The justices threw out a federal appeals court ruling in favor of an Arkansas homeowner who sued his insurer, the Standard Fire Insurance Co. of Hartford, Conn., over the cost of repairing hail damage. The appeals court sided with the homeowner, Greg Knowles of Miller County in southwestern Arkansas, in allowing the case to go forward in state court because Knowles promised in writing to seek less than $5 million for himself and other Arkansas homeowners insured by Standard Fire.
But Justice Stephen Breyer said for the high court that Knowles could not bind all others who might join the lawsuit to the $5 million limit. A 2005 federal law, the Class Action Fairness Act, allows defendants to transfer class actions involving more than $5 million to federal court.
Breyer noted that the trial judge found that the sum of the damages would have exceeded $5 million, but for the promise.
"And we must decide whether the stipulation makes a difference. In our view, it does not. Our reason is a simple one: Stipulations must be binding," Breyer said.
The Class Action Fairness Act was intended to prevent what business interests have described as the gaming of the legal system by plaintiffs' lawyers to drag out lawsuits and make fighting them so expensive that companies would rather settle than continue in court.
Standard Fire and interest groups supporting it at the Supreme Court complained that Knowles' home of Miller County has become a "magnet" for class actions because of judges who refuse to shut down even meritless lawsuits.
The Supreme Court has in recent years backed limits on class actions, most notably in the 2011 decision that stopped a suit against Wal-Mart involving up to 1.6 million of its female employees who complained of sex discrimination.
The case is Standard Fire Insurance Co. v. Knowles, 11-1450.