Supreme Court Interprets Class Action Fairness Act to Prevent Class Representative to Limit Damages for the Class to Below $5 Million to Keep Case Out of Federal Court
In class actions, the plaintiffs have long had the power to determine whether the case gets tried in state or federal court and they have most often chose to keep the cases in state courts. In 2005, Congress adopted the Class Action Fairness Act (CAFA) in order to limit the plaintiff's power in that decision. CAFA imposed restrictions on the kinds of cases which the plaintiff would be able to prevent from getting moved to the federal courts. Among those restrictions are if the proposed class consists of at least 100 members, minimal diversities exist between the parties, and the aggregate amount involved in the dispute is at least $5 million.
In Standard Fire Insurance Co. v. Knowles, the lead plaintiff promised not to ask for more than $5 million in damages on behalf of the absent class in order to prevent the case being moved to federal court. The issue reached the U.S. Supreme Court, which then rendered its first decision on CAFA.
In the case of Standard Fire Insurance Co. v. Knowles, it is universally acknowledged that the claims of the putative class add up to more than $5 million. However, the lead plaintiff promised that the class will not ask for more than $5 million, in order to get around CAFA's restrictions.
Although CAFA does not specifically prohibit artificially lowering the damages sought by a class action lawsuit in order to keep the case in the state courts, the Supreme Court still sided with the defendants. In its unanimous opinion, the Supreme Court reasons that, because the class had not yet been certified, the lead plaintiff was unable to make any promises regarding the value of the claims of the entire class. Until the class attains certification, the lead plaintiff can only make promises regarding the level of claims he, as an individual, seeks.
The Supreme Court pointed out that CAFA specifies that "to determine whether the matter in controversy exceeds the sum or value of $5,000,000," the "claims of the individual class members shall be aggregated."
The Supreme Court made sure to point out that it believed that this decision was in line with CAFA's primary objective of ensuring "Federal court consideration of interstate cases of national importance."
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