Consumer Finance Insights
July 9, 2019

Supreme Court Rules that CAFA Does Not Allow Removal By Third-Party Counterclaim Defendants

On May 28, 2019, the U.S. Supreme Court issued its opinion in Home Depot U.S.A., Inc. v. Jackson, 578 U.S. ___ (2019), holding that third-party counterclaim defendants cannot remove under the Class Action Fairness Act (CAFA), even if the claim satisfies CAFA’s other jurisdictional requirements.  CAFA allows for removal by “any defendant” in a “class action.”  The Court’s ruling centered around the meaning of the phrase “any defendant” in the CAFA’s removal provision, which it limited to the original defendants in a class action claim.  The 5-4 decision was authored by Justice Thomas who was joined by Justices Ginsburg, Breyer, Sotomayor and Kagan.

The case originated out of a debt collection action Citibank brought against George Jackson.  Jackson filed individual and class action third-party counterclaims against Home Depot for unfair and deceptive practices under North Carolina state law.  After Citibank dismissed its claims against Jackson, Home Depot sought to remove the class action claims to federal court under CAFA.  Jackson moved to remand, arguing that CAFA did not allow removal by third-party counterclaim defendants.  The District Court granted Jackson’s motion to remand.  Home Depot appealed to the Fourth Circuit, which affirmed the District Court’s ruling.  Home Depot then appealed to the Supreme Court, which granted certiori.

The Supreme Court focused on the text and context of the CAFA’s removal provision to determine whether it extended to third-party counterclaim defendants.  The Court found that the term “any defendant” only functioned to “clarify that certain limitations on removal that might otherwise apply do not limit removal under” CAFA.  The phrase “any defendant” only clarifies the circumstances under which a claim is removable.  It does not, the Court held, expand who can remove a claim.

Notably, the Court held that “interpreting ‘defendant’ to have different meanings in different sections [of federal law and procedure] would render the removal provisions incoherent.”  It acknowledged that 28 U.S.C. § 1441(a) limits removal to a “defendant” in a “civil action,” and concluded that third-party counterclaim defendants are defendants to a “claim,” not the plaintiff’s original “civil action.”

Justice Alito, authoring the dissent, focused on policy concerns and the statutory purpose of CAFA.  He acknowledged CAFA’s purpose in easing the path for class action defendants to remove cases to federal court to “remedy alleged state-court abuses.”  He emphasized that barring third-party counterclaim defendants from removing under CAFA would create a “loophole” allowing otherwise federally-removable cases to stay in state court.  Accordingly, he concluded, the reading of CAFA most consistent with its text and purpose would allow third-party counterclaim defendants to remove class action claims.

The majority recognized that “if Congress shares the dissent’s disapproval of certain litigation ‘tactics,’ it certainly has the authority to amend the statute.”  It remains to be seen whether Congress will consider any amendment.