When we first discussed Standard Fire Insurance Co. v. Knowles, No. 11-1450, 568 U.S. — (Mar. 19, 2013), we noted that a ruling in favor of Defendants could mean an end to the traditional rule that a plaintiff is the “Master” of his or her own complaint, by foisting upon a party imputed damages that may have not been alleged in the case for strategic reasons.   And while the Court recognized that an individual plaintiff may avoid litigating in federal court by stipulating to an amount in controversy below the federal jurisdiction requirement, the Court unanimously held  that the same is not true for a plaintiff seeking to represent a proposed class:

“Our reason is a simple one: Stipulations must be binding…. [a] plaintiff who files a proposed class action, cannot legally bind members of the proposed class before the class is certified.” Slip op. at 4.

 

Even though this was the first CAFA case to be decided by the nation’s highest court, the concise opinion authored by Justice Breyer focused mainly on the non-binding effect of the purported “stipulation” signed by the named plaintiff, and then used the broad purpose of the statute to bolster its conclusion:  “Because his precertification stipulation does not bind anyone but himself, Knowles has not reduced the value of the putative class members’ claims.”  Id. at 4.  “To hold otherwise,” wrote Justice Breyer, “would, for CAFA jurisdictional purposes, treat a nonbinding stipulation as if it were binding, exalt form over substance, and run counter to CAFA’s primary objective: ensuring ‘Federal court consideration of interstate cases of national importance.’”  Id. at 6.  The Court then cited several scenarios illustrating why Knowles’ stipulation could not be assumed to ultimately bind proposed class members: (1) a court may certify the proposed class, but only on the condition that the stipulation on recovery be removed; (2) a court may find the plaintiff an inadequate class representative under Rule 23(a) because he attempted to cap putative class members’ recovery; or (3) another class member could intervene, file an amended complaint without a stipulation, and be allowed to proceed as the class representative.

 

While the immediate payoff for corporate defendants facing putative class actions filed in state court is that any stipulation purporting to limit monetary damages must be ignored for purposes of removal under CAFA, the Court’s opinion also raised some interesting questions going forward, such as whether a stipulation limiting attorneys’ fees could be considered binding for purposes of removal under CAFA if the putative class’ aggregated damages are not sufficient to meet the $5 million threshold for federal jurisdiction.   The decision may also have the unintended effect of removing a potential advantage for defendants facing high-value class actions; plaintiffs now have little incentive to limit their alleged damages, potentially exposing defendants to higher levels or recovery and/or settlement.  Although federal courts are perceived to be more defense-friendly than state courts, defeating class certification is never easy.  Further, the lack of a stipulated damages cap also removes a potential adequacy argument from defendants’ quiver, as Justice Breyer pointed out that a class representative who does not pursue the maximum amount of fees could not be considered adequate under Rule 23(a)(4).

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