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

The Real Story From the Unanimous Decision in Standard Fire Ins. Co. v. Knowles

Posted in Case Summaries

Standard Fire Ins. Co. v. Knowles, 11-1450, 2013 WL 1104735 (U.S. Mar. 19, 2013).

While we are not surprised by the unanimous decision of the Supreme Court in Knowles issued on March 19, 2013, we do find it interesting that most commentators on this case have missed what we think is the real story from the decision. The best part of this first CAFA decision from the Supreme Court is what the court had to say about CAFA, not just about stipulations. So, if you are interested in the good stuff from Knowles, read on

Prior to the Supreme Court’s opinion, CAFA Law Bloggers, Anthony Rollo, Michael Ferachi, and Kimberly Higginbotham, summarized the Knowles case, CAFA, and decisions from various jurisdictions on damage stipulations in their BNA Insight article entitled, “Finally! The Inaugural Class Action Fairness Act Case Before the U.S. Supreme Court and What It’s All About,” which can be accessed here.

As well informed readers of the CAFA Law Blog can recite by heart, CAFA provides the federal district courts with “original jurisdiction” to hear  a “class action” if the class has more than 100 members, the parties are minimally diverse, and the “matter in controversy exceeds the sum or value of $5,000,000.” 28 U.S.C. § 1332(d)(2), (d)(5)(B).

In an effort to circumvent this jurisdictional requirement, respondent Knowles filed a putative class action in Arkansas state court against petitioner Standard Fire Insurance Company, stipulating that he and the class would seek less than $5 million in damages.

Pointing to CAFA, the petitioner removed the case to the United States District Court for the Western District of Arkansas.

The District Court remanded the matter to the state court concluding that the amount in controversy fell below the CAFA threshold in light of Knowles’ stipulation even though it found that the amount would have risen above the threshold absent the stipulation.

The Eighth Circuit declined to hear petitioner’s interlocutory appeal, and it denied rehearing and rehearing en banc.

Thereafter, certiorari was granted to determine whether a class action plaintiff’s pre-certification stipulation that he, and the class he seeks to represent, will not seek damages that exceed $5 million in total removes the case from CAFA’s scope. Per the Supreme Court, “[i]n our view, it does not.”

The Court outlined that stipulations must be binding, and the stipulation that Knowles proffered to the District Court did not speak for those he purported to represent because a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified.

Nevertheless, the Court issued the caveat that “[f]or jurisdictional purposes, our inquiry is limited to examining the case ‘as of the time it was filed in state court.’” At that point, Knowles lacked the authority to concede the amount-in-controversy issue for the absent class members. His precertification stipulation did not bind anyone but himself, and he had not reduced the value of the putative class members’ claims. However, once a class is certified, an alternative result may be had.

In sum, the stipulation at issue could tie Knowles’ hands but could not resolve the amount-in-controversy question in light of his inability to bind the rest of the class. For this reason, the Court unanimously found that the District Court, when following the statute to aggregate the proposed class members’ claims, should have ignored that stipulation. Because it did not, the Court vacated the judgment and remanded the case for further proceedings consistent with its opinion.

The best part of the opinion is the following affirmation by the Court that one of CAFA’s primary ojbectives is to ensure ederal court consideration of interstate cases of national importance.  The the Supreme Court cited to the Findings and Purposes of CAFA that Congress included with CAFA.  Congress listed three purposes of CAFA.  The one cited by the Supreme Court reads in full as “restore the intent of the framers of the United States Constitution by providing for Federal court consideration of interstate cases of national importance under diversity jurisdiction.”

Sorry, but we CAFA wonks get a little excited when the highest court in the land cites the Findings and Purposes of CAFA.

Well, if the Court is going to recognize and follow one of the Purposes listed by Congress in CAFA, then it follows that the Court should accept the Findings of Congress listed in CAFA as well.  Practice Pointer:  removing defendants may want to use some of the Congressional findings next time there is a remand fight.

If you would like to read some addtional insightful commentatary about Knowles, you may want to read the reports by our friends at Ballard Spahr and  Troutman Sanders.

By:  Michael Feachi and Kimberly Higginbotham