Last week, the U.S. Supreme Court granted certiorari review of a case involving the Class Action Fairness Act of 2005 (“CAFA”). CAFA was enacted, in part, to ensure that class actions were filed in federal court unless they met a limited number of exceptions, thus avoiding often pro-plaintiff state courts. In The Standard Fire Insurance Co.v. Knowles, No. 11-1450, plaintiff’s counsel tried to avoid the federal jurisdiction mandated by CAFA — in favor of Arkansas state court — by stipulating that the damages sought by the putative class would be less than the $5 million CAFA threshold. In so doing, arguably, counsel were limiting the damages of the class they purported to represent — but did not represent, as the class had not been certified and counsel had not been appointed for the class. Notably, Arkansas does not adhere to the “rigorous analysis” of class certification criteria demanded by the federal courts. The Supreme Court granted certiorari on the following question:
“Whether, after Smith v. Bayer, when a named plaintiff attempts to defeat a defendant’s right of removal under the Class Action Fairness Act of 2005 by filing with a class action complaint a ‘stipulation’ that attempts to limit the damages he ‘seeks’ for the absent putative class members to less than the $5 million threshold for federal jurisdiction, and the defendant establishes that the actual amount in controversy, absent the ‘stipulation,’ exceeds $5 million, the ‘stipulation’ is binding on absent class members so as to destroy federal jurisdiction.”
The Court took the case in the aftermath of its Smith v. Bayer Corp. decision. Smith deals with the relitigation exception to the Anti-Injunction Act and a federal court’s ability to enjoin a state court class action after the denial of certification of a similar federal class. It limits the federal court’s reach to ensure that the rights of absent putative class members are protected: “the mere proposal of a class … [cannot] bind persons who were not parties.” 131 S. Ct. 2368, 2382 (2011). Indeed, in a damages class action, a court cannot bind members of a putative class before providing them with adequate notice and an opportunity to exclude themselves from the class.
The Court in Wal-Mart Stores, Inc. v. Dukes, too, expressed a concern for the rights of absent class members in the context of Rule 23(b)(2) injunctive relief class actions that also seek monetary damages:
“In the context of a class action predominantly for money damages we have held that absence of notice and opt-out violates due process. See Phillips Petroleum Co. v. Shutts, 472 U. S. 797, 812 (1985). While we have never held that to be so where the monetary claims do not predominate, the serious possibility that it may be so provides an additional reason not to read Rule 23(b)(2) to include the monetary claims here.” 131 S. Ct. 2541, 2559 (2011).
Knowles likely will have ramifications beyond CAFA, as it goes to the rights of absent members of a putative class.
For copies of the petition and briefs, see the SCOTUS blog at http://www.scotusblog.com/case-files/cases/the-standard-fire-insurance-co-v-knowles/