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US high court takes up class action jurisdiction case

US high court takes up class action jurisdiction case

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The U.S. Supreme Court has agreed to decide whether a stipulation by a class action plaintiff that damages will be limited to less than the $5 million threshold for federal jurisdiction is enough to defeat a motion to remove the case to federal court under the Class Action Fairness Act.

The case involves a putative class action for breach of contract against an insurance company brought by a plaintiff alleging underpayment of homeowners’ insurance claims. The lawsuit was filed with a stipulation limiting the damages sought for the absent putative class members to less than the $5 million threshold for federal jurisdiction.

The defendant moved to remove the case to federal court under CAFA, arguing that the plaintiff lacked the authority to place a limit on recovery that would bind the other class members.

After that motion was granted, the plaintiff moved to remand the case back to state court, arguing that he had the right to limit the amount of the claim so as to bring actions in his forum of choice.

The district court granted the plaintiff’s motion, ruling that he “has shown to a legal certainty that the aggregate damages claimed on behalf of the putative class shall in good faith not exceed the state court’s jurisdictional limitation.”

The court dismissed the defendant’s claim that the limitation violated absent class members’ due process rights.

“[P]utative class members may simply opt out of the class and pursue their own remedies if they feel that the limitations placed on the class by plaintiff are too restrictive,” the court ruled.

The 8th Circuit denied permission to appeal, and the Supreme Court granted the insurance company’s petition for certiorari.

The case is expected to be decided in the upcoming term.

Standard Fire Insurance Co. v. Knowles, No. 11-1450. Certiorari granted: Aug. 31, 2012.

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