Interpretation and Effect of Forum Selection After Standard Fire Insurance Co. v. Knowles

“CAFA-nated”: A Jittery Interpretation of Forum Selection in Standard Fire Insurance Co. v. Knowles, 68 Ark. L. Rev. 511 , 530 (2015).

In her article, author Jessica K. Pruitt, analyzes the interpretation and effect of forum-selection after the United States Supreme Court’s ruling in Standard Fire Insurance Co. v. Knowles. Pruitt’s article explores the U.S. Supreme Court’s forum-shopping jurisprudence, which shows the Court’s distaste for the gamesmanship of plaintiffs’ lawyers who try to defeat the basic principles of CAFA, and keep their class action lawsuits in state court.

In Standard Fire Insurance Co. v. Knowles, 133 S. Ct. 1345 (2013), the Supreme Court interpreted CAFA’s jurisdictional provisions for the first time. CAFA gives the federal district courts original jurisdiction over class action lawsuits where the amount-in-controversy exceeds $5 million. In Knowles, however, the Supreme Court ruled that the named plaintiffs cannot avoid federal jurisdiction by stipulating (prior to class certification) that the damages would not exceed CAFA’s $5 million amount-in-controversy threshold. The opinion confirmed the Supreme Court’s desire to keep the plaintiffs’ lawyers from unilaterally attempting to keep class actions in state court. (Editor’s Note: see CAFA law blog analysis of Standard Fire posted on April 12, 2013).

Pruitt notes that traditionally, the United States Supreme Court has embraced the “the plaintiff is a the master of the complaint” rule, and has held that if a plaintiff does not desire to try his case in the federal court, he may resort to the expedient of suing for less than the jurisdictional amount, although he would be justly entitled to more. The Supreme Court has found that in such situations, the defendant cannot remove the action to the federal court.

Pruitt, however, notes that CAFA dramatically limited the ability of plaintiffs’ lawyers to keep the class action litigation in state courts. Instead of the normal presumption that the plaintiff is the master of his or her complaint, the CAFA sought to eliminate gamesmanship and forum shopping of class venues. A major premise of CAFA is that a federal forum is a superior venue for resolving class actions with multistate aspects. In fact, President George W. Bush commented that before CAFA, trial lawyers were able to drag defendants from all over the country into sympathetic local courts, even if those businesses have done nothing wrong. CAFA aims to fix the system.

Pruitt notes that the class action bar’s preference for state court stems from the willingness of state court judges to certify classes; and certain courts have become more appealing. For example, one report showed that the rate of class actions filings in Madison County, Illinois was around 20 times the national average. In 2012, Madison County made up only 0.0008 percent of the nation’s population, but the jurisdiction handled 25 percent or more of the nation’s asbestos cases.

Pruitt also notes that Miller County, Arkansas, is known as a favorable jurisdiction for class action plaintiffs, but that corporate defendants view it as “rife with abusive litigation tactics and plaintiff-friendly local judges.” After CAFA, Miller County lawyers needed a means of keeping their lucrative class action lawsuits before the state court judges, and the stipulation at issue in Knowles provided precisely such a means.

Although, the Knowles opinion did not explicitly address Miller County or the concept of forum shopping, Pruitt notes that both concerns played a significant role during oral arguments. During oral argument, Pruitt points that the justices clearly had forum shopping on their minds. The mysterious absence of any mention of forum shopping in the opinion leads to an important question–why would the United States Supreme Court choose to omit such a significant policy consideration? Pruitt responds that avoiding an underlying issue was not a maneuver unfamiliar to the Court – Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009) served as two examples of the Court’s unspoken objectives.

In both cases, the Supreme Court interpreted Rule 8 of the Federal Rule of Civil Procedure, which governs the general rules of pleading. Twombly involved treble damages in civil antitrust cases, and in Iqbal, the plaintiffs alleged that federal officials violated their constitutional rights following their arrests for suspected involvement with terrorist groups. Both cases reached the Supreme Court because of the novel issues presented with respect to pleading requirements. The true intent behind the applicable changes to pleading requirements was arguably to curb excessive costs of private-party discovery. In both cases, the Supreme Court limited federal jurisdiction, however, policy considerations did not appear to be a motivating factor in either opinion.

Pruitt notes that one potential problem with the Supreme Court sidestepping the forum shopping issue in Knowles was that some have characterized the decision as a technical interpretation of the CAFA amount-in-controversy requirement. Pruitt believes therefore, that the lower courts might interpret the ruling as an unremarkable, straightforward regarding one specific element of CAFA, as opposed to a case that stands for a larger policy proposition.

Pruitt writes that because the holding in Knowles was so narrow, the lower courts have limited guidance on the amount of evasion permitted under CAFA. As it stands now, plaintiffs’ lawyers clearly cannot make a binding stipulation to limit damages with respect to an entire class, but it is difficult to extract additional direction from the opinion. Pruitt notes that it remains to be seen how broadly the federal district courts will interpret Knowles opinion. Pruitt cites to an Arkansas case as an example of how the lower courts can apply Knowles to deny plaintiffs’ motions to remand.

In Basham v. American National County Mutual Insurance Co., 2012 WL 3886189 (W.D. Ark. Sept. 6, 2012), the defendants sought to remain in federal court on CAFA grounds; they also alleged that the judges sitting on the Miller County Circuit Court routinely made unfair procedural rulings. The United States District Court for the Western District of Arkansas ruled that the plaintiffs had capped their amount-in-controversy sufficiently to create a legal certainty that they would not recover more than the federal jurisdictional minimum, and granted the plaintiffs’ motion to remand. After Knowles, however, the Eighth Circuit reversed and remanded the case to determine the amount-in-controversy. On remand the District Court issued an opinion finding that the amount-in-controversy exceeded $5 million, and retained jurisdiction over the action.

In Day v. Persels & Associates, 729 F.3d 1309 (11th Cir. 2013), the Court considered the broader implications of the narrow Knowles holding and held that if a class representative cannot enter into a binding stipulation regarding damages, then it followed that the class representative also cannot object to a Magistrate Judge hearing the case. Another interesting case according to the author is Dart Cherokee Basin Operating Co. v. Owens, 135 S. Ct. 547 (2014), where the Supreme Court held that a defendant’s Notice of Removal must only include a plausible allegation that the amount-in-controversy exceeded the jurisdictional threshold, it need not contain evidentiary submissions. Pruitt points that this ruling provided support for the idea that such Notice of Removals need not contain evidence of amount-in-controversy, rather, a mere allegation pursuant to a general pleading standard of Rule 8(a) may be sufficient, thus expanding Knowles.   (Editor’s Note:  an Article by Rollo, Ferachi and Crowson is posted here).

Pruitt concludes by noting that the United States Supreme Court is determined to effectuate the intent of Congress in preventing forum shopping in class action lawsuits. Although, the Knowles holding was narrow, post-Knowles CAFA jurisdiction cases have demonstrated that federal courts will continue to ensure that that the policy behind CAFA is implemented, regardless of whether or not the court explicitly mentions such policy considerations in its opinions.

-Melissa Broussard

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