Supreme Court Prohibits Efforts to Evade CAFA’s Scope
In a unanimous decision interpreting the Class Action Fairness Act (“CAFA”), the U.S. Supreme Court in The Standard Fire Insurance Co. v. Knowles, held that a named plaintiff cannot avoid the scope of CAFA jurisdiction by stipulating that the class he seeks to represent will not seek damages that exceed the $5 million amount in controversy threshold.
In Knowles, the plaintiff’s state court class action complaint specifically alleged that the aggregate damages would be less than $5 million, and it attached an affidavit from the named plaintiff so stipulating. Plaintiff successfully sought remand and the 8th Circuit declined to hear the defendant’s appeal. However, the Supreme Court granted a writ of certiorari. The Knowles Court explained that in jurisdictional matters, “simplicity is a virtue.” CAFA directs courts “to determine whether it has jurisdiction by adding up the value of the claim of each person who falls within the definition of [plaintiff’s] proposed class and determine whether the resulting sum exceeds $5 million.” Because the stipulation could not bind absent class members, the court cannot “exalt form over substance,” particularly where doing so would “run directly counter to CAFA’s primary objective: ensuring ‘Federal Court consideration of interstate cases of national importance.'”
The significance of the Supreme Court’s decision lies in the Court’s unanimous refusal to allow a plaintiff to unilaterally circumvent CAFA jurisdiction. The Court re-emphasized that district courts must aggregate the claims of potential class members at the time the complaint was filed in State Court, and specifically rejected the notion that a plaintiff could stipulate to an amount less than the amount in controversy because such a stipulation could not be binding on absent class members. The decision is really a victory for following Congressional intent. For state class actions going forward, the decision means that the allegations of the complaint control, not the acts of a named plaintiff to circumvent CAFA.