One of the signal achievements of pro-business litigation
reformers will come under the scrutiny of the U.S. Supreme Court
on Monday, when the justices hear the case of Standard Fire v.
Standard Fire, as I've previously reported, presents the
question of whether class action plaintiffs can proceed in state
court by stipulating to damages of less than $5 million -- the
threshold Congress specified for removal to federal court in
2005's Class Action Fairness Act -- or whether such stipulations
improperly impinge on defendants' due process rights. Depending
on how broadly the justices interpret that issue and which way
they rule, the case could be the Supreme Court's opportunity to
clamp down on the tactics of plaintiffs' lawyers to evade CAFA
-- or a means of undermining tort reformers' favorite federal
Here's why. In the underlying case, the purported name
plaintiff of a statewide class action claiming that Standard
Fire underpaid policyholders in Arkansas signed a "sworn and
binding" stipulation that he would not ask for damages of more
than $5 million. That's a magic number under CAFA. As you know,
the law mandates that almost all class actions proceed in
federal court, with an exception for cases involving statewide
classes of fewer than 100 people or damages of less than $5
million. That might seem straightforward enough, but Standard
Fire and a whole lot of other defendants claim that plaintiffs
are abusing the exception, stipulating to damage claims and
then, once they get classes certified in state court, extracting
settlements of more than $5 million from companies worried about
the risk and expense of class action litigation.
Standard Fire asked the Supreme Court to review damages
stipulations under the theory that the court's 2011 ruling in
Smith v. Bayer precludes name plaintiffs from signing away
damages for other members of classes that haven't yet been
certified. The insurer's opening brief focused on the rights of
absent class members. But then the class made a surprise move.
Its response brief asserted that name plaintiff Greg Knowles
hadn't bound the rest of the class when he stipulated to damages
of less than $5 million. Knowles's stipulation, the brief said,
merely addressed potential damages at the pleading stage.
"Unless and until a class is certified, any limitation on the
amount in controversy contained in the complaint or an
accompanying stipulation has no effect on the merits of absent
class members' claims," the brief said.
The class argued that Knowles has the right, as the "master
of his complaint," to frame the case the way he wants, including
his assessment of damages. That assessment should guide the
preliminary determination of whether the case belongs in state
or federal court, the brief said, because otherwise, courts
would have to engage in extensive fact-finding on damages just
to determine jurisdiction. But the name plaintiff's stipulation
"cannot have a binding effect on the merits of absent class
members' claims unless and until the class is certified."
You can see the power this theory would give plaintiffs if
it were adopted by the Supreme Court. Name plaintiffs in class
actions could stipulate to less than $5 million in damages in
order to stay in state court, yet the class as a whole wouldn't
be restricted by that stipulation. Name plaintiffs themselves
can't repudiate their own stipulations, but in the class
certification process, other class members could challenge their
damages assessments or overseeing judges could toss name
plaintiffs' damages stipulations as contrary to the class's
interest. That uncertainty alone would add to plaintiffs'
leverage in settlement discussions.
Standard Fire's reply brief, filed on Dec. 19, asked the
justices not to permit class action plaintiffs to get away with
using unenforceable damages stipulations to stay in state court,
calling the scenario sketched by the Knowles brief a "legal
fiction." Congress, the brief said, specifically intended to
avert the "gamesmanship" of class action plaintiffs when it
The insurer's brief gives the Supreme Court a way to decide
the case narrowly, arguing that the Knowles brief's description
of his stipulation effectively concedes that damages could
exceed $5 million. If the justices agree, they could simply
overturn the district court ruling that remanded the case to
state court, send the Knowles class action to federal court and
call it a day.
But class action watchers are geared up for a more
comprehensive discussion of CAFA. The case has inspired copious
(and fervent) amicus briefing on both sides. I've told you, for
instance, about a filing by the National Association of
Manufacturers, whose lawyers at Jones Day have proposed a
reading of CAFA that would result in federal court jurisdiction
for every class action involving plaintiffs and defendants from
different states; Public Citizen and Public Justice filed an
amicus brief for Knowles that rejected NAM's reasoning.
(Professor Kevin Walsh of the University of Richmond School of
Law has a very thorough discussion of the NAM theory and the
Public Citizen response.) And the lawyers who will argue the
case Monday couldn't be more qualified to tell the court about
class actions: Theodore Boutrous of Gibson, Dunn & Crutcher will
argue for Standard Fire and David Frederick of Kellogg, Huber,
Hansen, Todd, Evans & Figel represents the class.
Boutrous and Frederick on the future of class action
litigation: It should be an exciting argument.
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