Can a Plaintiff Avoid Federal Jurisdiction by Stipulation?
Our federal courts do not designate certain orders as being “orders of significance” the way the Business Court does, but if they did, a recent decision from Judge William L. Osteen, Jr. in the Middle District of North Carolina might qualify. This short blog post reviews such an order remanding a case because the plaintiffs stipulated that they would not seek and would not accept more than the amount in controversy necessary for federal diversity jurisdiction.
Revisiting the Remand in an Earlier Case
To explain further, let’s travel back in time to July 2020, and revisit my post discussing another decision remanding a case to state court. That case, Cannon v. Automoney, Inc., included a motley crew of issues surrounding whether the amount in controversy exceeded the $75,000 necessary for diversity jurisdiction. Ultimately, after a considerable amount of math, the court concluded that it did not and remanded the case.
Aside from the math, the defendants in that case also argued that remand was inappropriate because the plaintiffs refused to stipulate that they would not seek or accept more than $75,000. The court rejected that argument, citing several earlier decisions saying such a stipulation was not required in order to confirm that the amount in controversy requirement was not met.
Plaintiffs Cut off Defendants’ Second Bite at the Apple
Today’s short post takes up that topic: McDonald v. Automoney, Inc. McDonald was a similar case brought by the same counsel for the plaintiffs in the Cannon case. Both cases involved automobile title loans. Both cases had North Carolina resident plaintiffs suing a pair of South Carolina companies, so each met the diversity of citizenship requirement for federal jurisdiction.
Not wanting to take a chance that a new judge might look favorably on the argument defendants raised in Cannon, the McDonald plaintiffs gave defendants exactly what they were looking for – an allegation in the complaint that “[e]ach Plaintiff stipulates that she is not seeking, will not seek and will not accept damages in excess of $75,000.” To bolster this stipulation, several plaintiffs provided additional declarations with their motion to remand stating the same.
In the Fourth Circuit, both pieces of this stipulation are important—the promise not to seek more than $75,000 and the promise not to accept it. McDonald relied on an unpublished Fourth Circuit case where the Fourth Circuit found federal jurisdiction was appropriate despite a promise not to seek more than $75,000 because they did not also stipulate that they would not accept more than $75,000.
Plaintiffs Knew How to Make the Stipulation and Hold the Stipulation
Without diving too deeply into the history—a history that dates back to dicta in a 1938 Supreme Court case—because plaintiffs in some states (including North Carolina) may be entitled to recover more than they ask for in a complaint, the more recent practice has been to require a binding stipulation or affidavit that a plaintiff will not accept more than $75,000 in order to defeat removal based on diversity jurisdiction.
This is precisely what the McDonald plaintiffs did. This led Judge Osteen to follow another recent decision from the Middle District where the plaintiffs coupled a stipulation in the complaint with declarations supporting their motion to remand. Indeed, the opinion concludes by underlying “and will not accept” in the stipulation. It is this point—a binding promise that the plaintiffs will not accept more than the amount required for jurisdiction—that was central to the decision to remand.
McDonald is another reminder that savvy plaintiffs can keep their cases out of federal court by including a stipulation in a complaint along with providing declarations in support of a remand motion. The flip side is that defendants can point to these cases in support of remaining in federal court unless plaintiffs bind themselves to limiting the amount of recovery they will accept.
Author: Jamie Weiss