SCOTUS Rules that Third-Party Defendants Cannot Remove to Federal Court Thumbnail

SCOTUS Rules that Third-Party Defendants Cannot Remove to Federal Court

On May 28, 2019, the Supreme Court of the United States decided Home Depot U.S.A., Inc. v. Jackson, holding in a narrow 5-4 opinion authored by Justice Clarence Thomas that a third-party defendant may not remove a case filed in state court under the general removal statute or the Class Action Fairness Act of 2005 (“CAFA”).
 
In June of 2016, Citibank filed what looked like a garden variety credit card debt collection action against George Jackson in North Carolina state court for purchases allegedly made on his Home Depot credit card. In August of 2016, Jackson answered and filed claims of his own: a counterclaim against Citibank and a third-party class action against Home Depot. Jackson alleged in the third-party action that Home Depot and Carolina Water Systems, Inc. developed a scheme to induce homeowners to buy water treatment systems at inflated prices.
 
Citibank eventually dismissed its claims against Jackson, and Home Depot removed to federal court. The U.S. District Court granted Jackson’s Motion to Remand. On appeal, a Fourth Circuit panel affirmed the District Court’s decision, citing circuit precedent interpreting CAFA.
 
The Supreme Court held that the removal statute does not permit removal by any counterclaim defendant, including parties brought into the lawsuit for the first time by counterclaim. The phrase “the defendant or the defendants” within § 1441(a) refers only to the original defendant or defendants named by the plaintiff, not a third-party brought in by the original defendant, the Court determined.
 
Further, the Court held that the relevant CAFA provision does nothing more than alter the general rule that a civil action may not be removed on the basis of diversity jurisdiction if any of the defendants is a citizen of the state in which the action is brought. Therefore, Congress intended only to alter the removal restrictions, not expand the class of parties who can remove a class action.
 
“Because in the context of these removal provisions the term ‘defendant’ refers only to the party sued by the original plaintiff, we conclude that neither provision allows such a third party to remove,” Justice Thomas wrote for the majority.
 
With this decision the Supreme Court finally answered a question that had been a thorn in the side of many plaintiffs filing in state court—namely, whether a third-party defendant is allowed to remove under the general removal statute. The high court’s decision dealt a serious blow to class action defendants who are not originally named as defendants in a state court lawsuit. The decision also has implications beyond class actions since it deals with the overall scope of removal jurisdiction.
 
Interestingly, the liberal bloc of Justices Kagan, Sotomayor, Ginsburg, and Breyer joined Justice Thomas in his majority opinion. Justice Samuel Alito authored the dissent and was joined by the Chief Justice and Trump-appointed Justices Kavanaugh and Gorsuch.

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