On March 19, 2013, the Supreme Court decided Standard Fire Insurance Co. v. Knowles No. 11-1450, holding that class-action plaintiffs cannot avoid federal jurisdiction under the Class Action Fairness Act of 2005 ("CAFA") by stipulating that they will not seek in excess of $5 million in relief because their stipulation cannot bind members of the proposed class.
Under CAFA, defendants may remove a putative class action to federal court if, among other things, the total matter in controversy exceeds $5,000,000. 28 U.S.C. §§ 1332(d)(2), (5).
In April 2011, Greg Knowles filed a proposed class action in Arkansas state court against Standard Fire Insurance Company and sought to certify a class of all similarly situated Arkansas policyholders. Standard Fire removed the case to federal district court. There, the court found that the total amount in controversy, aggregating all of the proposed class members' claims, exceeded the $5 million jurisdictional threshold. Knowles, however, stipulated that he would not "seek damages for the class … in excess of $5,000,000 in the aggregate," and the district court held that Knowles' stipulation eliminated federal jurisdiction. The Eighth Circuit declined to hear the appeal.
The Supreme Court granted, reviewed and unanimously reversed, holding that a class action plaintiff's stipulation not to seek damages in excess of the jurisdictional amount does not bind the class and therefore does not preclude federal jurisdiction. "A plaintiff who files a proposed class action," declared the Court, "cannot legally bind members of the proposed class before the class is certified." Because a class plaintiff's stipulation "does not bind anyone but himself," it has no effect on the value of the putative class members' claims. Hence, the district court possessed jurisdiction over Knowles' suit because the value of the proposed class members' claims, taken in the aggregate, exceeded $5 million.
Justice Breyer delivered the opinion for a unanimous Court.