Supreme Court Nixes Bid to Bypass Federal Court on Class Actions

By Andrew G. Simpson | March 19, 2013
supreme court

A plaintiff seeking class action status for a claim may not bypass federal court for a friendlier state court by agreeing to cap damages below the $5 million threshold for cases federal law says companies have a right to be heard in federal court, the Supreme Court ruled today.

The nation’s high court ruled that one plaintiff can’t bind future class members to limit the damages they seek before the class is certified.

In a case involving a homeowner policyholder suing Standard Fire Insurance Co., a unit of Travelers Insurance, the justices unanimously ruled that the insurer had the right to have the suit heard in federal court rather than being required to go to Arkansas state court as the plaintiff wanted.

In 2005, Congress passed the Class Action Fairness Act (CAFA) giving federal district courts original jurisdiction over class actions of $5 million or more. The law says that the claims of the individual class members must be aggregated to determine the amount.

Greg Knowles, a Standard Fire policyholder in Arkansas whose home sustained storm damage, alleged that his insurer refused to pay for the fee charged by a general contractor.

When filing his suit in 2011, Knowles signed a stipulation to cap damages for class members. The provision said that the “Plaintiff and Class stipulate they will seek to recover total aggregate damages of less than five million dollars.”

Knowles argued that since damages would not exceed $5 million, the case could be heard in state court.

The insurer disagreed and appealed after a federal district court sided with Knowles and allowed the case to go to state court.

In a seven page ruling, Justice Stephen Breyer said the district court was wrong. Breyer wrote that the stipulation signed by Knowles was not binding on other class members and thus damages might very well exceed the $5 million threshold.

Breyer wrote that Knowles “lacked the authority to concede the amount-in-controversy issue for the absent class members.”

The case is Standard Fire Insurance Co. v. Knowles.

 

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