To the surprise of many observers (including us), the Supreme Court held last week in Home Depot USA Inc. v. George Jackson that a third-party defendant could not remove class action claims – under either the general removal statute, 28 U.S.C. § 1441(a), or the Class Action Fairness Act (CAFA), 28 U.S.C. § 1453(b). Setting aside § 1441 (for the moment), we will remind the reader at the outset that CAFA broadly states that “any defendant” may remove a covered class action. Nevertheless, in Home Depot, a 5-to-4 majority ruled that only the “original defendant” sued by the “original plaintiff” can remove class action claims – and not a third-party defendant or a counterclaim defendant.
Here’s a quick refresher on how we got here. (The facts of Home Depot are discussed in more detail in a previous blog post.) A defendant to a collection action filed a third-party class action claim against Home Depot, which had not been a party to the original collection action. Based on CAFA, Home Depot removed the case to federal court.
Home Depot argued that removal was proper under CAFA, which allows “any defendant” to remove a covered class action. As Home Depot reasoned, it never had asserted a claim in the action and, consequently, it never had been anything but a “defendant.” The district court disagreed and remanded the action back to state court, and the Fourth Circuit affirmed.
Both lower courts followed Shamrock Oil, a more than 70-year-old decision holding that an original plaintiff cannot remove counterclaims filed by the original defendant, as well as decisions from the Fourth, Sixth, Seventh and Ninth Circuits extending Shamrock Oil to bar third-party defendants from removing class action claims.
The fact that the Supreme Court granted cert in Home Depot despite the absence of a circuit split seemed to suggest (to many, again including us) that the Court intended to broaden the right to removal and to overturn those rulings. Oral argument only reinforced such thinking. Questions from Chief Justice Roberts and Justices Alito, Gorsuch and Kavanaugh seemed to indicate their willingness to read CAFA to allow the removal of covered class action counterclaims and third-party claims, while the commentary from Justices Ginsburg, Breyer, Sotomayor and Kagan seemed to favor the opposite. Justice Thomas asked no questions, as is his custom, and thus gave no indication that he intended to break from the justices generally considered to be “conservative.”
Yet, ultimately, Justice Thomas did exactly that. Writing for a majority that included Justices Ginsburg, Breyer, Sotomayor and Kagan, Justice Thomas reasoned that the general removal statute (§ 1441(a)) does not allow removal of class action third-party claims because it allows “the defendant” to remove only “civil action[s],” not “claims.” A third-party defendant is a defendant only to a claim, not a civil action. As a result, according to the majority, the operative defendant for removal purposes under the general removal statute is the original defendant to the original plaintiff’s complaint, not a third-party counterclaim defendant.
A closer question for the majority was whether CAFA (§ 1453(b)) allowed for removal. The removal right under CAFA – which, again, states that “any defendant” can remove a covered class action – is seemingly broader than that under the general removal statute. Home Depot argued that, as a third-party defendant, it certainly should qualify as “any defendant” under CAFA and, consequently, it was entitled to remove the case.
The majority again disagreed. According to Justice Thomas, nothing in CAFA was intended to alter the meaning of “defendant” for purposes of removal. Because the majority had already concluded that “defendant” in the general removal statute refers to the original defendant, it applied that same meaning to the use of “defendant” in CAFA.
Under the majority’s logic, then, CAFA’s references to “any defendant” would really mean “any [original] defendant.” In concluding that CAFA was not intended to expand the general removal statute’s limitation on who may remove, however, Justice Thomas did not even mention Congress’s expressed purpose in enacting CAFA: to broaden the right to remove covered class actions to federal court.
The dissenting opinion was robust – more than twice as long as the majority opinion. In dissent, Justice Alito, joined by Chief Justice Roberts and Justices Gorsuch and Kavanagh, urged a plain text reading of “any defendant” in CAFA. And using “all the resources of statutory interpretation,” the dissenters concluded that third-party defendants are defendants and are entitled to remove.
As Justice Alito explained, according to both legal and standard definitions, a “defendant” is a party sued in a civil proceeding. That definition encompasses an original defendant, a counterclaim defendant (that is, an original plaintiff) and a third-party defendant. Therefore, the words “any defendant” in CAFA must mean all of these types of defendants/parties. That is particularly true because Congress could have borrowed the general removal statute’s existing construction – “the defendant or defendants” – but chose for CAFA the broader terms “any defendant.” So, Justice Alito quipped, “third-party defendants are, well, defendants,” “just as a ‘critical habitat’ is a habitat and ‘full costs’ are costs [and] zebra finches are finches.” Because a third-party defendant is included in the universe defined as “any defendant,” a third-party class action defendant should not be blocked from removing a case under CAFA.
The dissenters also argued that a third-party defendant could remove a case under the general removal statute. Blocking a third-party defendant from removing under the general removal statute, Justice Alito wrote, is based on a misreading of Shamrock Oil. Justice Alito reasoned that Shamrock Oil held only that an original plaintiff that filed suit in state court cannot change its mind about the chosen forum once it has become a defendant to a counterclaim (filed by the original defendant). Shamrock Oil said nothing about third-party defendants, and Justice Alito emphasized that none of the rationales underlying Shamrock Oil’s holding “would support a bar on removal by parties other than original plaintiffs.”
We conclude with a few takeaways. First, before Home Depot, a third-party defendant in a circuit other than the Fourth, Sixth, Seventh and Ninth had a good faith basis to remove – and at least a few district courts in those other circuits had sustained such removals. But after Home Depot, it will take creative thinking and likely advanced procedural maneuvering for third-party defendants to eventually find a way to remove class action claims.
The majority’s apparent conclusion that only an “original defendant” can remove under both the general removal statute (§ 1441) and CAFA (§ 1453) is somewhat stunning in breadth and could arguably block removal even if the third-party class action claims were severed from the original civil action. In some sense, the third-party defendant still would not be an “original defendant.”
Recall that, at the time of removal in the case at issue, Home Depot and the original defendant (i.e., the third-party plaintiff) were the only parties in the action. Nevertheless, attempts to remove despite the decision in Home Depot – e.g., after severance – will surely be made.
Second, companies that initiate litigation against individuals should strongly consider bringing those cases in federal court, if a jurisdictional hook exists. Home Depot will likely embolden the plaintiffs’ bar to use the class device in counterclaims brought by original individual defendants and to add additional defendants to those counterclaims without worry that doing so might risk losing the state forum.
Third, business interests need to flex their lobbying muscle when it comes to mending the results of decisions like this. There is no sound policy reason for preventing defendants who were never plaintiffs from removing class actions, and there is no sound reason to allow plaintiffs to circumvent CAFA’s strong federal policy favoring a federal forum for class actions by holding their complaints until an opportunity to file it as a counterclaim in an unrelated case comes along.
Congress has the power to fix this. The squeaky wheel eventually gets the grease, and this is one squeak that Congress needs to hear. Loudly and often. Until they hear it, you may be defending (for example) seven- and eight-figure TCPA class action counterclaims for uncapped statutory damages in state court. Ad nauseum.
Finally, Home Depot provides yet another example of why attempting to “read the tea leaves” with the Supreme Court is often challenging. Few, if any, could have predicted that Justice Thomas would have broken ranks so dramatically from his “conservative” colleagues in a case that turned on whether a third-party defendant is included in the plain text of the words “any defendant.”