Murphy v. Reebok Int’l, Inc., No. 4:11-cv-214-DPM, 2011 WL 1559234 (E.D. Ark. April 22, 2011).
In this case, Reebok’s butt busting shoes just could not reach of the finish line of federal court. A District Court in Arkansas remanded this action to state court holding that as the master of her pleading, the plaintiff could defeat federal jurisdiction by capping her potential damages through a binding stipulation, but in a way not to break faith with her duties to the proposed class.
The plaintiff, Debbie Murphy, who bought the supposedly muscle-toning Reebok shoes, sought to pursue claims in Arkansas state court for herself and all other Arkansas purchasers, alleging that Reebok’s marketing violated the Arkansas Deceptive Trade Practices Act and unjustly enriched the manufacturer.
Taking the hint from Bell v. Hershey Company, 557 F.3d 953, 958 (8th Cir. 2009), Murphy and her lawyers stipulated to damage caps in affidavits attached to the complaint. Murphy stipulated to cap all damages and relief for herself and others at $75,000.00 a person, and $5 million in the aggregate including attorney fees and costs. (Editors’ Note: See the CAFA Law Blog analysis of Bell posted on July 28, 2009).
Reebok removed the case, asserting federal jurisdiction under CAFA. Murphy moved to remand, which the District Court granted.
While deciding the question whether the amount in controversy exceeded $5 million, the Court found two important points: First, Murphy was the master of her complaint even though Reebok asserted CAFA jurisdiction. Second, as the master of her pleading, Murphy could defeat federal jurisdiction by capping her potential damages through a binding stipulation. The Court observed that the second proposition has been the law for decades. If the plaintiff does not desire to try her case in the federal court, she may resort to the expedient of suing for less than the jurisdictional amount, and though she would be justly entitled to more, the defendant cannot remove. Other circuits have, as in Bell, echoed this proposition in CAFA cases.
The Court remarked that Murphy’s stipulations were strong medicine. Arkansas law, Ark. R. Civ. P. 8(a)(2), permitted Murphy to plead her damages specifically, and she did so. The Court pointed that had Murphy not pleaded her damages with specificity, absent greater damages being later demanded or tried without objection, Arkansas law would hold her recovery in this diversity case to an amount less than the jurisdictional threshold.
Likewise, stipulations are recognized and widely used in Arkansas practice, Ark. R. Civ. P. 29. The Court noted that as Chief Judge Holmes recognized on similar facts in a similar case–Harris v. Sagamore Ins. Co., 2008 WL 4816471, at *3 (E.D. Ark. Nov. 3, 2008), all the material circumstances would judicially estop Murphy from changing her tune when the case returns to state court. (Editors’ Note: See the CAFA Law Blog analysis of Harris posted on June 16, 2009). The related doctrine against taking inconsistent positions, which Arkansas also recognizes, would stand in Murphy’s way too.
Reebok countered that Murphy’s self-imposed limitations on damages breaks faith with her duties to the proposed class. Although, Murphy’s pleading on this point must be in good faith, the Court found no lack on this score.
First, Reebok’s more than $100 million in nationwide sales of its toning shoes did not establish that Murphy had sold out the proposed class. In light of Murphy’s claim for disgorgement of profits, this gross number meant little on jurisdiction. Nor had Reebok indicated what part of this number was Arkansas-related.
Second, because Murphy’s stipulation was unequivocal: “all damages are capped below the statutory thresholds”, the possibility of award of punitive damages would not push the amount beyond the jurisdictional limit.
Third, Arkansas law makes class certification easier in state court than federal law does in federal court, and Murphy candidly acknowledged her law-driven forum preference. The Court opined that accepting a damage cap in return for less rigorous certification law may be a wise tactic in this case.
Fourth, Reebok’s attack on the stipulations went more to Murphy’s adequacy as a class representative and counsel’s adequacy as class counsel than to good faith.
Fifth, because a similar Arkansas-consumers proposed class was pending in the Western District of Arkansas and several similar proposed nationwide-class cases were pending in other federal courts, Arkansawyers who bought Reebok’s toning shoes but were dissatisfied with Murphy’s damage stipulations could always opt out of this case and consider their alternatives, the Court concluded.
Finally, Reebok forcefully argued that CAFA opened “the federal courts to corporate defendants out of a concern that the national economy risked damage from a proliferation of meritless class action suits.” The Court maintained that CAFA, however, drew an unambiguous jurisdictional line about the amount in controversy, and Reebok had not shown by a preponderance of the evidence that Murphy’s suit crossed that line.