U.S. Supreme Court To Decide Whether Class Action Plaintiffs Can Use Stipulations To Avoid Jurisdiction Under The Class Action Fairness Act

The United States Supreme Court recently granted certiorari to review whether class action plaintiffs can avoid federal court jurisdiction under the Class Action Fairness Act (“CAFA”) by stipulating that their damages do not exceed the federal jurisdictional prerequisite.  This issue is particularly significant to employers because they frequently rely on the CAFA to remove cases to federal court when hit with wage-and-hour and other employment class action lawsuits.  The CAFA generally permits class action defendants to remove cases with minimal diversity to federal court where the amount in controversy exceeds $5 million.

In Standard Fire Insurance Co v. Knowles, Supreme Court Case No. 11-1450, plaintiff Greg Knowles filed an insurance-recovery class action against Standard Fire Insurance in state court.  Seeking to avoid having the case transferred to federal court, Knowles submitted a stipulation with his complaint.  The stipulation, which purported to bind putative class members, limited damages in the case to under the $5 million CAFA threshold.  The district court found the stipulation sufficient to preclude federal court jurisdiction, and the Eighth Circuit effectively affirmed that decision by denying the defendant permission to appeal under the CAFA.

Whether a plaintiff can circumvent a defendant’s right of removal under the CAFA simply by filing a stipulation like the one used by Knowles may have profound implications for employers facing class actions.  If the Court upholds the district court’s decision, employers may be forced to litigate more class actions in state courts.  Given the potential implications of the Supreme Court’s decision, we will be keeping a close watch on this case during the Supreme Court’s coming term, which begins October 1.