The United States Supreme Court attempted to close the door on litigants doing an end-run around the Class Action Fairness Act (CAFA) requirement that certain class actions be filed in federal court. Some plaintiffs attempted to file class actions subject to CAFA in more favorable state court venues. The Supreme Court attempts to end this practice but its ruling may give rise to more litigation over remand and removal. Standard Fire v. Knowles.

Creative Avoidance of Federal Jurisdiction

CAFA vests federal courts with original jurisdiction over class actions if, among other things, “the matter in controversy exceeds the sum or value of $5,000,000.” CAFA states that the “claims of the individual class members shall be aggregated” to determine whether the value of the claim exceeds the statutory threshold.

In response to CAFA, some plaintiffs began stipulating or pleading that the aggregate value of the class claims did not exceed five million dollars and would file their claims in state court. If the defendants sought to remove the case to federal court, the plaintiffs would point to their stipulation or pleading and assert that they properly filed the claim with the state court.

Standard Fire faced a class claim that pled damages below CAFA’s monetary threshold. Greg Knowles, the plaintiff, filed the proposed class action in Arkansas state court against Standard Fire. He asserted that Standard Fire failed to include a general contractor fee when the company made certain homeowner’s insurance loss payments. Knowles’ putative class included “hundreds, and possibly thousands” of similarly harmed Arkansas policyholders. Knowles nonetheless pled that “Plaintiff and Class stipulate they will seek to recover total aggregate damages of less than five million dollars.”

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