Can a class action plaintiff, acting on behalf of a putative class, limit the putative class members’ damages in order to secure a state forum? Is the putative representative bound by his or her duties to absent class members to maximize the damages they can recover? Several courts have addressed these questions, and the answer to date is less than clear.
In one recent example, Judge Easterbrook, writing for the Seventh Circuit, found that a putative class representative’s attempt to limit damages did not bind absent class members for purposes of calculating the amount in controversy. Back Doctors Ltd. v. Metropolitan Prop. and Cas. Ins. Co., 637 F.3d 827 (7th Cir. 2011). In Back Doctors, a group of medical providers brought a state court putative class action against an insurer. The insurer removed the case to federal court and the medical providers moved to remand. In arguing for remand at the district court, the medical providers represented that they did not seek punitive damages, without which the amount in controversy would be below the $5 million CAFA threshold. The district court relied on this representation and remanded the case.
On appeal, Judge Easterbrook found that the representative’s purported disclaimer of punitive damages did not bind the absent class members. In so finding, Judge Easterbrook noted that a class representative has a fiduciary duty to absent class members. This duty, he reasoned, means that a representative “can’t throw away what could be a major component of the class’s recovery.” Judge Easterbrook also implicated the “adequacy” prong of Federal Rule of Civil Procedure 23(a) in commenting that a state or federal court “might insist that some other person, more willing to seek punitive damages, take over as representative.” Other cases have reached similar conclusions. See Ditcharo v. UPS, 376 Fed. Appx. 432 (5th Cir. 2010); Manguno v. Prudential Prop. & Cas. Ins. Co., 276 F.3d 720 (5th Cir. 2002); Bass v. Carmax Auto Superstores, Inc., No. 07-0883-CV-W-ODS, 2008 WL 441962 (W.D. Mo. Feb. 14, 2008).
Yet other courts have come out the other way. For example, in Murphy v. Reebok Intern., Ltd., the Eastern District of Arkansas rejected the argument that the representative’s “self-imposed limitations on damages break faith with her duties to the proposed class.” No. 4:11-cv-214-DMP, 2011 WL 1559234 (E.D. Ark. April 22, 2011). The court’s opinion is notable in two respects. First, the court reasoned that a class representative does not necessarily breach a duty to class members by limiting damages because the strategic goal of forum selection may be a worthwhile tradeoff for larger damages in certain cases. Second, the court reasoned that questions regarding the representative’s duty to class members went to the issue of adequacy, which could properly be addressed at the certification stage.
Thus, a class representative who limits class damages in order to obtain a favorable forum is susceptible to attack.