In a setback to plaintiffs seeking to get a tactical advantage by litigating in state court, the Supreme Court held that potential class action plaintiffs cannot cap their damages in an effort to avoid the reach of the Class Action Fairness Act (“CAFA”). The Standard Fire Ins. Co. v. Knowles, No. 11-1450 (U.S. Mar. 19, 2013), available at www.bdlaw.com/assets/attachments/Knowles.pdf. CAFA allows defendants to remove to federal court those putative class actions that seek at least $5 million in the aggregate, assuming other factors are satisfied. Knowles, slip op. at 1. In Knowles, the Supreme Court held that potential class-action plaintiffs could not cap their damages in an effort to keep their cases in state court and circumvent CAFA. Id.  

Knowles filed the proposed class action lawsuit seeking damages from Standard Fire Insurance Company (“Standard”) for the company’s failure to include a general contractor fee when it made certain homeowner’s insurance loss payments. Id. at 1-2. An affidavit attached to the complaint included a stipulation by Knowles promising to cap damages at $5 million. Id. at 2. Standard removed the case to federal district court and presented evidence sufficient to show that there was proper jurisdiction, yet the court remanded the case to the state court based on Knowles’ stipulation.Id. Standard petitioned for a writ of certiorari after the Eighth Circuit declined the company’s appeal.Id.

The Supreme Court stated that stipulations must be binding in order to affect jurisdiction. Id. at 3. The court concluded that Knowles’ precertification stipulation in the affidavit as to the amount of damages was not binding because it only binds himself and “cannot legally bind members of the proposed class before the class is certified.” Id. at 4. Federal courts must follow the plain direction of the law when it comes to class action damages, which is to “namely ‘aggregat[e]’ the ‘claims of the individual class members.’” Id. at 6 (quoting 28 U. S. C. §1332(d)(6)). CAFA often comes into play in putative class actions involving toxic torts.