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Supreme Court Sides with Business on Class Actions

Source: WSJ

Posted on 20 Mar 2013 by Neilson

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Supreme Court and class-action suitsBusinesses groups on Tuesday won the latest round in their battle with plaintiff's lawyers over class-action lawsuits, scoring an unanimous victory at the Supreme Court.

Congress in 2005 passed the Class Action Fairness Act, a law that made it easier for companies to move state-court class-action lawsuits to federal court, where businesses generally believe they receive better treatment.

The law says federal courts have jurisdiction over any civil-class action if, among other things, the amount at stake exceeds $5 million.

The Supreme Court was considering an Arkansas insurance case in which the lead plaintiff pledged that the total potential damages recovered by the class would not exceed that monetary threshold.

Standard Fire Insurance Co., the defendant in the case, said the plaintiffs were attempting an end run around the class-action law to keep the case in a local jurisdiction "notorious for class action abuses."

Plaintiffs' lawyers strongly rejected the allegation, noting the lawsuit was based on Arkansas law and limited only to Arkansas residents. They said the case was exactly the kind of class litigation that was supposed to remain in state court.

A federal trial judge found the amount of money at issue in the lawsuit was just above the $5 million threshold, but he accepted the plaintiff's stipulation that the lawsuit would seek less money, letting the case remain in state court.

The U.S. Supreme Court on Tuesday thought otherwise. In a seven-page ruling, the court said the lead plaintiff couldn't make a binding promise on behalf of other potential class plaintiffs to limit the amount of damages that might be sought.

Justice Stephen Breyer, writing for the court, said such non-binding stipulations potentially could allow plaintiffs to subdivide a $100 million case into 21 cases just below $5 million in order to stay in state court. "Such an outcome would squarely conflict" with the class-action law's intention that major cases go to federal court, he said.