Class Action Issue

In Home Depot U.S.A., Inc. v. Jackson, the U.S. Supreme Court addressed whether either the Class Action Fairness Act of 2005 (“CAFA”) or the general removal statute (28 U.S.C. §1441(a)) allows a party brought into a lawsuit through a counterclaim filed by the original defendant to remove the action to federal court.

Pertinent Background

In 2016, Citibank filed a debt-collection action against George Jackson in North Carolina state court. Citibank alleged that Jackson was liable for charges on a Home Depot credit card. In August 2016, Jackson answered the original complaint and filed his own claims: a counterclaim against Citibank and third-party class action claims against Home Depot and Carolina Water Systems, Inc. One month later, Citibank dismissed its claims against Jackson. Shortly thereafter, Home Depot filed a notice of removal, relying on CAFA’s removal provision as well as the general removal statute. Jackson filed a motion to remand, which the trial court granted.

Supreme Court’s Decision Addressing the Removability of a Third-Party Counterclaim

Justice Thomas, who prepared the majority’s opinion, undertook a two-part analysis. First, the opinion considered whether the general removal statute allows a third-party counterclaim defendant to remove a claim filed against it. The analysis turned on the construction of the phrase “the defendant or the defendants,” found in that statute. Home Depot argued that, because a third-party counterclaim defendant is a “defendant” to the claim against it, removal was permitted under §1441(a). While acknowledging that Home Depot’s reading of the statute was plausible, the majority did not believe it was the best interpretation. Instead, after considering the key phrase and structure of the statute, the majority determined that §1441(a) does not permit removal by a counterclaim defendant, including parties brought into a lawsuit for the first time by a counterclaim. The second part of the analysis considered whether §1453(b) – CAFA’s removal provision – allows a third-party counterclaim defendant to remove. Home Depot argued that although §1441(a) permits removal only by “the defendant or the defendants,” CAFA’s §1453(b) permits removal by “any defendant” to a “class action.” The Court determined that the two clauses in §1453(b), which use the term “any defendant,” simply clarify the limitations on removal that apply – they do not limit removal under §1453(b). As a result, the majority held that CAFA’s §1453(b) does not expand the types of parties eligible to remove a class action beyond §1441(a)’s limitations.

Class Action Solutions observation – What removal options does a class action defendant have if it should find itself defending against class claims brought by a third-party complaint? With the possibility of removal off the table, class counsel may want to explore, among other things, challenging the use of a third-party complaint to affirmatively assert class claims (given the limited, permissible purpose of a third-party complaint). If successful in attacking the use of a third-part complaint to assert class claims, the claims would have to be brought by way of a separate, independent complaint, providing the defendant an opportunity for removal.

A copy of the opinion can be accessed here.