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Supreme Court Rejects Plaintiffs’ Efforts to Stipulate Out of Federal Court

Posted in Litigation, United States

The U.S. Supreme Court unanimously ruled on Tuesday that plaintiffs bringing class actions cannot escape federal jurisdiction by stipulating to seek less than $5 million in damages.  In a nine-page opinion, the Court held that plaintiff Greg Knowles had no power to speak for the proposed class when he stipulated in a lawsuit against Standard Fire Insurance Co. that he and the class would not ask for more than $5 million—the amount of damages that remove class actions from state court to federal court in accordance with the Class Action Fairness Act (“CAFA”).

The opinion stressed that stipulations must be binding, and the kind of stipulation that Knowles brought to keep his suit out of federal court could not be enforced against class members.  “Here, the precertification stipulation can tie Knowles’ hands because stipulations are binding on the party who makes them,” Justice Stephen Breyer wrote. “However, the stipulation does not speak for those Knowles purports to represent, for a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified.”

The Court said such non-binding stipulations potentially could allow plaintiffs to subdivide a $100 million case into 21 cases just below $5 million in order to stay in state court. “Such an outcome would squarely conflict” with the class-action law’s intention that major cases go to federal court, the opinion said.