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On March 19, 2013, the U.S. Supreme Court unanimously ruled in Standard Fire Ins. Co. v. Knowles that class-action plaintiffs cannot circumvent the jurisdictional requirements of the Class Action Fairness Act of 2005 (“CAFA”) by stipulating damages under the jurisdictional threshold.

CAFA provides federal courts original jurisdiction over class actions where, among other things, the class has more than 100 members and the matter in controversy exceeds the sum or value of $5 million exclusive of interest and costs. To calculate the amount in controversy, the claims of the individual class members must be considered in the aggregate.

In Standard Fire, the Supreme Court was presented with an increasingly common scenario: a plaintiff files a class action in state court which appears on its face to exceed the $5 million threshold for removal, but the plaintiff includes with the complaint a stipulation that he will not seek more than $5 million for the proposed class.  The defendant still removes the case to federal court pursuant to CAFA, arguing that the aggregated total of the individual class members’ claims exceeds CAFA’s jurisdictional threshold, notwithstanding the putative class representative’s stipulation foregoing more damages. However, multiple U.S. Circuit Courts of Appeals, including the Eighth and Ninth Circuits, held that such stipulations limiting damages are effective in avoiding CAFA jurisdiction.

The question presented to the Supreme Court was whether a class action plaintiff who stipulates, prior to certification of the class, that he, and the class he seeks to represent, will not seek damages that exceed $5 million in total, removes the case from the scope CAFA.  The Court answered that it does not.  While acknowledging that individual plaintiffs are the “masters of their complaints,” the Court reasoned that “the key characteristic” of an individual plaintiff’s stipulation is that it is “legally binding.”  In the scenario presented, the stipulations were not legally binding because a putative class representative does  not have authority to stipulate on behalf of unnamed plaintiffs until after the class has been certified.

The Court noted: “Stipulations must be binding . . . The stipulation Knowles proffered to the District Court, however, does not speak for those he purports to represent. That is because a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified. Because his precertification stipulation does not bind anyone but himself, Knowles has not reduced the value of the putative class members’ claims. For jurisdictional purposes, our inquiry is limited to examining the case ‘as of the time it was filed in state court.’ At that point, Knowles lacked the authority to concede the amount-in-controversy issue for the absent class members.

The Standard Fire decision eliminates a common tactic used by plaintiffs’ attorneys to defeat CAFA jurisdiction, especially in federal courts in Missouri and California which fall under the appellate jurisdiction of the Eighth and Ninth Circuits, respectively.  The Court’s common-sense decision is consistent with the goal of CAFA which is to expand federal jurisdiction over large, multi-state class actions that do not satisfy the traditional requirements for diversity jurisdiction.