The Supreme Court yesterday rejected a counterclaim defendant’s attempt to remove a would-be class action to federal court, holding that even where that defendant, Home Depot, was not an original plaintiff, there was no right to remove either under the general removal statute (28 U.S.C. § 1441) or under the Class Action Fairness Act’s removal provision (28 U.S.C. § 1453). Home Depot U.S.A., Inc. v. Jackson, 2019 WL 2257158 (May 28, 2019). Justice Thomas authored the Court’s opinion, forming an unusual 5-4 majority joined by the four justices appointed by Democratic presidents. Justice Alito authored a lengthy and pointed dissent joined by the Chief Justice and Justices Kavanaugh and Gorsuch, describing the outcome as a “bizarre result.”
The case began as a simple state court, credit card debt collection action. Citibank was the original plaintiff and Jackson was the defendant. Jackson asserted an individual counterclaim against Citibank plus class-action counterclaims against Home Depot and another party concerning a water treatment product that Jackson had purchased with his card. Citibank proceeded to dismiss its claim, and Home Depot filed a notice of removal. Jackson then dismissed his counterclaim against Citibank. The district court remanded the case to state court, and the Fourth Circuit granted review under §1453(c) and affirmed.
In the Supreme Court, the premise for the majority’s opinion was that the statutory term “defendant” in both statutes referred only to the party named by the original plaintiff. The Court reaffirmed that a counterclaim defendant who was an original plaintiff has no removal right under § 1441(a)’s general removal provision. The Court extended this bar to counterclaim defendants who were not original plaintiffs, which the opinion refers to as “third-party counterclaim defendants.”
The Court then turned to the CAFA removal provision, § 1453(b), which allows removal by “any defendant” to a “class action.” The Court termed this a “closer question” but still offered no refuge to Home Depot. The Court reasoned that the “any defendant” language did not change the types of parties entitled to remove; those types of parties are still the same as those eligible under the general removal provision, and do not include counterclaim defendants of any sort.
Home Depot reinforces that collection activities in problematic class-action jurisdictions should be evaluated periodically to account for class-action risk. And arbitration provisions in private label credit card and similar arrangements should be broad enough to cover merchants and include carefully drafted and periodically updated provisions that filing a collection action does not waive arbitration.