SCOTUS Holds that Third-Party Defendants Cannot Remove Class Actions from State to Federal Court

On May 28, 2019, in a 5-4 decision, in which Justice Thomas sided with the Court’s “liberal” justices, the Supreme Court held in Home Depot USA, Inc. v. Jackson that a third-party defendant cannot use the Class Action Fairness Act (CAFA) to remove a class action from state to federal court.

This case began when Citibank filed a debt-collection action in state court in North Carolina against respondent George Jackson, who borrowed money on a Citibank credit card to buy a home water-filtration system. In response, Jackson filed a counterclaim against Citibank and a third-party class action complaint against Home Depot and Carolina Water Systems, Inc. for allegedly misleading consumers about their water treatment systems.

Home Depot removed the case to federal court and argued that third-party defendants are entitled to remove class action lawsuits from state to federal court under CAFA, because the statute (28 U.S.C. § 1453(b)) says that “any defendant” may remove a class action from state to federal court if there is jurisdiction in federal court. The Fourth Circuit disagreed with Home Depot, holding that the “any defendant” language means only original defendants, not third-party defendants.

The Supreme Court affirmed and held that third-party defendants may not use CAFA to remove class action lawsuits from state to federal court. The Court considered the language of both the federal general removal statute (28 U.S.C. § 1441) and CAFA, and concluded that the general removal statute does not permit third-party defendants to remove “civil actions” from state to federal court and that CAFA does not change this rule. The dissenting justices opined that principles of statutory interpretation confirm that third-party defendants are “defendants” under CAFA and that the majority provided class plaintiffs with a new tool for keeping class actions out of federal court.

This case has dramatic implications for businesses sued as third-party defendants in class action lawsuits. Not only are third-party defendants precluded from using CAFA to remove class actions from state court to federal court, but the decision may encourage plaintiffs’ counsel to “forum shop” for favorable state forums and to evade more conservative federal courts.