The U.S. Supreme Court held today that a third-party defendant could not remove a class action to federal court under the Class Action Fairness Act (CAFA) because the term “defendant” as used in CAFA refers only to the party or parties sued by the original plaintiff. The Court’s opinion also has implications beyond the class action context because it addresses the scope of removal jurisdiction under 28 U.S.C. § 1441(a). The key implication of this decision in class actions is that a company that regularly brings suit against consumers (typically in collections matters) may be forced to defend a class action counterclaim filed by the consumer in state court, without any opportunity to remove the case to federal court. Companies may be able to avoid this outcome if there is a governing arbitration provision or forum selection clause in the applicable consumer contract.

In Home Depot U.S.A., Inc. v. Jackson, No. 1701471, the lawsuit began as a collections suit by Citibank, N.A. against George Jackson, seeking to recover for an unpaid balance on a Home Depot credit card. Jackson counterclaimed against Citibank, and brought third-party class action claims against Home Depot and Carolina Water Systems, Inc. After Citibank dismissed its claims against Jackson, Home Depot removed the case to federal court. The district court remanded the case on the grounds that Home Depot as a third-party defendant had no right of removal. The Fourth Circuit affirmed, and the Supreme Court affirmed as well.

Justice Thomas wrote the majority opinion, joined by Justices Ginsburg, Breyer, Sotomayor and Kagan. The Court first addressed the scope of the right of removal under 28 U.S.C. § 1441(a), the removal statute enacted long before CAFA, which provides for removal of a civil action “by the defendant or the defendants . . . .” The Court noted that it was plausible that the term “defendant” referred to any person or entity sued in a civil case, but concluded that was not the best interpretation of the statute. Instead, the Court concluded that Section 1441(a) focuses on whether there is jurisdiction over the “civil action,” not particular claims or counterclaims made therein. The Court concluded that “Section 1441(a) thus does not permit removal based on counterclaims at all, as a counterclaim is irrelevant to whether the district court had ‘original jurisdiction’ over the civil action.” Slip op. at 6. The Court also reasoned that: (1) the Federal Rules of Civil Procedure distinguish between “defendants,” “third-party defendants,” and “counterclaim defendants”; (2) other removal statutes in the bankruptcy and patent/copyright context allow “any party” to remove; and (3) the Court held in Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100 (1941) that a counterclaim defendant that was the original plaintiff had no right of removal under a predecessor statute to § 1441.

The Court then addressed the scope of the right of removal under 28 U.S.C. § 1453(b), part of CAFA, which provides for removal of a putative class action “without regard to whether any defendant is a citizen of the State in which the action is brought, except that such action may be removed by any defendant without the consent of all defendants.” The Court concluded that the use of the words “any defendant” in this statute were simply intended to clarify that the in-state defendant limitation and consent requirement do not apply to a removal under CAFA. The Court noted that, in other contexts, the word “any” is given an “expansive meaning,” but concluded that Congress did not intend an expansive meaning in this context. Slip op. at 10. The Court noted that “[o]f course, if Congress shares the dissent’s disapproval of certain litigation ‘tactics,’ it certainly has the authority to amend the statute. But we do not.” Id.at 11.

Justice Alito wrote a lengthy dissent, joined by Chief Justice Roberts and Justices Gorsuch and Kavanaugh. I won’t belabor the dissent here because it does not appear to provide guidance on the scope of the majority opinion that is now the governing law. In brief, the dissent’s key points included: (1) the purpose of CAFA was to expand defendants’ right of removal, contrary to the tactic employed by Jackson’s counsel here; (2) the ordinary meaning of the word “defendant,” i.e., a party being sued, includes a counterclaim defendant or third-party defendant; (3) the word “any” should be given an expansive meaning; and (4) the Court previously stated that there is no anti-removal presumption under CAFA.

This decision upholds prior rulings by some lower courts that counterclaim defendants have no right of removal. In the class action context, the decision is likely to have the most impact on companies that regularly bring suits against consumers that may result in a class action counterclaim, or get brought into such suits as third-party defendants. Other than lobbying Congress to amend CAFA, potential strategic options from the defense perspective may include the use of arbitration provisions in consumer contracts that the Supreme Court’s decisions have upheld, and potentially the use of forum selection clauses that could attempt to restrict the filing of CAFA-eligible class actions to federal courts.

Print:
EmailTweetLikeLinkedIn
Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career at Skadden.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and I was fortunate to have the opportunity to work on some prominent class actions arising from the 2004 hurricanes in Florida and later Hurricane Katrina, including cases involving the applicability of the flood exclusion, statutes known as valued policy laws, and various other issues.  My interest and experience in class actions gradually led me to focus on that area.

In Connecticut courts I’ve defended various kinds of class actions that go beyond insurance, including cases involving products liability, securities, financial services and consumer contracts.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at my desk or flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation (for more on those, see the Seminars/Programs page of this blog), I often can be found playing or reading with my young daughter, helping my wife with her real estate and mortgage businesses, reading a book about history or politics, or watching the Boston Red Sox (I managed to find bleacher seats for Game 2 of the 2004 World Series when Curt Schilling pitched with the bloody sock).  When the weather is good I also love to take the ferry to Block Island, Rhode Island and ride a bike or walk the trails there. If you go, I highly recommend the Clay Head Trail.