Supreme Court Spars Over Loophole in Plaintiff Class Action Statute

14 Jan 2013

Oral arguments before the U.S. Supreme Court were heard last week in Standard Fire Insurance Co. v. Knowles over the Class Action Fairness Act of 2005, which allows defendants to remove cases from state to federal court when the potential class has over 100 members and the damages sought are more than $5 million. The question before the Supreme Court is whether cases can avoid being removed to federal court by plaintiffs stipulating that they are seeking less than the $5 million threshold.

During oral argument, Justice Kagan pointed out that plaintiffs are allowed to bring their own claims and can decide on the amount of damages being sought; therefore they should be allowed to make a stipulation to stay in state court. Justice Ginsburg, however, is concerned that the named plaintiff (who would sign the stipulation) cannot speak for absent class members. Justice Sotomayor was not as concerned with this, noting that whether the named plaintiff can adequately represent all class members is an issue to be addressed when the class is seeking certification.

Chief Justice Roberts illustrated a potential issue in the statute. He questioned whether it would be possible to just divide the number of people in the class alphabetically to lower the damages sought. For example, one lawyer represents a class of consumers with the last names of A-K, seeking $4 million, while another lawyer represents L-Z, also seeking $4 million.  Although the attorney admitted that would be an acceptable legal strategy. Justice Breyer found that would render the statute ineffective.

Will the Supreme Court vote in favor of stipulations to avoid CAFA’s jurisdictional amount threshold and how will this affect plaintiff electronic discovery if a class is divided into separate actions?  We’ll see what the Supreme Court decides in the upcoming weeks.

ILS – Plaintiff eDiscovery Experts