Just Who Is a Defendant? Third-Party Counterclaim Defendants' Removal Rights Under CAFA

Abstract

This article discusses and analyzes the issues involved in the Supreme Court appeal of Home Depot, Inc. U.S.A. v. Jackson, argued before the Court on January 15, 2019. This case involves the right of a third-party defendant to remove a case from state court to federal court when an original defendant sues a third-party defendant in an existing lawsuit, based on assertion of a counterclaim. In the original lawsuit, plaintiff Citibank sued defendant Jackson in a state debt collection action. Jackson then asserted a counterclaim against Citibank under state consumer laws, and counterclaimed against Home Depot as an additional third-party defendant. Under existing precedent, the Fourth Circuit declined to permit Home Depot’s removal petition based on the defendant’s counterclaim. The Court will have to determine the extent and limits of third-party removal rights when a defendant asserts a counterclaim, under the general removal and Class Action Fairness Act removal statues. The Court will address whether the general removal statutes or the Class Action Fairness Act removal provisions permit or deny an involuntary third-party defendant, who is sued in in a state class action counterclaim, the right to remove the case from state court to federal court?

The Home Depot appeal presents a gnarly issue concerning removal jurisdiction that has, as Home Depot points out, opened the door to strategic pleading and some degree of litigation gamesmanship. Against this backdrop, the Court may re-examine the scope of its Shamrock Oil holding, or instead focus on a construction of the CAFA removal provision, as Jackson requests. The Court is most likely to engage in a close exercise of statutory construction. Hence, one may expect that the Court will spend a fair amount of time parse the meaning of “defendant,” “defendants,” and “any defendants” as those terms appear in the interlocking removal provisions, both in the general removal statutory scheme, as well as in CAFA. And, as Home Depot has invited the Court, the justices may clarify just who is a defendant for the purposes of the general removal and CAFA removal provisions. The Court may resolve this appeal narrowly, as a detailed problem of statutory construction. On the other hand, the Court may range beyond parsing the term “defendant” to consider the policy implications raised by Home Depot and challenged by Jackson. When all is said and done, the significance of this appeal may lay in its implications for litigation gamesmanship.

Keywords: removal jurisdiction, third-party counterclaims, CAFA removal, third-party defendants' removal rights, litigation gamesmanship, Shamrock Oil & Gas Corp. v. Sheets, realignment of parties, Class Action Fairness Act of 2005, 28 U.S.C. sec. 1453(b)