Damages Cap Can’t Keep Class Suit in State Court

WASHINGTON (CN) - An Arkansas man who brought a class action against his insurer cannot keep the case in state court, the U.S. Supreme Court ruled Tuesday.

After a March 2010 hail storm damaged his home in Miller County, Ark., Greg Knowles hired a general contractor to repair the damage and then filed a claim with Standard Fire Insurance Co.

Though Standard Fire was allegedly obligated to pay a charge known as general contractors' overhead and profit (GCOP), Knowles said it concealed this obligation.

He filed a class action in April 2011, claiming to represent hundreds or thousands of similarly situated individuals entitled to full reimbursement.

Knowles stipulated that the action sought to recover less than $5 million, but Standard Fire slammed this framing as a tactic to escape federal jurisdiction.

After it removed the case to the U.S. District Court for the Western District of Arkansas, a federal judge in Texarkana remanded the case to state court.

The court agreed that the amount in controversy exceeds $5 million but found that Knowles could keep the case in state court "by stipulating at the time the complaint is filed that he will not seek more than the federal jurisdictional minimum for himself and the putative class."

The 8th Circuit rejected the insurer's ensuing appeal in a brief order, leading the case to the U.S. Supreme Court.

It unanimously vacated the federal appeals court's ruling Tuesday, noting simply that stipulation does not make "a critical difference."

"Our reason is a simple one: Stipulations must be binding," Justice Stephen Breyer wrote for the court. "The stipulation Knowles prof­fered to the District Court, however, does not speak for those he purports to represent.

"That is because a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified.

"Because his precertification stipulation does not bind anyone but himself, Knowles has not reduced the value of the putative class members' claims."

At the time the case was filed, "Knowles lacked the authority to concede the amount-in-controversy issue for the absent class members," according to the ruling. "The federal District Court, therefore, wrongly concluded that Knowles' precertification stipulation could overcome its finding that the CAFA jurisdictional threshold had been met."

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