Supreme Court Hears Argument on CAFA Removal

On January 15, 2019, the Court heard arguments in Home Depot U.S.A., Inc. v. Jackson, No. 17-1471, and is now set to answer the question of whether the Class Action Fairness Act (CAFA)—which permits removal by “any defendant” in a state court class action—allows for removal by third-party counterclaim defendants.  Alongside this question, the Court will consider whether its holding in Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100 (1941), that original plaintiffs may not remove counterclaims asserted against them, should extend to third-party counterclaim defendants.

As currently constituted, the case involves Petitioner Home Depot and Respondent George Jackson.  Jackson, however, was originally sued by Citibank in North Carolina state court over an outstanding debt related to a Home Depot purchase.  In response, Jackson not only counterclaimed against Citibank, but also asserted a class action counterclaim against Home Depot.  Citibank dismissed its claims against Jackson, and Home Depot sought to remove under CAFA.

Citing Shamrock Oil, lower courts have largely held that third-party counterclaim defendants like Home Depot cannot remove cases to federal court.  Nonetheless, Home Depot argues that CAFA—which contains a provision allowing “any defendant” to remove to federal court—demands a different result.  In essence, Home Depot argues that because CAFA allows “any defendant” to remove certain class actions to federal court, and because Home Depot’s only role in the proceeding is as a defendant, it is entitled to removal under CAFA.

The case arrives at the Supreme Court after the district court denied Home Depot’s motion to realign the parties, and remanded the case to state court.  The district court concluded that Home Depot was not a “defendant,” and was thus not entitled to removal.  The Fourth Circuit Court of Appeals affirmed, holding that the district court properly refused to realign the parties as there was no indication that realignment would serve its main purpose of ensuring against artificially manufacturing diversity jurisdiction.  The Fourth Circuit also concluded that allowing Home Depot to remove in this situation would run afoul of how that court has interpreted CAFA in the past.

At oral argument before the Supreme Court, the justices focused on a variety of issues.  Several justices centered their questioning on whether Citibank’s initial complaint against Jackson constituted a “civil action” over which a federal court would have had original jurisdiction such that it could be removed.  Where the original complaint was entirely “non-federal in nature,” some justices appeared doubtful about Home Depot’s ability to remove.  Other justices focused on Home Depot’s classification as a “defendant,” and the implications inherent in refusing to allow third-party counterclaim defendants to utilize CAFA’s removal provision.  Regardless of the outcome, this case is likely to have a significant impact on class action strategy.  We expect a decision to be issued in June 2019.

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