WASHINGTON (CN) – Offering a narrow view of procedures governing class actions, the Supreme Court ruled 5-4 on Tuesday that a new defendant cannot remove such a case from state to federal court after an original defendant files a counterclaim bringing in the new party.
George Jackson, a Home Depot customer with an unpaid credit card debt, brought consumer-protection claims as a counterclaim to the state collections action he faced in North Carolina.
The home improvement giant was not a party to the collections action but instead was an original defendant to the counterclaim. It sought to remove the matter to federal court, but a federal judge refused and the Fourth Circuit affirmed.
In its petition for certiorari, Home Depot asked the Supreme Court to decide “whether an original defendant to a class-action claim can remove the class action if it otherwise satisfies the jurisdictional requirements of the Class Action Fairness Act when the class action was originally asserted as a counterclaim against a co-defendant.”
The high court also considered whether third-party counterclaim defendants are covered by precedent from the 1941 case Shamrock Oil & Gas Co. v. Sheets, which says an original plaintiff may not remove a counterclaim against it.
Writing for the majority Tuesday, Justice Clarence Thomas explained that under the Class Action Fairness Act of 2005, Congress provided federal district courts with jurisdiction in class action controversies exceeding damages of $5 million and where at least one class member is a citizen of a state where the defendant is not based.
A provision in the CAFA known as Section 1441, or the general removal statute, stipulates that “any defendant without the consent of all defendants” can remove a class action to federal court.
While the dissenters led by Justice Samuel Alito emphasized a defendant is defined as “a person sued in a civil proceeding,” the majority in Tuesday’s decision took a broader interpretation.
Thomas said the phrase “the defendant or the defendants” cannot be considered in a vacuum. While Home Depot argued it is a defendant to a claim for the purposes of being able to remove a case to federal court, the majority noted the text of the statute refers to “civil actions,” not claims.
“This court has long held that a district court, when determining whether it has original jurisdiction over a civil action, should evaluate whether that action could have been brought in a federal court,” Thomas wrote. “This requires a district court to evaluate whether the plaintiff could have filed its operative complaint in federal court, either because it raises claims arising under federal law or because it falls within the court’s diversity jurisdiction.”
Section 1441 of the CAFA does not allow removal based on counterclaims “at all,” Thomas continued, because counterclaims are irrelevant to whether a district court had original jurisdiction over civil actions.
“Home Depot asserts that reading ‘the defendant’ in §1441(a) to exclude third-party counterclaim defendants runs counter to the history and purposes of removal by preventing a party involuntarily brought into state-court proceedings from removing the claim against it,” the majority’s 11-page opinion states. “But the limits Congress has imposed on removal show that it did not intend to allow all defendants an unqualified right to remove.”
Thomas was joined in the majority by Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan.
In his dissent, Justice Alito called the majority’s position “irrational” and focused on the plain meaning of “defendant” in the given context. He wrote that the majority opinion also creates a loophole for consumers attempting to game corporations into class-action lawsuits.
For example, plaintiffs could raise their class-action claim as a counterclaim and hope that CAFA would not allow for removal.
“In a single stroke…a defendant’s routine attempt to collect a debt from a single consumer could be leveraged into an unremovable attack on the defendant’s ‘credit and lending policies’ brought on behalf of a whole class of plaintiffs – all in the very state courts that CAFA was designed to help class-action defendants avoid,” Alito wrote, citing a 2007 article written by a civil procedure scholar.
The dissent states that Home Depot being named as a third party in the case should make it clear enough that it is a defendant, whether it’s considered a claim or civil action.
“On a proper reading of §1441…third-party defendants are ‘defendants’ entitled to remove. Though a majority of district courts would disagree, their exclusion of third-party defendants has rested (in virtually every instance) on a misunderstanding of a previous case of ours, and the mere fact that this misreading has spread is no reason for us to go along with it,” Alito wrote, referring to the 1941 Shamrock Oil decision. (Parentheses in original.)
Alito was joined in his dissenting opinion by Chief Justice John Roberts and Justices Neil Gorsuch and Brett Kavanaugh.