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Are Pre-Certification Stipulations Binding in Class Actions?

Written by Ankin Law Office

The amount of damages a plaintiff seeks in a class action affects not only the bottom line recovery for each of the plaintiffs, it can also impact which court has jurisdiction to hear the case. In Standard Fire Insurance Co. v. Knowles, the Supreme Court unanimously concluded that a precertification stipulation that sought to limit damages to an amount less than the federal jurisdictional amount didn’t prevent that case from being removed from state court to federal court because a class action stipulation is merely contingent and not binding.

In Standard Fire, Knowles had filed a class action complaint in Arkansas state court alleging that Standard Fire underpaid homeowners’ claims by refusing to pay general contractor fees.  In an attempt to facilitate state court jurisdiction, the complaint alleged only state law claims, limited the proposed class to Arkansas residents, and stipulated that the requested damages were less than $5 million (the federal jurisdictional limit).  Nonetheless, Standard Fire sought removal of the case to federal court pursuant to the Class Action Fairness Act (CAFA), which authorizes removal when (among other things) the amount in controversy exceeds $5 million.

The Supreme Court allowed for removal to federal court based on the theory that the damages stipulation wasn’t, in fact, a binding stipulation. According to the Supreme Court, “stipulations must be binding” and, although the damages stipulation would be binding in an individual lawsuit, the same stipulation in a class action is merely “contingent” because a class representative cannot legally bind unnamed class members until the class is certified.  In other words, only class representative Knowles was bound by the stipulation and not all unnamed class members.

What Does Standard Fire Insurance v. Knowles Mean for You?

While the Supreme Court’s narrow decision means that a proposed class cannot agree to a damage cap prior to class certification, the decision does not seem to address how courts should determine the actual amount in controversy in a class action lawsuit, which affects whether a federal court has jurisdiction over a class action. Often times class action plaintiffs seek state court jurisdiction because federal courts are perceived to be more pro-business than state courts.

Although the class action plaintiffs lost the battle in this case, they may not have lost the war since the Supreme Court issued a decidedly narrow decision and refused to acknowledge the defendant’s attempts to discredit plaintiff’s strategic decisions involved with the lawsuit.

As this case demonstrates, the procedures involved with a class action lawsuit are complex and can significantly impact the course of litigation. Accordingly, it is highly recommended that you obtain the legal representation of a skilled class action attorney. The Chicago class action attorneys at Ankin Law Office, LLC have considerable experienced representing plaintiffs in class action lawsuits involving automobile defects, consumer product liability claims, unsafe pharmaceuticals, employment disputes, and toxic tort matters.

If you would like more information about Standard Fire Insurance Co. v. Knowles, precertification stipulations, or the requirements for filing a class action lawsuit, contact our office at (312) 600-0000 to schedule a free consultation with one of our experienced Chicago class action lawyers.