By JOY EINSTEIN
On March 19, 2013, the United States Supreme Court, in Standard Fire v. George Knowles, unanimously ruled that a named representative in a nationwide class action cannot avoid federal jurisdiction by stipulating to class damages in an amount under the $5,000,000.00 jurisdictional threshold which allows class actions to be removed to and litigated in federal court.
The Supreme Court's decision involved interpreting the meaning and purpose of the Class Action Fairness Act. Congress enacted CAFA in 2005 to provide federal district courts with jurisdiction over class actions if the proposed class has 100 or more members, if the parties are minimally diverse, and if the matter in controversy exceeds the value of $5,000,000.00.
Congress was moved to enact such legislation to prevent jurisdictional gamesmanship.
In Stanford Fire, the class representative attempted to stipulate that the class would seek an amount less than $5,000,000.00 in order to keep the suit in state court and thus avoid stricter federal standards.
The Supreme Court ruled, however, that the named plaintiff "lacked the authority to concede the amount-in-controversy issue for the absent class members."
Moreover, the Supreme Court ruled that plaintiffs cannot splinter larger class actions into smaller-value state court actions through the use of stipulations because this flies in the face of CAFA's objective of ensuring federal jurisdiction.
This ruling has potential implications for companies defending employment-related class action lawsuits which are both negative and positive. On the one hand, defendants will now be able to ensure that high stakes interstate class actions will be litigated in federal court, where plaintiffs' attorneys will not be able to use local jurisdictions to their advantage.
Defendants also will be sure to benefit from tougher federal standards on class certification. On the other hand, class action plaintiffs now have little incentive to limit their damage claims, so potential exposure for defendants could be greater.
Joy Einstein is an associate with the law firm Jackson Kelly in Wheeling.