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CAFA Law Blog Information, cases and insights regarding the Class Action Fairness Act of 2005

“Judicial Estoppel” May Stop CAFA From Running (Like Warm Chocolate)

Posted in Case Summaries

Rolwing v. Nestle Holdings, Inc., 666 F.3d 1069 (8th Cir. 2012).

In this putative class action, the Eighth Circuit held that because Missouri’s well-established judicial estoppel doctrine makes the plaintiff’s stipulations of damages to less than CAFA’s $5 million binding, remand was appropriate based on that disclaimer.

The plaintiff, John M. Rolwing, brought this class action in Missouri state court on behalf of himself and all other Ralston Purina book-entry shareholders at the time of the execution of the merger agreement between Nestle Holdings, Inc. and Ralston Purina Company. (Nothing like combining chocolate and dog food). Nestle agreed to a merger with Ralston that provided for the cash purchase of Ralston’s common stock by Nestle. The merger was completed on December 12, 2001. On December 18, 2001, Nestle paid Ralston Purina book-entry shareholders a total of $8,880,809,766.50 for their 265,098,799 outstanding common shares of Ralston. Rolwing claims that Nestle was required to pay the class on December 12, that Nestle’s December 18 payment was delinquent, and that the class is entitled to interest on the delinquent payment.

Nestle removed the case to federal court arguing that the alleged interest due on Nestle’s payment to the class was in excess of $5 million threshold. 

Rolwing moved to remand the case to Missouri state court arguing that he disclaimed damages greater than $4,999,999 in his prayer for relief and in the accompanying stipulations, which made it legally certain that the amount in controversy could not exceed $5 million. 

The district court granted Rolwing’s motion to remand on the basis of his disclaimer of damages. 

Nestle appealed, and the Eighth Circuit affirmed the district court’s order. 

The Eight Circuit observed that it had previously stated that a binding stipulation limiting damages sought to an amount not exceeding $5 million can be used to defeat CAFA jurisdiction, and stipulations of this sort, when filed contemporaneously with a plaintiff’s complaint and not after removal, have long been recognized as a method of defeating federal jurisdiction in the non-CAFA context.

Nestle, however, argued that Rolwing’s prayer for relief and the stipulations were not enforceable under the applicable Missouri law and, therefore, not binding on the class. Although Mo.Rev.Stat. § 509.050.1(2) prohibits the specific pleading of damages except to determine jurisdictional authority, the Eighth Circuit remarked that it was not necessary for it to resolve this question because the stipulations are independently enforceable under the “doctrine of judicial estoppels”.  

Under Missouri law, the doctrine of judicial estoppel provides that where a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he may not thereafter, simply because his interests have changed, assume a contrary position, especially if it be to the prejudice of the party who has acquiesced in the position formerly taken by him. According to this rule, by defeating removal through asserting the position that he would not accept more than $4,999,999 in damages on behalf of the class he was seeking to represent, Rolwing was estopped from later accepting damages that exceed that amount. Similarly, by taking the position that he would only accept fees on a contingency basis out of damages not exceeding $4,999,999, Rolwing’s counsel was estopped from accepting any other fee award. Because “stipulations are controlling and conclusive, and courts are bound to enforce them”, the Eighth Circuit was confident that Missouri courts would apply judicial estoppel to enforce the terms of the stipulations.  

Second, Nestle argued that the stipulations were not enforceable because, in disclaiming a significant portion of the putative class’s potential recovery, Rolwing had violated his fiduciary duty to the putative class, and relied on Back Doctors Ltd. v. Metropolitan Property & Casualty Insurance Co., 637 F.3d 827, 830-31 (7th Cir.2011) for support. In Back Doctors,the Seventh Circuit held that a representative can’t throw away what could be a major component of the class’s recovery, and a court might insist that some other person, more willing to seek damages in excess of the jurisdictional minimum, take over as representative. (Editors’ Note: See the CAFA Law Blog analysis of Back Doctors posted on May 3, 2011). Nestle further contended that, because the damage disclaimer was a bad-faith renunciation of “a major component of the class’s recovery,” a court might not certify Rolwing as class representative, or might refuse to enforce Rolwing’s damage disclaimer against the class. Nestle thus argued that, because of these possibilities, Rolwing had not met his legal certainty burden.

As an initial matter, the Eighth Circuit found that it was bound to consider only jurisdictional facts present at the time of removal and not those occurring subsequently, such as a hypothetical future substitution of class representative, substitution of class counsel, or other non-enforcement of the damage disclaimer because of bad faith. At any rate, the Eighth Circuit remarked that notwithstanding the language cited by Nestle, Back Doctors actually supported remand in this case because in Back Doctors, the Seventh Circuit found that “if the Supreme Court of Illinois had established … that omission of a request for punitive damages from the initial pleading forbids a punitive award, then remand would be appropriate” and that a “plaintiff in Illinois can limit the relief to an amount less than the jurisdictional minimum, and thus prevent removal, by filing a binding stipulation or affidavit with the complaint.” Thus, the Eighth Circuit concluded that contrary to Nestle’s view of the case, the seventh circuit, in spite of its concern about the potential conflict of interest inherent in damage disclaimers in pre-certification class actions, explicitly endorsed the method used by Rolwing in this case to defeat CAFA jurisdiction.

Because the Eighth Circuit concluded that Missouri’s well-established judicial estoppel doctrine made these stipulations binding, it found that Rolwing had shown that remand based on CAFA’s amount-in-controversy requirement was appropriate.