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Supreme Court rules on class action jurisdiction issue

The US Supreme Court [official website] ruled [opinion, PDF] Tuesday in The Standard Fire Insurance Co. v. Knowles [SCOTUS backgrounder] that a stipulation by one member of a class in a class action to keep damages below $5 million does not, for the purpose of diversity jurisdiction, bind the whole class. The Class Action Fairness Act of 2005 [text, PDF] provides that class actions can only be removed to federal court for diversity purposes if the amount-in-controversy exceeds $5 million and that the "claims of the individual class members shall be aggregated." In this case, Greg Knowles, who originally filed this action against the Standard Fire Insurance Company, stated in his complaint that he and the class as a whole stipulated they would not seek damages of $5 million or more. The court ruled, however, that this stipulation by Knowles could not bind the class as a whole "because a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified." The Supreme Court reversed the ruling of the US District Court for the Western District of Arkansas [official website], which originally sought to bind the class by Knowles' stipulation, and remanded it to that court for further proceedings.

The Supreme Court agreed [JURIST report] in September to hear this case during this term. The US Court of Appeals for the Eight Circuit had previously declined to hear [Cornell LII backgrounder] the appeal, and subsequently decided Rolwing v. Nestle Holdings, Inc. [opinion, text], in which it affirmed another district court's decision to deny jurisdiction based on stipulations similar to the one at issue in Standard Fire. The Supreme Court's ruling follows a case decided in 2011, Smith v. Bayer Corp. [opinion, JURIST report], in which the court ruled that unless a court has officially created a class, a person attempting to create a class does not represent the interests of all potential class members.

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