Precertification stipulations cannot be used to avoid removal to federal court under CAFA

Posted on: March 27th, 2013 by Keith Dubanevich

Supreme Court BlogThe U.S. Supreme Court recently ruled that counsel for a proposed class cannot avoid removal to federal court by stipulating that the damages being sought are less than the federal jurisdictional amount. 

In Standard Fire Insurance Co. v. Knowles, the plaintiff alleged that the defendant had underpaid homeowners’ property loss claims by refusing to pay general contractor fees.  The complaint limited damages to less than $5 million.  Standard Fire removed the case to federal court under the Class Action Fairness Act which authorizes removal when the amount in controversy exceeds $5 million.  The District Court remanded the case back to Arkansas state court finding that the plaintiffs had limited their recovery to less than $5 million.  An appeal to the 8th Circuit was denied.

The Supreme Court found that the District Court did have jurisdiction because the damages limitation in the complaint was not binding on the class since no class had been certified.  So the main holding is that a precertification stipulation to limit class damages is not binding.  But also noteworthy is the way the Court concluded that the amount in controversy exceeded $5 million.  To reach that threshold the Court not only aggregated individual class member’s claims, the Court added the possibility of a forty percent fee award.