74 Pages Posted: 18 Sep 2012 Last revised: 26 Jan 2013
Date Written: September 5, 2012
Ever since the enactment of the Class Action Fairness Act of 2005 (“CAFA”), plaintiffs attorneys have sought to circumvent it. Because class certification is more difficult to obtain in federal court than it is in certain state courts, plaintiffs typically prefer to litigate in state court. One method of avoiding CAFA’s removal provision is to limit damages to less than $5 million, thus rendering the action too small to be subjected to the statute. And plaintiffs attorneys have proven willing to stipulate to such diminished damages even where the action is far more valuable. This note examines whether such stipulations should be permitted.
The note begins by introducing the topic and proceeds to place CAFA in a historical perspective and describe early techniques used to circumvent it. Because an understanding of why federal courts seem to disfavor class actions is important in examining how legitimate plaintiffs’ concerns vis-à-vis class certification are, the Note traces the history of the device in federal courts, starting in 1966 with the amendments to Rule 23 that created the modern class action and concluding with Wal-Mart Stores Inc. v. Dukes, which represents the latest example in a series of Supreme Court decisions that tend to make certification harder to obtain. The note then provides an overview of how district and circuits courts have analyzed this question and how circuits seem to be splitting.
Binding stipulations create problems on three planes -- Rule 23 conflicts, specifically with regard to adequacy; federalism and Dormant Commerce Clause difficulties; and a poor fit in the modern landscape of complex litigation. After identifying these issues, the note explicates the shortcomings of judicial approaches employed thus far before addressing how the Federal Courts Jurisdiction and Venue Clarification Act of 2011 is a step in the right direction. Ultimately, the note concludes that -- for reasons legal, theoretical, and practical -- binding stipulations cause more harm than good in the class action context and should be prohibited.
Keywords: CAFA, Class Action Fairness Act, class actions, complex litigation, binding stipulations, due process, adequacy of representation, agency theory
JEL Classification: K41
Suggested Citation: Suggested Citation
Killian, Ryan S., An Illusion of Sacrifice: The Incompatibility of Binding Stipulations in CAFA Cases (September 5, 2012). Pepperdine Law Review, Vol. 40, p. 111. Available at SSRN: https://ssrn.com/abstract=2097378