The Supreme Court issued its first-ever decision interpreting the Class Action Fairness Act (CAFA) today, and its holding strengthens defendants’ right to a federal forum in class actions.
The question presented in Standard Fire Insurance Co. v. Knowles, No. 11-1450, slip op. (U.S., Mar. 19, 2012) was a simple one: can a plaintiff avoid federal jurisdiction under CAFA by stipulating to less than $5 million in damages on behalf of the putative class? The Court’s unanimous answer was no, and its reasoning is also simple:
Stipulations must be binding . . . [and] a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified.
Slip op. at 3-4.
Does Standard Fire mean the end of any debate about the federal courts as a forum for class actions? Probably not. Justice Breyer’s well-reasoned opinion makes the issue sound like a no-brainer, but this is an issue that had been far from settled in the lower courts. The fact that the Supreme Court had to intervene on this issue is in part a symptom of a lingering antagonism by many lower federal court judges toward diversity jurisdiction. The ruling is unlikely to change the predisposition of some federal judges to look for ways to clear their dockets by remanding diversity cases to the state courts. Although the effectiveness of this particular method for avoiding CAFA jurisdiction is now settled in defendants’ favor, that is not to say that other tactics for avoiding federal jurisdiction in class actions won’t succeed in the future.