The U.S. Supreme Court Renders A Pro-Business Class Action Ruling

Today, the U.S. Supreme Court rendered a decision that should make any business owner facing a class action breath a little easier.   The Court’s decision in Standard Fire Insurance Co. v. Knowlesmakes it easier for defendants to move class actions from state courts to federal courts, which are generally known to be less favorable to plaintiffs and which provide less of a home-court advantage to plaintiffs’ lawyers when it comes to recovery of attorneys’ fees associated with class actions.

Under the Class Action Fairness Act (CAFA), any class action with aggregated damages over $5 million dollars, can be brought in federal court.  To avoid being in federal court, plaintiffs often allege that they are seeking damages of less than $5 million.   Following the usual practice, the named plaintiff in Knowles submitted an affidavit stipulating that the class members were not going to seek at any time during the case damages exceeding $5 million.  The plaintiff then argued that the federal court had no jurisdiction over the case because of the stipulation, even though absent the stipulation the damages would have exceeded the threshold amount.

The U.S. Supreme Court held that such stipulation was not enough to defeat the transfer of the case from the state to federal court and that the federal court had to assess for itself whether the damages exceeded the CAFA threshold.  The Court reasoned that the stipulation did not guarantee that the damages would stay below $5 million because the named plaintiff could not legally bind prospective class members to a certain amount in controversy before the class was certified.

Sure, the Court clarified that a stipulation that is binding on all class members can be sufficient to avoid a transfer to federal court.  However, from a practical stand point, this means that a plaintiffs’ attorney would have to certify the class first, then file a stipulation, and then transfer the case back to the state court, which at that point – months or even years after filing the case in federal court – might be impossible or impractical to do, or simply not worth it.

For more information, contact Leiza Dolghih.

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