Supreme Court Limits Removal of Class-Action Counterclaims
On May 28, the Supreme Court decided Home Depot U.S.A. v. Jackson, 17-1471 (2019), ruling 5–4 that third-party counterclaim defendants may not remove class actions from state to federal court. The decision, besides keeping in state court certain class actions that otherwise could be removed to federal court, is noteworthy for the highly unusual composition of the majority, in which the four justices comprising the so-called liberal wing of the Court, banded together with Justice Thomas, who authored the majority opinion.
The case began as a debt-collection action that Citibank brought against respondent Jackson for charges incurred on a Home Depot credit card. Jackson counterclaimed against Citibank, and also asserted a third-party class-action claim against Home Depot on behalf of an alleged class of those victimized by a purported Home Depot scheme to induce homeowners to buy water treatment systems at inflated prices. Citibank dismissed its claims against Jackson, after which Home Depot filed a notice of removal of the class action counterclaims to federal court under both the general removal statute and the removal provision of the Class Action Fairness Act (“CAFA”). The district court granted Jackson’s subsequent motion for remand and the Fourth Circuit affirmed.
Under the general removal statute, 28 U. S. C. §1441(a), “any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants” to federal court. Under the CAFA removal provision, 28 U. S. C. §1453(b), a class action may be removed to federal court by “any defendant without the consent of all defendants.”
The question the Supreme Court confronted in Home Depot seemed simple: does the category of “defendants” permitted to remove a class action under either the general removal statute or CAFA include third parties who have been brought into the lawsuit through a counterclaim filed by the original defendant? The majority opinion, written by Justice Thomas and joined by Justices Breyer, Ginsburg, Kagan, and Sotomayor, answered in the negative, affirming the judgment of the Fourth Circuit.
Applying the canon of statutory construction that words in a statute must be read in the context of the statute as a whole, the majority held that the right of removal under the general removal statute is based on the federal court having original jurisdiction over the civil action, which is determined by the plaintiff’s complaint. The “defendants” who can remove must, therefore, be defendants named in the complaint, not counterclaim defendants. The majority also rejected Home Depot’s reliance on CAFA’s removal provision on the basis of the same statutory canon. The majority reasoned that the CAFA removal provision was meant to clarify that certain barriers to removal (such as the consent of all named defendants) do not apply to class action suits. But the majority found no indication that Congress intended to alter the limitation on who can remove, namely the defendant or defendants named in the complaint. Moreover, the majority concluded that the CAFA removal provision’s reference to “defendants” being eligible to remove a class action suit contrasts with other statutes that permit removal by “parties,” further indicating that in enacting CAFA, Congress did not intend to expand the category of persons who could remove an action.
Interestingly, the dissent – written by Justice Alito and joined by Chief Justice Roberts and Justices Gorsuch and Kavanagh – also took a strict constructionist approach to reading CAFA, but reached a different result. The dissent argued that third-party counterclaim defendants fall within the plain meaning of “defendant,” and that CAFA’s specification that removal can be made by “any defendant” indicates that “defendants” should be read expansively. In addition, the dissent maintained that Congress intended the CAFA removal provision to provide an independent basis for removal, such that removal rights under CAFA did not need to track the general removal statute. Finally, the dissent argued that in any case, the consensus that the general removal provision could not be invoked by third-party counterclaim defendants was based on a misunderstanding of Supreme Court precedent.
Home Depot did not cabin its holding to any particular type of class action, and thus could include false advertising suits. Whether plaintiffs’ litigation strategies change in light of the decision remains to be seen.