Class Action Plaintiff Cannot Avoid Removal Under CAFA by Stipulating to Cap on Damages
Yesterday, the United States Supreme Court issued its decision in Standard Fire Ins. Co. v. Knowles, resolving a split of authority among the federal circuit courts as to whether a class action plaintiff filing in state court can prevent the defendant from removing the case to federal court under the Class Action Fairness Act (CAFA) by stipulating that plaintiff and the putative class will not seek damages in excess of $5 million (the jurisdictional minimum for CAFA removal). Several circuits, including the Ninth Circuit (which governs California's federal courts) had ruled that a class action plaintiff could successfully avoid CAFA removal by signing a stipulation at the beginning of the case agreeing not to seek damages in excess of $5 million. Other circuits had held that this practice was ineffective and could not be used to avoid removal under CAFA because a named plaintiff cannot bind absent class members in an uncertified class action. As such, regardless of any stipulation by the named plaintiff to limit damages, a defendant could still remove under CAFA by demonstrating that the parties are diverse and that the amount in controversy is sufficient under CAFA. Yesterday, in a unanimous decision authored by Justice Breyer, the United States Supreme Court in Knowles agreed with the latter view, thereby eliminating one forum shopping tool used by plaintiffs' class action lawyers to avoid federal court. The Knowles decision overrules prior bad Ninth Circuit precedent to the contrary in Lowdermilk v. U.S. Bank National Association, which is good news for California employers. The full opinion of the Supreme Court in Knowles is here.