In a 5-4 decision issued on 28 May 2019, the United States Supreme Court held that the federal removal statute does not permit a third-party counterclaim defendant to remove a class action from state court to federal court. This decision prevents a defendant sued by way of a third-party counterclaim in state court from litigating in federal court notwithstanding the Class Action Fairness Act’s (CAFA) broad language allowing “any defendant” to remove a class action to federal court if the case involves an amount in controversy of at least $5,000,000 and limited diversity of citizenship.
Under the federal removal statute at issue in the Court’s decision, “the defendant or the defendants” to a civil action may remove the case to federal district court whenever federal jurisdiction exists.1 By comparison, CAFA provides that “any defendant” can remove a class action to federal court where it meets CAFA’s jurisdictional requirements.2 In Home Depot USA. Inc. v. Jackson,3 Citibank filed a debt-collection action in North Carolina state court against Jackson. Jackson responded by filing third-party class action claims against Home Depot USA., Inc. and another third-party counterclaim defendant. Home Depot filed a notice removing the case to federal court but Jackson moved to remand, arguing that the law prohibited removal by a third-party counterclaim defendant. The federal district court granted the motion to remand and the Fourth Circuit Court of Appeals affirmed, holding that neither the federal removal statute nor CAFA’s removal provision permitted Home Depot to remove Jackson’s class action claims.
The Supreme Court granted Home Depot’s petition for a writ of certiorari and heard argument in January. In its decision, the Court concluded that a counterclaim defendant does not qualify as “the defendant” to the action for purposes of removal, based on the federal removal statute’s language permitting removal of “civil action[s],” not “claims.” In reaching this conclusion, the Court also relied on its 1941 opinion in Shamrock Oil & Gas Corp. v. Sheets,4 which held that, when the original plaintiff to a case is sued in a counterclaim, the counterclaim defendant does not qualify as one of “the defendants” under the removal statute. Finally, the Court held that notwithstanding its language permitting “any defendant” to remove, CAFA’s removal provision does not expand the parties who can permissibly remove under the general removal statute.
While the recent decision in Home Depot will not affect the ordinary class action defendant’s ability to remove a case filed in state court, it has the potential to substantially limit parties sued through class action counterclaims by requiring them to defend against those claims in state court even where the case may otherwise meet CAFA’s jurisdictional requirements. This is a case with potentially interesting implications and we will be considering those implications when we consult with our clients who are involved in class actions.
1 28 USC. § 1441(a).
2 28 USC. §§ 1332(d); 1453(b).
3 587 US ___ (2019).
4 313 US 100, 106-09 (1941).