CAFA Removal: Damage Waiver Stipulations Do Not Defeat Federal Court Removal Jurisdiction

Under the Class Action Fairness Act (CAFA) a state court class action can be removed if the claims of the potential class members exceed $5 million in the aggregate. Some plaintiffs, to avoid removal, state in their complaint that the total damages sought are less than $5 million, and in the case of Standard Fire Insurance Co. v. Knowles, the plaintiff, Greg Knowles, even attached a signed stipulation to that effect. The defendant removed, and the Arkansas district court remanded, based upon the stipulation.

While damage stipulations have long been used to defeat the jurisdictional threshold for federal court, the U.S. Supreme Court held on March 19  that such stipulations cannot be used here, because the stipulation is not binding on the absent class members.

Here is the take away: until a class is actually certified, you are litigating the rights of absent class members. The named plaintiff is asking the court for permission to represent the absent class members (“Knowles sought to certify a class of ‘hundreds, and possibly thousands’ of similarly harmed Arkansas policyholders”) and, at the point of certification, must demonstrate to the court’s satisfaction that he is an adequate class representative. He has no right to stipulate away potential claims of the absent class members. In fact, doing so may make him an inadequate class representative. Therefore, the stipulations cannot be used to determine removal jurisdiction under CAFA.

However, keep in mind that because a stipulation is only binding on the individual plaintiff, and not on absent class members, a stipulation can be used to defeat jurisdiction in an ordinary case. The Supreme Court’s opinion cites cases standing for the proposition that where a plaintiff stipulates that he waives damages in excess of $75,000, the case can and should be remanded to state court.  See, e.g., St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283 (1938).

The practice pointer here is, when in doubt about whether your case meets the jurisdictional limit for removal, remove it. If it is an individual claim, at least you can force the plaintiff to stipulate to waive damages above the jurisdictional limit.



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