The U.S. Supreme Court on Friday agreed to consider the constitutionality of a legal tactic that can make it harder for companies to defend against class-action lawsuits, in a case it will review in the term that starts on Oct. 1.
At issue is whether a company can be forced to defend itself in a state court, rather than in federal court as it might prefer, when a plaintiff’s lawyer has his client sign a binding “stipulation” limiting the size of the case.
The Class Action Fairness Act of 2005 lets companies move cases to federal court from state court provided that more than $5 million is at stake and they are not incorporated or based in the state where the case was filed.
In the case accepted for review, Standard Fire Insurance Co. had been sued in a Miller County, Arkansas, state court over alleged underpayment of homeowner claims.
The Hartford, Connecticut-based insurer said the named plaintiff, Greg Knowles, whose house sustained hail damage, signed a stipulation limiting damages and binding potential class members, including people his lawyer did not yet represent.
A federal judge in Arkansas approved the stipulation, saying Knowles had shown to a “legal certainty” that damages for all class members would not exceed $5 million. The 8th U.S. Circuit Court of Appeals in St. Louis later upheld that decision.
In its appeal, Standard Life said the lower courts ignored the Supreme Court’s 2011 decision in Smith v. Bayer Corp, which said a named plaintiff seeking class-action status cannot without court approval bind others who could join that class.
A decision in the case is expected in the coming Supreme Court term, which ends next June.
The cases is Standard Fire Insurance Co. v. Knowles, U.S. Supreme Court, No. 11-1450.