In The Standard Fire Insurance Co. v. Greg Knowles, the United States Supreme Court held unanimously that named plaintiffs in a purported class action cannot bar federal jurisdiction by seeking less than $5 million in damages.
Under the Class Action Fairness Act (CAFA), an action seeking more than $5 million in damages triggers federal court jurisdiction. The problem for the plaintiff Knowles, according to the Court, is that he lacked the authority to bind the class to the $5 million limit. Although “the precertification stipulation can tie Knowles’ hands,” the Court explained, “it does not speak for those Knowles purports to represent, for a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified.”
The Court also expressed concern that plaintiffs could artificially divide class actions on a state-by-state basis, keeping each just below the $5 million threshold and thereby defeating federal jurisdiction, even though the class overall sought damages well above the threshold. Permitting such a tactic would conflict with CAFA’s objective of ensuring that important interstate cases are adjudicated in federal court.