 133 S.Ct. 1345
(2013). The Class Action Fairness Act of 2005 gives federal
district courts original jurisdiction over class actions in which,
among other things, the matter in controversy exceeds
$5 million. To determine whether a matter exceeds this
jurisdictional amount, claims of individual class members must be
aggregated.
Greg Knowles filed a class action in which he alleged that
Standard Fire Insurance Company underpaid claims for real property
damage to Arkansas homeowners. To forestall removal, he
stipulated that he and the class would seek less than $5 million in
damages. Standard nevertheless removed the case to federal
court. The district court remanded to state court in light of
Knowles' stipulation. The Eighth Circuit declined to
exercise its discretion to hear an appeal from the remand
order. The Supreme Court granted writ of certiorari to resolve
a split in the courts of appeal.
In non-class litigation, state court plaintiffs can prevent
removal by limiting damages to below the jurisdictional
threshold. That is the tactic Knowles attempted to use in the
class action context. His attempt failed for the simple reason
that a plaintiff who files a proposed class action cannot legally
bind members of the proposed class before the class is
certified. Because his pre-certification stipulation did not
bind anyone but himself, Knowles did not reduce the value of the
putative class members' claims. Thus, the amount to which
Knowles had stipulated was contingent. For example, a state
court might certify the class and permit it to proceed on the
condition that the stipulation be excised, or a court might find
that Knowles was an inadequate representative due to the artificial
cap he purported to impose on the class recovery, or another class
member could intervene without a stipulation and the district court
might permit the action to proceed with a new
representative. In short, there was a possibility that the
non-binding amount-limiting stipulation might not survive the class
certification process. Thus, Knowles' attempt to stipulate
his case out of federal court was unsuccessful.
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