The Supreme Court made an interesting and unanimous ruling this week regarding requirements for class action lawsuits. As it stands under the Class Action Fairness Act, class action lawsuits in which plaintiffs seek damages greater than $5 million must be held in a federal district court. The ruling came in response to the case of Standard Fire Insurance v. Knowles, a case that was originally filed with the Arkansas state court.
In this case, plaintiff Greg Knowles alleged that Standard Fire, a homeowner’s insurance company, failed to pay out general contractor fees when making loss payments. Mr. Knowles hoped to certify a class action suit with possibly thousands of other policyholders but indicated in an affidavit to the court that the class would not seek damages in excess of the $5 million threshold. Standard Fire attempted to bring the case to the federal district court, but the court sent the case back to state court citing the affidavit filed by the plaintiff. When this issue was brought to the U.S. Supreme Court, the judges ruled unanimously that plaintiffs cannot bind members of a proposed class prior to the class being certified. The Supreme Court opinion further cites to Knowles as an “inadequate representative due to the artificial cap he purports to impose on the class’ recovery.”
This ruling is especially interesting seeing as federal courts are considered to be more “business-friendly” than state courts so it is oftentimes advantageous to big businesses to take part in larger class action suits. The attorney who represents Standard Fire stated, “[t]he Court’s unanimous decision in Standard Fire enforces the clear terms of the Class Action Fairness Act to ensure that class-action plaintiffs cannot manipulate the system by slicing and dicing claims in order to defeat federal jurisdiction, and it will prevent the state-court class-action abuses that Congress intended to prohibit. We are very pleased with the decision.” It will be interesting to see in the future if individuals filing a class action suit seek to maintain a smaller class in order to remain under state court jurisdiction.