The justices appeared receptive to an insurance company’s argument that lawyers artificially lower the amount of money at stake to keep the lawsuits in state courts, which often favor plaintiffs. The Standard Fire Insurance Co. of Hartford, Conn., says the tactic drags out lawsuits and makes fighting them so expensive that companies would rather settle.
The case involves a 2005 federal law that allows defendants to transfer class actions involving more than $5 million to federal court.
Standard Fire is being sued by an Arkansas homeowner over the cost of repairing hail damage.
A federal appeals court ruled that the suit could remain in state court because the homeowner has promised in writing to seek less than $5 million for himself and other Arkansas homeowners insured by Standard Fire.
The issue for the justices is whether the promise made by homeowner Greg Knowles, who lives in Miller County in southwestern Arkansas, is binding on others who may eventually be part of the lawsuit. The company says the law, the Class Action Fairness Act, bars such promises.
Business interests complain that Miller County has become a “magnet” for class actions because of judges who refuse to shut down even meritless lawsuits. David Frederick, the Washington lawyer representing Knowles, said the attacks on the county are false.
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.
In Monday’s argument, Standard Fire seemed to draw support from liberal and conservative justices. Questioning Frederick, Justice Stephen Breyer said he worries that the promise of a $5 million limit “is just a loophole because it swallows up all of Congress’s statute.”
Justice Elena Kagan was the strongest voice in support of the homeowner, and she repeatedly challenged Theodore Boutrous Jr., the lawyer for the company. Kagan told Boutrous he should be asking Congress for help, not the court. “This is a kind of a jerry-rigged solution to get at a problem that Congress, in fact, did not address,” Kagan said.
A decision is expected by late June.
The case is Standard Fire Insurance Co. v. Knowles, 11-1450.