Home Depot filed a certiorari petition in the United States Supreme Court aimed at closing an emerging loophole in CAFA jurisprudence in various circuits. According to the petition, some circuits have "narrowly construed CAFA's removal statute to forbid removal by a newly-added counterclaim defendant in an otherwise removable class action."
This litigation began as a collection dispute brought by the original plaintiff against certain customers, the original defendants. The class action aspect was only introduced when the original defendants filed a counterclaim against the original plaintiff claiming fraud. Later, the original defendants amended and added Home Depot as a counterclaim defendant. Home Depot timely removed the case under CAFA. The district court remanded and Home Depot appealed to the Seventh Circuit Court of Appeals.
The Seventh Circuit affirmed. In construing CAFA's removal provision, the Seventh Circuit acknowledged three possible readings of § 1453(b):
The options include finding that (1) the entire "case" is removed, even though this would mean that the original plaintiff, A, would win a right to remove that was not in the statute; (2) the entire "case" is removed pursuant to § 1441(c)(1), but after removal, as § 1441(c)(2) specifies, the court must sever the nonremovable case against A and remand just that part to the state court, thereby splitting the litigation into two duplicative proceedings; or (3) the new counterclaim defendant, C, has no right of removal, because only an original defendant can remove—thus avoiding an end-run around Shamrock Oil for A and avoiding the inefficient splintering of the litigation.
The Seventh Circuit decided the third option was best, noting "[e]ach of these possibilities has its pluses and minuses, but in the end we think that the one that does the least damage to both the jurisdictional statutes providing for removal and litigation efficiency is the third." In large measure, the Seventh Circuit was guided by a belief that the "original defendant" rule found in Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09 (1941), is implicated here.
In Shamrock Oil, the Supreme Court ruled that an earlier version of the general removal statute would not allow removal by a counterclaim defendant when that counterclaim defendant was the original plaintiff that filed the lawsuit in the first instance. It determined that the general removal statute should be limited to the original defendant in those circumstances. Of course, here Home Depot was not an original plaintiff and, indeed, was not even involved in the lawsuit until it was named as a counterclaim defendant in the amended class action counterclaim. (The certiorari petition notes that the label "counterclaim defendant" is not accurate, as "Home Depot is not a counterclaim defendant under Federal Rule of Civil Procedure 13 because it never asserted a claim against the [original defendants].")
Notwithstanding, the Seventh Circuit's analysis was consistent with prior similar decisions from the Fourth and Ninth Circuit Courts of Appeals. Under the Fourth, Seventh, and Ninth Circuit's application of Shamrock Oil, however, a loophole exists that leaves room for possible mischief. Routine small matters (debt collection proceedings or other small-claims litigation) might be used as vehicles for counterclaim class action litigation outside of the protections of CAFA. This certiorari petition explains the opportunity for avoiding CAFA that such a loophole presents and aims to counter that loophole by highlighting that "[s]uch a result is inconsistent with both the purpose of CAFA and with the statutory text."
A response to the certiorari petition is currently due May 8th. As yet, the Supreme Court docket reflects no amici filings.
Home Depot U.S.A., Inc. v. Bauer, No. 16-1205 (U.S.) (petition for writ of certiorari filed April 5, 2017).
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