On January 7, 2013, the U.S. Supreme Court heard argument in The Standard Fire Insurance Company v. Knowles, No. 11-1450. The case is important because it pits a named plaintiff’s right to be “master of the complaint” against an absent class member’s right to due process and also tests whether the Court will allow creative plaintiffs’ lawyers to circumvent Congress’ mandate that federal jurisdiction is required in cases exceeding the $5 million threshold set forth in the Class Action Fairness Act of 2005 (“CAFA”). (See my post from Sept. 7, 2012.)
At argument, most of the Justices expressed concern with a plaintiff’s ability to avoid federal jurisdiction through stipulations and other tactics. As Justice Breyer put it when speaking about plaintiff’s reliance on the master of the complaint argument to avoid federal jurisdiction: “this is just a loophole because it swallows up all of Congress’s statute, which is what their problem is, all you have to do, . . . you file a complaint, you say it is for $4,900,00; in fact, it’s worth 10 million.”
While the ways plaintiffs circumvent CAFA was clear to the Court, there was concern on where to draw the line between what a named plaintiff could and could not do prior to class certification. As Justice Kagan stated: “… you really are asking us to blow up the whole world. . . . Because you are saying: Next time we will be back and tell you that the named plaintiff can’t define the class. Next time we are going to be back and tell you that they can’t name the defendants.” Justic Kagan was also adamant that CAFA did not get rid of the master of complaint rule. Counsel for Petitioner pointed out that “[t]he master of the complaint doctrine has never been applied by this Court where an unappointed named plaintiff . . . seeks to try to alter claims and judgments of other people and the rights of them to recover.”
Other members of the Court, too, questioned why the class certification process itself, as well as later removal under CAFA, could not address plaintiffs’ efforts to do an end-run around CAFA’s mandate for federal jurisdiction. Justice Sotomayor, for example, asked: “… why doesn’t the normal class certification process protect adequately the absent class members? First of all, counsel has to prove he or she is adequate. So doesn’t that mean that if they enter a stipulation that is grossly unfair to the class that the judge is not going to certify the case?” As Justice Ginsburg understood the problem posed by Petitioner, it would be the state court that would make the determination of adequacy, not a federal court. As counsel for Petitioner stated: “… that’s what Congress was concerned about, too…” Justice Roberts then commented: “Well, you’re assuming that it’s a bad thing for class members to have their claims limited. but it may well be a good thing for them to have their claims limited if that gets them into what would reasonably be regarded as a more sympathetic forum.” As for removal, while removal is possible at any time under CAFA, counsel for Petitioner pointed to the discovery that would have been had to that point, from which one could infer a reward to the plaintiff who had successfully gamed the system.
The Court’s decision, expected by June, likely will define the limits of a named plaintiff’s ability to circumvent CAFA, at least in the context of a stipulation as to damages, but potentially with respect to other tactics, too, such as breaking a class up into smaller classes to avoid federal jurisdiction. In any event, it is likely to be an important decision which could impact the number of cases in federal as opposed to state court.