The Class Action Fairness Act of 2005 (CAFA) was enacted with the primary goal of ensuring that large-scale, nationwide class actions are litigated in federal court. This objective was motivated, in part, by Congressional concern that plaintiffs’ attorneys were exploiting the system through “forum-shopping,” maneuvering cases into state courts perceived as biased or ill-equipped to prevent potential abuses. CAFA grants defendants the right to remove a class action to federal court if the aggregate amount in controversy exceeds $5 million.
In an effort to avoid this threshold and remain in their preferred state forums, plaintiffs’ attorneys have developed a strategy involving stipulations. These stipulations disclaim any intention to seek more than the $5 million jurisdictional limit, even in cases where plausible theories suggest a potential recovery significantly exceeding that sum. If this tactic is successful, the action remains in state court. Later in the litigation process, counsel may employ further tactics to effectively disregard the initial monetary limit and seek a recovery above the stipulated amount.
This practice raises concerns that extend beyond simply circumventing the legislative intent of CAFA. It introduces significant ethical issues concerning the lawyers’ fundamental duty to their clients, especially absent class members who may be unaware of the litigation or unable to scrutinize tactical decisions. Specifically, disclaiming damages above the $5 million threshold may serve the lawyer’s interest by allowing the case to proceed with less stringent oversight in a preferred state court. However, this course of action can simultaneously harm the interests of some clients, whose right is to obtain the best possible financial recovery.
This critical issue is scheduled to be addressed by the U.S. Supreme Court. The Cato Institute has submitted an amicus curiae brief (PDF), urging the Court to acknowledge the ethical dimension of this practice and instruct lower federal courts to permit removal when appropriate. Further analysis on this topic is available from Ilya Shapiro. Additionally, Ted Frank, representing the Center for Class Action Fairness, has also filed amicus briefs concerning the grant of certiorari and the merits of the case.
