Class actions are a critical tool for individual citizens to deter violations of individual rights and corporate misconduct. They are vital for permitting consumers to gain access to the courts where a company may have acquired a large financial windfall by defrauding large numbers of people. With corporate fraud and abuse at all time high, perhaps at no moment in history have class actions been more important than they are now.
But Corporate America has been on an unyielding mission to make it more difficult to bring class actions. In 2005, after years of lobbying, they got what they wanted: the so-called federal “Class Action Fairness Act,” which tosses (“removes”) into federal court virtually all big consumer class actions, clogging the federal courts and creating unnecessary nightmares for federal judges. Every consumer, environmental and civil rights group was against CAFA, as well as many state Attorneys General.
But OK, Congress passed the law. And by the specific language of the law, Congress instituted a $5 million threshold - the amount in controversy must exceed $5 million. This is supposed to be satisfied by what the named plaintiff in the case pleads when the action is filed. Congress could have gone lower, but it didn’t.
Well today, the U.S. Supreme Court heard arguments in Standard Fire v Knowles, which could end up with the Court once again legislating from the bench. (See other examples here, here.) This time, they could rule that despite the law’s language, Congress didn’t really mean what they wrote.
The case was brought by Greg Knowles, who suffered property damage in a hailstorm, and filed a class action, alleging that the insurance company underpaid claims to homeowners by refusing to pay for charges associated with retaining a general contractor - in other words, the kind of case that really has no business being in federal court. Really.
When Knowles brought the case, he signed a stipulation limiting his, and his class’, recovery to less than $5 million. (Thus keeping it out of CAFA territory.) Standard Fire Insurance Company tried to remove the case to federal court, but citing the stipulation, the federal district judge remanded the case to state court. The Eighth Circuit denied an appeal, but then the Supreme Court, who we already know isn’t a fan of class actions, agreed to hear the case.
The defense argues that Knowles’ stipulation is invalid based on other restrictions in CAFA, and additionally doesn’t bind class members who haven’t yet been certified or class counsel to the stipulated amount. The plaintiffs’ say that Knowles has the right, as “master of his complaint” to limit his damage claim. See Public Citizen and Public Justice’s excellent amicus brief, which also responds to the outrageous position of the National Association of Manufacturers that the Court should just ignore the “amount in controversy” threshold altogether and throw just about every class action into federal court.
While at least one analysis suggests that a strict reading of the text of the Class Action Fairness Act should favor Knowles, it’s not clear that the Supreme Court will agree. After they heard the arguments, the Associated Press reported that, “Standard Fire seemed to draw support from liberal and conservative justices.” Though Justice Kagan repeatedly challenged the Standard Fire lawyer, telling him he should go to Congress rather than the court for help. (Here’s the transcript.)
The decision is expected in late June, and as before with this Court, we’re hoping for the best but preparing for the worst.