Eighth Circuit Holds $4,999,999 Damages Disclaimer Defeats CAFA Jurisdiction
Michael F. Bahler | Bloomberg Law
In an opinion upholding the remand of a putative class action against Nestle Holdings, Inc., the U.S. Court of Appeals for the Eighth Circuit ruled that a damages disclaimer capping recovery at $4,999,999 defeated jurisdiction under the Class Action Fairness Act of 2005 (CAFA), Pub. L. No. 109-2, 119 Stat. 4.
In 2001, Nestle entered into a merger agreement with Ralston Purina Co. and agreed to purchase Purina’s common stock. The merger agreement provided that Missouri law would govern any disputes. On December 18, 2001, Purina’s book-entry shareholders were paid $8,880,809,766 for their 265,098,799 outstanding common shares. In March 2011, Purina book-entry shareholder John M. Rolwing commenced a putative class action against Nestle in Missouri state court, alleging that the payment to shareholders should have taken place six days earlier and that Nestle owed the putative class interest for the delay.
In May 2011, Nestle removed the case to Missouri federal court under CAFA, and Rolwing in turn moved to remand, arguing that the CAFA requirement that the amount in controversy exceed $5 million was not met. Rolwing’s complaint had expressly capped damages at $4,999,999 for purposes of avoiding “jurisdiction under the terms of the Class Action Fairness Act of 2005.” The complaint also contained stipulations by both Rolwing and his attorney that they would not seek or accept damages and attorneys’ fees that jointly exceeded $4,999,999.
Nestle countered that if Rolwing prevailed on his Missouri law claims, it would be required to pay over $2 million in statutory damages for each day the payment was late. Since Rolwing contended that the payment had been six days late, the total class recovery would far exceed CAFA’s jurisdictional minimum. Nestle discounted Rolwing’s damages disclaimer, arguing that such disclaimers were not enforceable under Missouri law and also that Rolwing was violating his fiduciary duty to putative class members by not seeking the maximum award to which they were entitled.
The district court granted the motion to remand, finding that Rolwing had met his burden of showing that it was a legal certainty that the recovery in the case would not exceed $5 million. See Rolwing v. Nestle Holdings, Inc., No. 11-cv-00894 (E.D. Mo. Oct. 11. 2011). It stated that the damages disclaimer was effective since it was made prior to removal and that “Nestle may use the doctrine of judicial estoppel to bar Plaintiff from recovering more than the stipulated cap should he be successful in that court.”
On appeal, the Eighth Circuit affirmed, writing that it need not reach the question of whether a Missouri court would enforce the disclaimer because Rolwing’s and his attorney’s stipulations would be independently enforceable under Missouri’s version of judicial estoppel. “According to this rule,” the Court observed, “by defeating removal through asserting the position that he will not accept more than $4,999,999 in damages on behalf of the class he is seeking to represent, Rolwing is estopped from later accepting damages that exceed that amount.” The Court also brushed aside Nestle’s scenario that a Missouri court might drop Rolwing as class representative in favor of a plaintiff who had not disclaimed damages and could better represent the interests of the class. It stated that it was not required to consider a hypothetical substitution of class representative when reviewing a remand order and that Nestle would be free to remove the case anew if the circumstances changed in the manner it envisioned.
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