Supreme Court Hears Oral Argument in Class Action Fairness Act Case

On Monday, the Court heard oral argument in Standard Fire Insurance Co. v. Knowles, U.S. Supreme Court Case No. 11-1450. The question at issue is whether a possible loophole in the Class Action Fairness Act (CAFA) that has been exploited by plaintiffs’ attorneys in certain jurisdictions will be permitted to continue.

Standard Fire involves a class action lawsuit by a homeowner against his insurer regarding property damage following a hailstorm in Arkansas. The homeowner — Mr. Knowles — alleges that under Standard Fire’s homeowners insurance policy, he and others similarly situated in Arkansas should have been fully reimbursed, but were not. The complaint alleges breach of the homeowners policy for failure to reimburse class members for certain expenses.

In order to keep the case in Arkansas state court and avoid removal to federal court under CAFA, the plaintiffs stipulated that their damages would be limited to $5 million — the jurisdictional limit under CAFA that would otherwise require removal to federal court. The question then is whether this “stipulation” should be permitted to allow class action cases like this one to stay in state court.

At the oral argument, the Court appeared split on the question at issue. The New York Times noted that in recent years, the justices have been sympathetic to efforts to address class action abuses. But the question here was more difficult given that the text of CAFA is silent on whether this kind of stipulation should be allowed.

On one hand, Justices Breyer and Kagan suggested that the text of CAFA may permit this type of gamesmanship by plaintiffs. Justice Kagan pointed out that if Congress had wanted to get rid of the “master of your complaint” rule, it could have done so. Justice Kagan noted that a plaintiff gets to decide where to file his complaint; he “gets to decide whether to seek damages . . .  He gets to decide which claims to bring . . .  He gets to decide how many years' worth to ask for.” 

On the other hand, Justices Ginsburg and Roberts suggested that the class action case is different — and a class representative should not be permitted to preemptively waive the claims and damages of absent class members. Justice Ginsburg noted: “the individual, the named plaintiff, who has said, I’m not going to seek more than the $5 million, cannot speak for the members of the class who are absent.”
We will continue to follow this case as it moves toward final disposition.

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