The U.S. Supreme Court agreed last month to consider the constitutionality of a legal tactic now being used that should keep class-action lawsuits in state courts. The Court will review this case in the term that started on October 1st. At issue is whether a company can remove a case from state court to federal court when the Plaintiff signs a binding “stipulation” limiting the amount sought in the case. The Class Action Fairness Act of 2005 lets companies move cases to federal court from state court provided that more than $5 million is at stake and they are not incorporated or based in the state where the case was filed.
In the case accepted for review, Standard Fire Insurance Company had been sued in an Arkansas state court over alleged underpayment of homeowner claims. The Hartford, Conn.-based insurer said the named Plaintiff, Greg Knowles, whose house sustained hail damage, signed a stipulation limiting damages and binding all potential class members. An Arkansas federal judge approved the stipulation, saying the Plaintiff had shown to a “legal certainty” that damages for all class members would not exceed $5 million. The 8th U.S. Circuit Court of Appeals in St. Louis later upheld that decision.
In its appeal, Standard Life said the lower courts ignored the Supreme Court’s 2011 decision in Smith v. Bayer Corp, which said a named Plaintiff seeking class-action status cannot, without court approval, bind others who could join that class. A decision in the case is expected in the coming Supreme Court term, which ends next June. The case is Standard Fire Insurance Co. v. Knowles, U.S. Supreme Court, No. 11-1450.
Source: Insurance Journal
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