Trial News

The U.S. Supreme Court has held, 5-4, that a third-party cross-claim or counterclaim defendant does not have the right to remove a case to federal court. The Court affirmed the Fourth Circuit’s decision that removal by a third-party defendant is not permitted under the general removal statute, 28 U.S.C. §1441(a), or the Class Action Fairness Act (CAFA) removal statute, 28 U.S.C. §1453(b). (Home Depot U.S.A., Inc. v. Jackson, 2019 WL 2257158 (U.S. May 28, 2019).)

As Trial News previously reported, Citibank filed a debt collection action against George Jackson in North Carolina state court alleging Jackson failed to make payments for a water treatment system purchased at Home Depot using a credit card issued by Citibank. Jackson brought a class action counterclaim against Citibank, as well as third-party class action claims against Home Depot and an in-state corporation, Carolina Water Services (CWS), arguing that they had engaged in unfair and deceptive trade practices. Jackson alleged that Home Depot and CWS had misled a putative class of 286 customers—259 of whom had North Carolina addresses—about their water quality and the need for the water treatment system. Citibank later dropped its claims against Jackson, and Home Depot filed a motion to remove the case to federal court and to realign the parties, with Jackson as the plaintiff. Jackson moved to remand.

The district court denied Home Depot’s motion to realign, concluding that “antagonistic parties” were not on the same side in the case, and granted Jackson’s motion to remand. Home Depot appealed, but the Fourth Circuit agreed with the district court’s analysis in which it found that an “additional counter-defendant [is] not ‘the defendant or the defendants’ with removal authority” under 28 U.S.C. §1441(a) or “‘any defendant’ entitled to removal” under CAFA. The Supreme Court granted Home Depot’s petition for certiorari to consider whether a third-party named in a class action counterclaim may remove under CAFA or under the general removal statute.

Justice Clarence Thomas, writing for the majority, agreed with the Fourth Circuit that third-party defendants are not entitled to remove a case to federal court. The Court found that §1441(a) “limits removal to ‘the defendant or the defendants’ in a ‘civil action’ over which the district courts have original jurisdiction.” Here, the Court said, Jackson’s claim against Home Depot “did not create a new ‘civil action’ with a new ‘plaintiff’ and a new ‘defendant.’” Home Depot, as a third-party counterclaim defendant, is not a defendant in the civil action as contemplated by the statute, the Court said, but rather it is a defendant to an individual counterclaim and therefore is not entitled to remove the case. The Court also considered the various congressional limits on removal and noted that these limits “show that [Congress] did not intend to allow all defendants an unqualified right to remove.” For example, under the general removal statute, all defendants must agree to removal while removal based on diversity jurisdiction is not permitted when any defendant is a citizen of the state where the action was brought.

The Court also rejected Home Depot’s broad interpretation of CAFA as allowing removal “by ‘any defendant’ to a ‘class action.’” Agreeing with Jackson, the Court looked at the entire clause in §1453(b)—“may be removed by any defendant without the consent of all defendants”—and found that CAFA did not alter who may remove but rather whether a defendant may remove without the consent of all the defendants. In enacting CAFA, the Court said, “Congress intended only to alter certain restrictions on removal, not expand the class of parties who can remove a class action.”

In dissent, Justice Samuel Alito, joined by Chief Justice John Roberts and Justices Neil Gorsuch and Brett Kavanaugh, criticized the majority’s interpretation of CAFA as creating a “loophole” that allows plaintiffs to “thwart a defendant’s attempt to remove a class action to federal court under CAFA.” Justice Thomas squarely addressed this criticism, finding the loophole was “a consequence of the statute Congress wrote.” Congress, not the Court, has the authority to amend the statute if it finds it necessary, he wrote.

Washington, D.C, attorney and Public Justice Executive Director Paul Bland, who argued on Jackson’s behalf, said “It was a great day for consumers that the majority of the Court only extended CAFA as far as its language allowed and did not rewrite or expand the statute. It’s also fortunate that the majority rejected the sweeping argument about the general removal statute that Justice Alito accepted, which would have dramatically expanded the scope of federal jurisdiction over all sorts of cases that are not class actions.”

Regarding the dissent, Bland said “The idea that the majority’s ruling will lead to a flood of abusive lawsuits is hard to fathom. When consumers find themselves sued in state court by scammers who are trying to collect on illegal debts, few people can find any lawyer at all. Even if the consumer can get representation, very few lawyers can piece together the scam and act quickly enough to bring cross-claims or counterclaims against not only the company that sued, but third parties as well. In years of representing consumers, I have never seen a case where a consumer was hoping to file a class action and was just lying in wait, waiting to be sued in state courts.”

Dallas attorney Gerson Smoger, who coauthored AAJ’s amicus brief along with David Arbogast, of San Carlos, Calif., in support of Jackson, said “Congress was aware of what third-party defendants could and could not do under CAFA as enacted, and it did not intend for defendants like Home Depot to have the ability to remove cases to federal court.” Smoger said that had the Court decided that third-party defendants have removal rights, this would have “gone against 80 years of jurisprudence and drastically changed the balance between federal and state courts.” Allowing third-party defendants to remove cases would have “burdened the federal court system with an excessive caseload” while “diminishing access to the justice system.”