SCOTUS to Decide Whether Class Action Counterclaims Can Be Removed Under Class Action Fairness Act

This case was originally filed in North Carolina state court as a debt collection suit by Citibank against the plaintiff, George W. Jackson. Perhaps because his lawyer recognized that the best defense is a big offense, Jackson filed a counterclaim against Citibank, and also brought class action claims against Home Depot and Carolina Water Systems as third-party defendants. Home Depot removed the case to federal court under CAFA, and moved to realign the parties. Citibank voluntarily dismissed without prejudice its original debt collection claims. The district court remanded the case on the grounds that Home Depot was not a “defendant” under CAFA, and denied the motion to realign. The Fourth Circuit granted permission to appeal, and affirmed.

The Fourth Circuit’s decision noted that Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100 (1941) held that an original plaintiff could not remove a counterclaim under a predecessor statute to 28 U.S.C. § 1441, which only authorized removal by a “defendant.” The Fourth Circuit explained that courts have reached the same result under the current version of § 1441, which is similarly allows removal by “the defendant or the defendants.” CAFA, in section 1453(b), permits removal by “any defendant,” and otherwise broadens the scope of removal in other respects (such as by eliminating the one-year rule, and allowing a defendant to remove in its home state). The Fourth Circuit had previously held that the use of the word “any” defendant rather than “the” defendant did not expand the scope of removal to encompass counterclaim defendants, and thus held that only an original defendant can remove. The Fourth Circuit rejected Home Depot’s argument that the Supreme Court’s decision in Dart Cherokee Basin Operating Co., LLC v. Owens, 135 S. Ct. 547 (2014), which noted that there is no antiremoval presumption under CAFA, warranted a different outcome. The Fourth Circuit noted that only the Supreme Court could overrule Shamrock Oil, and it would leave to the Supreme Court whether “defendant” means something different in CAFA than it does in § 1441. The Fourth Circuit also rejected Home Depot’s argument that it was no longer truly a defendant because Citibank had voluntarily dismissed its claims.

The petition argued that, although there is no circuit split, that is because the courts of appeals have consistently, but erroneously, interpreted Shamrock Oil, and only the Supreme Court can clarify Shamrock Oil. The petition also highlighted the practical problem this creates for defendants like Home Depot, where they lose federal jurisdiction under CAFA simply because the class action claim is filed as a tag-along to a run-of-the-mill collections suit brought by another company.

The Court’s order granting certiorari also asked the parties to brief the following question: “Should this Court’s holding in Shamrock Oil & Gas Corp. v. Sheets, 313 U. S. 100 (1941) that an original plaintiff may not remove a counterclaim against it extend to third-party counterclaim defendants?” This suggests that the Court will be considering whether third-party defendants should have the right to remove cases not only under CAFA, but also under traditional diversity jurisdiction.

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