October 17, 2018 Practice Points

Who Qualifies as “Any Defendant” under the Class Action Fairness Act?

The Supreme Court reviews a Fourth Circuit CAFA decision despite no circuit split.

By Josh Jacobson

Despite the absence of a circuit split, the U.S. Supreme Court has granted certiorari and will review a Fourth Circuit decision holding that an additional defendant on a counterclaim is not “any defendant” entitled to remove an action under the Class Action Fairness Act (CAFA).

More than 75 years ago, the Supreme Court held in Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100 (1941), that a plaintiff could not remove its state-court action on the basis of a counterclaim asserted against it. Shamrock Oil remains good law, as set out in 28 U.S.C. § 1441, which provides that only “the defendant or defendants” may remove a case from state court to federal court.

But CAFA’s removal provision, 28 U.S.C. § 1453(b), is worded in a slightly different manner, permitting removal by “any defendant.” Therein lies the rub.

In 2016, Citibank filed a seemingly routine debt-collection action against George Jackson in the North Carolina courts. Jackson responded with a counterclaim against Citibank and so-called third-party class-action claims against Home Depot and another party. Home Depot filed a timely notice of removal under CAFA, and also sought to realign the parties, making Jackson the plaintiff and the other parties defendants. The district court denied the motion to realign the parties and granted Jackson’s motion to remand on the basis that Home Depot was not a “defendant” entitled to removal under CAFA.

The Fourth Circuit affirmed. While it described Home Depot as an “additional counter-defendant” rather than a third-party defendant, it relied on its decision in Palisades Collections, LLC v. Shorts, 552 F.3d 327 (4th Cir. 2008), cert denied, 557 U.S. 919 (2009), and held that an “additional counter-defendant” was not “any defendant” entitled to removal under 28 U.S.C. § 1453(b).

The Sixth, Seventh, and Ninth Circuits also have held that class-action counterclaim defendants cannot remove under CAFA, with each of these courts relying on the rule established in Shamrock Oil rather than the plain language of 28 U.S.C. § 1453(b). No circuit has held to the contrary.

Despite the absence of a circuit split, the Supreme Court granted certiorari on September 27, 2018, on the following question presented by the petition for certiorari:

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.

In addition, the Court directed the parties to brief and argue the question of whether the Court’s holding in Shamrock Oil—that an original plaintiff may not remove a counterclaim against it—extends to third-party counterclaim defendants.

Because the Supreme Court has granted certiorari absent a circuit split, a reversal of the Fourth Circuit is likely, requiring Home Depot to litigate the class-action claim asserted against it in state court. We should know the answer to this question before the close of the current term in June 2019.

Jackson v. Home Depot U.S.A., Inc., 880 F.3d 165 (4th Cir.), cert. granted, ___ S. Ct. ___, 2018 WL 1950484 (Sept. 27, 2018).

 

Josh Jacobson is with the Law Office of Josh Jacobson, P.A. in Minneapolis, Minnesota.


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