STANDARD FIRE INSURANCE COMPANY v. KNOWLES
United States Supreme Court
133 S.Ct. 1345 (2013)

Breyer, Associate Justice, delivered the opinion of the Court [unanimous].………………
The Class Action Fairness Act of 2005 (CAFA) provides that the federal “district courts shall have original jurisdiction” over a civil “class action” if, among other things, the “matter in controversy exceeds the sum or value of $5,000,000.” 28 U.S.C. § 1332(d)(2). The statute adds that “to determine whether the matter in controversy exceeds the sum or value of $5,000,000,” the “claims of the individual class members shall be aggregated.” § 1332(d)(6).

The question presented concerns a class-action plaintiff who stipulates, prior to certification [judicial approval] of the class, that he, and the class he seeks to represent, will not seek damages that exceed $5 million in total. Does that stipulation remove the case from CAFA’s scope? In our view, it does not.

I

In April 2011 respondent, Greg Knowles, filed this proposed class action in an Arkansas state court against petitioner, the Standard Fire Insurance Company. Knowles claimed that, when the company had made certain homeowner’s insurance loss payments, it had unlawfully failed to include a general contractor fee. And Knowles sought to certify a class of “hundreds, and possibly thousands” of similarly harmed Arkansas policyholders. In describing the relief sought, the complaint says that the “Plaintiff and Class stipulate they will seek to recover total aggregate damages of less than five million dollars.” An attached affidavit stipulates that Knowles “will not at any time during this case ... seek damages for the class ... in excess of $5,000,000 in the aggregate.”

… [T]he company, pointing to CAFA’s jurisdictional provision, removed the case to Federal District Court. See § 1453 [removal of class actions]. Knowles argued for remand [back to the state court] on the ground that the [federal] District Court lacked jurisdiction. He claimed that the “sum or value” of the “amount in controversy” fell beneath the $5 million threshold. On the basis of evidence presented by the company, the District Court found that that the “sum or value” of the “amount in controversy” would, in the absence of the stipulation, have … [been] above the $5 million [CAFA] threshold. Nonetheless, in light of Knowles’ stipulation, the court concluded that the amount fell beneath the threshold. The court consequently ordered the case remanded to the state court. ……………………………………………………………………….
. . .

II

CAFA [also] provides … those “class members” include “persons (named or unnamed) who fall within the definition of the proposed or certified class.”

As applied here, the … District Court … found that resulting sum would have exceeded $5 million but for the stipulation. And we must decide whether the stipulation makes a critical difference.

. . .

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 Federal District Court, therefore, wrongly concluded that Knowles’ precertification stipulation could overcome its finding that the CAFA jurisdictional threshold had been met.…...………………………………………………………………………………………
. . .

We do not agree that CAFA forbids the federal court to consider, for purposes of determining the amount in controversy, the very real possibility that a nonbinding, amount-limiting, stipulation may not survive the class certification process. This potential outcome [would] … run directly counter to CAFA’s primary objective: ensuring “Federal court consideration of interstate cases of national importance.” It would also have the effect of allowing the subdivision of a $100 million action into 21 just-below-$5-million state-court actions simply by including nonbinding stipulations; such an outcome would squarely conflict with the statute’s objective.

. . .

Knowles also points out that federal courts permit individual plaintiffs, who are the masters of their complaints, to avoid removal to federal court, and to obtain a remand to state court, by stipulating to amounts at issue that fall below the federal jurisdictional requirement [italics added]. That is so. See St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 294, 58 S.Ct. 586, 82 L.Ed. 845 (1938) (“If [a plaintiff] does not desire to try his case in the federal court he may resort to the expedient of suing for less than the jurisdictional amount, and though he would be justly entitled to more, the defendant cannot remove”). But the key characteristic about those stipulations is that they are legally binding on all plaintiffs [because a] (federal court, as condition for remand, can insist on a “binding affidavit or stipulation that the plaintiff will [when back in state court] continue to claim less than the jurisdictional amount” (emphasis added)). That essential feature is missing here, as Knowles cannot yet bind the absent class.

. . .

In sum, the stipulation at issue here can tie Knowles’ hands, but it does not resolve the amount-in-controversy question in light of his inability to bind the rest of the class. For this reason, we believe the District Court, when following the statute [requiring him] to aggregate the proposed class members’ claims, should have ignored that stipulation. … [W]e vacate the judgment below and remand the case for further [federal, not state] proceedings consistent with this opinion.

It is so ordered.

Notes and Questions:

1. The plaintiffs’ attorney stipulated that the class did not meet the $5,000,000 jurisdictional minimum for this federal question case.Note the difference from the general rules that: (a) there is no minimum amount for federal question cases; (b) plaintiffs may not aggregate their individual claims in diversity cases; and (c) non-CAFA removal requires the consent of all [when multiple] defendants. ………………………………………………………………………
(a)What jurisdictional result did the plaintiffs’ attorney hope to avoid? …………………
(b) What might be some potential reasons (not addressed in the opinion) he may have harbored, notwithstanding his filing a case seeking relief for “hundreds, and possibly thousands” of similarly harmed Arkansas policyholders?

2. This CAFA case arises under the federal statute designed to facilitate the removal of qualified class actions from state to federal court. It ignored the stipulation to damages being less than the jurisdictional amount (which bound the individual class representative, but not the class members).

3. Fraudulent removal blocking: Knowles addresses manipulation of the amount in controversy element of federal diversity subject matter jurisdiction (and application of a federal statute—the Class Action Fairness Act), undertaken with a view toward defeating removability to federal court. P can also seek to defeat removal, before or after filing her complaint, by choosing whom to sue. She might hope to take advantage of the federal approach, which construes the removal statutes restrictively, so as to limit removal jurisdiction. Some circuits apply a “strong presumption” against removability, whereby doubts as to removability are resolved in favor of remanding the case to state court.Nevertheless, a non-diverse party can be disregarded for purposes of determining whether original diversity jurisdiction exists. For example, P might include a patently non-provable (sham) claim against a non-diverse D—in the original complaint, or just after the D files his removal petition. Then, the federal district judge may determine that the P’s inclusion of a non-diverse party is a “sham” or is “fraudulent.”The case would thus remain removable/not subject to remand to state court. The authorities for this proposition are conveniently collated in Rader v. Sun Life Assurance Co., ___ F.Supp.2d ___ 2013 WL 1748240 (N.D. Cal.).

4. “Gaming the system” removal: The courts disagree about the following scenario, whereby defendants may remove—within the letter of the statute, but arguably not within its spirit. As the federal removal statute provides: “A civil action otherwise removable solely on the basis of ... section 1332(a) ... may not be removed if any of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought” [italics added]. 28 USC §1441(b)(2). Assume that P has named and served the non-resident D, but not the named resident co-D. Assuming there is evidence that the P is diligently trying to serve the resident D (i.e., not a fraudulent joinder to defeat removal), some courts allow removal, per the plain meaning of the statute’s “and served” language. At the time of service, no there is no “served” resident D. Other courts, given the policy behind the removal statute, do not permit this premature removal. Sophisticated Ds game the system by electronically monitoring state court dockets—so that as soon as a case is filed, they can remove to federal court, because no resident D has yet been served.

5. Unlike federal court, most states authorize a P to also name fictitious “Doe” defendants. When a case is removed from those states to federal court, the (state) pleading thus includes potential Ds who are domiciled in the same state as P. Federal judges might thus consider remanding such cases back to state court, for a lack of diversity jurisdiction. Does any statute assigned for your next class address how a federal judge should proceed in this circumstance?

6. Can a plaintiffremove a case to federal court? In Benitez v. Williams, ___ Cal.Rptr.3d ___ (Aug. 30, 2013), P sued D under federal copyright law and related state law claims. The California state court judge—given the exclusive federal SMJ over copyright claims—ordered the P to “remove” the case to federal court. P did not do so. The judge thus dismissed the entire case. The California Court of Appeal reversed. Its reasoning was rooted in: “two erroneous assumptions. The first was that [plaintiff] Benitez could remove the case to federal court. ... [¶ And as t]he court [wrongly] concluded, plaintiff was required to litigate his entire lawsuit, including his state law claims, in federal court. This was error.” The state court judge was apparently unaware of the US Supreme Court’s 1941 decision in Shamrock v. Sheets, tracing Congress’s historical limitations on removal—and its specific “omission from the earlier [removal] act of the phrase ‘either party,’ and the substitution for it of the phrase authorizing removal by the ‘defendant or defendants’ [only].”

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