Standard Fire Insurance Co. v. Knowles: U.S. Supreme Court Addresses CAFA Amount-in-Controversy Requirement

The U.S. Supreme Court recently issued a ruling likely to influence the many motions for remand filed by prospective class action plaintiffs seeking, under the Class Action Fairness Act (CAFA), to have their cases sent back to state court due to an insufficient dollar amount in controversy to trigger federal jurisdiction. The opinion held that a pre-certification stipulation not to seek damages exceeding CAFA’s $5 million jurisdictional minimum ought to have been disregarded by the district court when it ruled on a plaintiff’s motion to remand. See The Standard Fire Ins. Co. v. Knowles, 568 U. S. ___ (2013) (slip opinion available here).

In Knowles, the plaintiff filed a class action in Arkansas state court alleging that Standard Fire underpaid homeowners’ insurance claims. The operative complaint confined the class definition to Arkansas residents and alleged only causes of action arising under Arkansas law. On that basis, the plaintiff stipulated that the class would seek less than $5 million in damages, and the Eighth Circuit found the stipulation binding and held that federal CAFA jurisdiction could not be exercised. Slip op. at 2.

In this, the Supreme Court’s first extended, substantial ruling on CAFA, the majority focused on whether such a stipulation could bind absent class members, and held that it could not. The Court reasoned that “[t]he stipulation Knowles proffered to the District Court . . . does not speak for those he purports to represent . . . because a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified. See Smith v. Bayer Corp., 564 U. S. ___, ___ (2011).” Slip op. at 3-4.

Apart from the core holding that absent class members cannot be bound to a recovery cap stipulation, Knowles will also likely affect some of the case law typically cited in remand battles, in particular Lowdermilk v. United States Bank, N.A., 479 F.3d 994 (9th Cir. 2007). Plaintiffs seeking remand regularly cite Lowdermilk for the proposition that defendants removing under CAFA must establish the amount in controversy “to a legal certainty.” Although Lowdermilk is not expressly overruled in Knowles, leading plaintiffs’ counsel have observed that Lowdermilk might not be long for this world. Moreover, Knowles intimates that plaintiffs’ counsel ought to be circumspect in undertaking anything that purports to limit the potential recovery, as such a tactic could redound to a finding of inadequacy as to the named plaintiff. See slip op. at 5 (“[A] court might find that Knowles is an inadequate representative due to the artificial cap he purports to impose on the class’ recovery.”).

In contrast to other recent U.S. Supreme Court decisions deemed defeats by the plaintiffs’ bar, Knowles was a unanimous decision, with the opinion written by a stalwart of the Court’s four-member left-leaning bloc, Justice Stephen Breyer.