The U.S. Supreme Court considered last month whether class action Plaintiffs can remain in state court by stipulating that the Plaintiffs, and the class of unnamed people they hope to represent, will not accept a judgment or settlement of more than $5 million. Under the Class Action Fairness Act of 2005 (“CAFA”), a class action seeking $5 million or more must be litigated in federal court.
The Plaintiff, Greg Knowles, filed suit in Arkansas state court alleging the Defendant, Standard Fire Insurance Co., breached its contract by systematically underpaying claims of loss or property damage made under a homeowner’s insurance policy. Knowles, along with his complaint, filed a stipulation that he would limit his recovery to under $75,000, and that the unnamed class members’ recovery would be less than CAFA’s $5 million jurisdictional requirement. He also limited his proposed class to Arkansas claimants with claims going back for only two years, which is three years less than the applicable statute of limitations in Arkansas.
Standard Fire removed the case to federal court, but the case was remanded to Arkansas state court because Knowles’ stipulation complied with CAFA’s requirements. The Eighth Circuit agreed with the trial court and denied the insurance company’s appeal, but the Supreme Court granted certiorari. At oral argument, Justice Kagan commented there are “a thousand ways” in which a Plaintiff constructs a case, including deciding which Defendants to sue, which claims to bring, and whether to seek damages, injunctive relief, or both. All of these, said Justice Kagan, have an effect on the amount sought. She worried that, if Standard Fire’s argument was accepted by the Justices, Defendants in future cases might seek to expand the Court’s holding to challenge a Plaintiff’s ability to define the claims and to name the Defendants.
Chief Justice Roberts appeared to agree, characterizing Standard Fire’s position as “a bit of a slippery slope.” But the Chief Justice, joined by Justices Breyer and Alito, also was concerned that Plaintiffs could abuse such stipulations by dividing class actions in an artificial manner to avoid federal jurisdiction. He used an example of pursuing a class action on behalf of individuals whose last names begin with the letters A through K, leaving L through Z to pursue a separate class action. Justice Breyer remarked that CAFA’s text favors Knowles, but added that CAFA’s purpose “seems to strongly cut the other way.”
It is most interesting that the State of Alabama decided to enter this fray by filing a 30-page amicus curiae brief supporting the insurance company’s position. The State’s brief argues that Knowles’ “stipulation maneuver approved by the lower courts ‘should raise a suspicious judicial eyebrow.’” The brief further brags that Alabama has implemented legislative and judicial controls “now more demanding than the requirements of … the Federal Rules of Civil Procedure itself.” Unfortunately, our State is dead wrong when it comes to its aversion to class action lawsuits, and its opposition to the Knowles case in particular.
There are many advantages to consolidating claims, particularly small claims, in a class action lawsuit. The chief advantage is efficiency, which is certainly an important concern given the fiscal challenges faced by our judicial system. The U.S. Supreme Court, in Callifano v. Yamaski (1982), noted that the class action “saves the resources of both the courts and the parties by permitting an issue potentially affecting every [class member] to be litigated in an economical fashion.” Class actions also provide legal representation for many class members who would never file a case on their own as a result of being ignorant of their rights, intimidated by the legal system, or barred by the economics of litigation.
Critics have suggested that class actions are inappropriate when individual recoveries are very small. As noted by the National Consumer Law Center, “[p]erhaps this attitude is based on the view that small consumer recoveries are too trivial to merit redress and that every wrong should not be righted….” This view misses the central importance of class actions as a deterrent to illegal conduct, according to the National Association of Consumer Advocates, “[r]ejecting class actions because individual recoveries are small, while ignoring the aggregate amounts involved, encourages wrongful conduct and largely immunizes entities caught stealing millions in $10 increments.” We have seen good examples of this in recent years with litigation involving late and over-limit charges on credit card accounts, bank overdraft fees, small hidden fees on cable, telephone, and other bills, and the like.
The problem with the position taken by Standard Fire (and Alabama) is that it seeks to abrogate the longstanding principle that the Plaintiff is “master of his complaint.” Additionally, Standard Fire seeks to circumvent the well-established rule that the status of the complaint at the time of removal, and not hypothetical, future events, governs the jurisdictional analysis. What we see in Knowles v. Standard Fire is another instance of the big corporations asking courts to depart from time-honored legal principles in order to achieve pro-corporate results. Or as Justice Kagan correctly remarked to Standard Fire’s counsel, “[y]ou really are asking us to blow up the whole world.”
Lawyers in our firm represent consumers and businesses as plaintiffs in class action lawsuits. Contact Archie Grubb at 1-800-898-2034 or Archie.Grubb@beasleyallen.com for more information. The Supreme Court’s decision in Knowles v. Standard Fire is expected to be released prior to the Court’s traditional July recess. As is true in other areas, we only represent Plaintiffs in this litigation since we don’t defend any type cases. It’s our belief that a firm such as ours can only represent one side and the decision was made in January of 1979 to be on the side of victims.
Sources: New York Times, www.SCOTUSblog.com, www.legalnewsline.com, and court briefs.
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