A February 2, 2012 decision by the Eighth Circuit upheld the use of stipulations by the named plaintiff and plaintiff’s counsel attempting to limit the amount in controversy to below the $5 million threshold for federal jurisdiction under the Class Action Fairness Act (CAFA).  This is the first court of appeals opinion squarely addressing this important issue.  If followed by other circuits, this decision potentially allows any plaintiffs’ attorney to avoid federal jurisdiction in any class action, no matter how large the amount in controversy would otherwise be, simply by using stipulations following the form used in this case.  CAFA potentially becomes avoidable essentially at will.  Such stipulations might make little difference to a defendant if the state’s class action law closely follows federal law, the state courts are accustomed to handling complex commercial disputes and discovery rulings are reasonable and appealable.  However, the plaintiffs’ bar is more likely to employ these stipulations in state courts that have looser class certification standards, plaintiff-friendly courts and limited (or non-existent) appellate review of discovery rulings preceding certification.  In those jurisdictions, defendants can be pressured to settle by the larger costs of litigation and greater likelihood of class certification.

In Rolwing v. Nestle Holdings, Inc., No. 11-3445, 2012 WL 301030 (8th Cir. Feb. 2, 2012) (available at Eighth Circuit website), a proposed class action was filed arising out of a merger between Nestle and Ralston Purina Company.  The plaintiff contended that payments to Ralston Purina shareholders for their shares were made six days late, and thus, under the interest rate established in a Missouri statute, over $13 million was owed to the shareholders.  The complaint, however, included allegations and two stipulations attempting to limit the amount in controversy to below $5 million, as follows:

Rolwing’s complaint included a prayer for relief requesting “judgment against defendant in an amount that is fair and reasonable in excess of $25,000, but not to exceed $4,999,999.”  The prayer stated further:  “Plaintiff and the class do not seek –and will not accept – any recovery of damages (in the form of statutory interest) and any other relief, in total, in excess of $4,999,999.”   . . . Rolwing also included two stipulations with his complaint: one stating that as named plaintiff and putative class representative he would not seek or accept any recovery in excess of $4,999,999 on his own behalf or on behalf of the class, and a second signed by his counsel stating that no attorneys’ fees would be sought or accepted other than on a contingency basis out of the maximum recovery of $4,999,999 provided for by the other stipulation.

Id. at *1 (emphasis in original). 

The Eighth Circuit initially found that Nestle had established that the actual amount in controversy exceeded $5 million, and thus, “for a remand to be justified, Rolwing must show that it is legally certain that recovery in this case cannot exceed $5 million.”  Id. at *2.  The court stated that “[s]tipulations of this sort, when filed contemporaneously with a plaintiff’s complaint and not after removal, have long been recognized as a method of defeating federal jurisdiction in the non-CAFA context.”  Id.   The court did not address whether this should be extended to CAFA or what Congress intended in that regard.  The court concluded that the stipulations were enforceable under  Missouri law of judicial estoppel, reasoning as follows:

Under Missouri law, “[t]he doctrine of judicial estoppel provides that ‘[w]here a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he may not thereafter, simply because his interests have changed, assume a contrary position, especially if it be to the prejudice of the party who has acquiesced in the position formerly taken by him.’ “ Taylor v. State, 254 S.W.3d 856, 858 (Mo.2008) (second alteration in original) (quoting Zedner v. United States, 547 U.S. 489, 504, 126 S.Ct. 1976, 164 L.Ed.2d 749 (2006)). According to this rule, by defeating removal through asserting the position that he will not accept more than $4,999,999 in damages on behalf of the class he is seeking to represent, Rolwing is estopped from later accepting damages that exceed that amount. Similarly, by taking the position that he would only accept fees on a contingency basis out of damages not exceeding $4,999,999, Rolwing’s counsel is estopped from accepting any other fee award.

Id. at *3 (emphasis added).

A few observations:

  • The Eighth Circuit here seemed to assume that pre-CAFA law allowing stipulations that the amount in controversy in an individual case was below $75,000 should be extended to apply to class actions under CAFA.  Doesn’t resolving that issue depend on:  (1) whether class action law allows a named plaintiff to stipulate to damages on behalf of proposed class members pre-certification; (2) whether such a stipulation is binding pre-certification; and (3) what Congress intended in enacting CAFA?  None of these issues were addressed in this decision.
  • The law on judicial estoppel varies somewhat from state to state, as well as the law regarding the enforceability of these types of stipulations, so the application of this opinion in cases arising from other jurisdictions may vary. 
  • It seems somewhat inconsistent with principles of federalism for federal jurisdiction to depend on the vagaries of state law, although to some extent state law informs the determination of the amount in controversy under diversity jurisdiction.  Should state law be allowed to completely control whether federal courts have jurisdiction under CAFA?
  • If this decision is not consistent with Congressional intent, should CAFA be amended to correct it?
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Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career at Skadden.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and I was fortunate to have the opportunity to work on some prominent class actions arising from the 2004 hurricanes in Florida and later Hurricane Katrina, including cases involving the applicability of the flood exclusion, statutes known as valued policy laws, and various other issues.  My interest and experience in class actions gradually led me to focus on that area.

In Connecticut courts I’ve defended various kinds of class actions that go beyond insurance, including cases involving products liability, securities, financial services and consumer contracts.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at my desk or flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation (for more on those, see the Seminars/Programs page of this blog), I often can be found playing or reading with my young daughter, helping my wife with her real estate and mortgage businesses, reading a book about history or politics, or watching the Boston Red Sox (I managed to find bleacher seats for Game 2 of the 2004 World Series when Curt Schilling pitched with the bloody sock).  When the weather is good I also love to take the ferry to Block Island, Rhode Island and ride a bike or walk the trails there. If you go, I highly recommend the Clay Head Trail.