June 18, 2019 Practice Points

Key Supreme Court Ruling Shuts Down Class-Action Counterclaim Removal

Class-action defense attorneys should take note of the U.S. Supreme Court’s recent decision in Home Depot U.S.A. Inc. v. Jackson

By Mark Goodman and Anne Kelts

Class-action defense attorneys should take note of the U.S. Supreme Court’s recent 5–4 decision in Home Depot U.S.A. Inc. v. Jackson, which held that third-party counterclaim defendants cannot remove class actions under the federal removal statute. The decision prevents defendants sued through third-party counterclaims in state court from removing to federal court notwithstanding that they may otherwise be entitled to remove as a defendant under the Class Action Fairness Act (CAFA).

Home Depot started when Citibank filed a debt-collection action in North Carolina state court against Jackson, who responded by filing third-party class-action claims against Home Depot and another party. Home Depot attempted to remove the case but Jackson moved to remand. The federal district court granted the motion to remand and the Fourth Circuit Court of Appeals affirmed, holding that neither the federal removal statute nor CAFA’s removal provision permitted Home Depot to remove Jackson’s class-action claims. The Supreme Court granted Home Depot’s certiorari petition and heard oral argument in January.

In its decision, the Court concluded that a counterclaim defendant does not qualify as “the defendant” to the action under the federal removal statute’s language, focusing on the fact that the statute permits removal of “civil action[s],” not “claims.” The Court also held that notwithstanding CAFA’s language permitting “any defendant” to remove if CAFA’s jurisdictional requirements are otherwise met, CAFA does not expand the parties who can permissibly remove under the general removal statute.

While the Home Depot decision will not affect the ordinary class-action defendant’s ability to remove, it has the potential to substantially limit parties sued through class-action counterclaims by requiring them to defend against those claims in state court even where the case may otherwise meet CAFA’s jurisdictional requirements. Counsel defending companies against potential or threatened class-action claims should consider these implications and any options to avoid this procedural restriction.

Mark Goodman is a partner and Anne Kelts is an associate in Baker McKenzie’s San Francisco, California office. 

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