Home Depot U.S.A., Inc. v. Jackson, 587 U.S. 435 (2019), was a United States Supreme Court case that determined that a third-party defendant to a counterclaim submitted in a state-court civil action cannot remove its case to federal court. The Court explained, in a 5–4 decision, that although a third-party counterclaim defendant is a "defendant to a claim," removal can only be performed by the defendant to a "civil action."Home Depot U.S.A., Inc. v. Jackson, 139 S.Ct. 1743, 1744 (2019). And this holds true even when the counterclaim is in the form of a class action. The Class Action Fairness Act of 2005 permits removal by "any defendant to a class action" but this does not extend removal rights to a third-party counterclaim defendant because they are not a defendant to the original case.Home Depot, 139 S.Ct., at 1745.28 U.S.C. §1453(b).
Although the decision technically only governs what court hears—rather than the actual outcome of—a particular case, the ruling has been described as being "pro-consumer" because of its potentially broader implications. The practical effect of the Court's holding is to make it "more difficult for class action defendants to transfer their cases from plaintiff-friendly state courts to more business-friendly federal courts." Thus, although the case theoretically only deals with venue, it may in practice benefit consumers with plausible claims against corporations.
Justice Samuel Alito, in the dissenting opinion, argued that a plaintiff who brings a lawsuit in their "own state's courts might . . . enjoy . . . a home court advantage against outsiders."Home Depot, 139 S.Ct., at 1751 (Alito, J., dissenting). To that end, he explained, Congress opened the "federal courts to certain disputes between citizens of different states." Although plaintiffs could take this option by simply filing their case in federal court, defendants did not have control over where a case was filed. So defendants were given the right of removal, which could be invoked to transfer a case from state to federal court. By denying removal here, Justice Alito argued, the majority had denied the defendant a "neutral forum."
Legal background Diversity jurisdiction refers to the jurisdiction of the federal courts over cases which involve citizens from multiple states. The purpose of such jurisdiction is to protect "litigants against potential prejudice in state courts" stemming from them being citizens of another state. For diversity jurisdiction to apply, however, there must be "complete diversity," such that "in cases with multiple parties no plaintiff could share citizenship with any defendant." There are two ways a case in diversity could end up in federal court: either the plaintiff files it there or the defendant invokes the right of removal after the plaintiff files the case in federal court. This case concerns the right of removal and, more specifically, who is entitled to invoke it and under what circumstances.
Removal to federal court As relevant here, there are two laws which govern removal to federal court: 28 U.S.C. §1441 (the "general removal statute") and the Class Action Fairness Act of 2005 ("CAFA").Class Action Fairness Act of 2005, Pub. L. No. 109-2, at https://www.congress.gov/109/plaws/publ2/PLAW-109publ2.pdf. The first provides for the removal of "any civil action over which a federal court would have original jurisdiction."28 U.S.C. §1441(a). But such removal is only by "the defendant or the defendants" acting collectively. CAFA, on the other hand, authorizes the removal of a "class action" by "any defendant without the consent of all defendants."
The scope of the removal statutes is considered important because the forum a case is heard in can affect not just the outcome of the case itself but also what legal rules apply throughout the proceedings. For example, the Federal Judicial Center has noted the "establishment by federal judges of rules of decision that diverged from those of the state courts." And "federal courts are widely considered to be more business-friendly than state courts." As a result, removal to federal court is a "typical corporate tactic."
CAFA was enacted in response to the failure of the Private Securities Litigation Reform Act, which had targeted "perceived abuses of the class-action vehicle in litigation involving nationally traded securities, including spurious lawsuits, vexatious discovery requests, and manipulation by class action lawyers of the clients whom they . . . represent."Home Depot, 139 S.Ct., at 1752 (Alito, J., dissenting).Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 81 (2006). These abuses, Congress concluded, "often forced" companies to "enter extortionate settlements in frivolous cases, just to avoid the litigation costs." The Reform Act responded to these perceived problems by limiting possible money awards from class actions as well as curbing the recoverable attorney's fees from such suits. The Act also mandated "sanctions for frivolous litigation" and paused "discovery pending resolution of any motion to dismiss."
Because the Reform Act tilted the federal playing-field decisively in favor of corporate defendants, consumer lawyers "found a workaround." Litigants could avoid the Reform Act's restrictions by simply pursuing their case in state court instead. Once their case made its way to state court, because diversity jurisdiction did not apply in the absence of complete diversity, plaintiffs could block federal removal by simply adding an "in-state defendant." Prior to the Reform Act, "state-court litigation of . . . class actions had been rare," but "within a decade state courts were handling most such cases."Merrill Lynch, 547 U.S., at 82.S. Rep. No. 109-14, p. 4 (2005). CAFA sought to change this by making it "easier for defendants to remove to federal courts" without the support of every defendant. This meant that an out-of-state defendant could remove a class action even if there was an in-state defendant who could not.
Third-party counterclaim
To circumvent CAFA's more generous removal provisions, consumer lawyers devised yet another tactic. This approach involved bootstrapping a class action in the form of a third-party counterclaim to an existing lawsuit against a consumer. For example, when a consumer is sued for an unpaid bill relating to the business they intend to sue, they would file a third-party countercomplaint against that business containing the claim they originally planned to sue the business for. The theory supporting this approach was that the third-party defendant would be unable to remove the case because, although they were a defendant to a "claim," they were not a defendant to the original "civil action."Home Depot, 139 S.Ct., at 1754 (Alito, J., dissenting). Corporate lawyers fought back against this strategy by asserting that CAFA expanded who was eligible to remove a class action to the category of "any defendant." And because, in their view, a third-party counterclaim defendant "qualifie[d] as one of 'the defendants' for purposes of removal," they reasoned that "such a party qualifies as 'any defendant' for purposes of [CAFA]."Carrington, Sarah E (Nov. 9, 2018). Merits Brief for Home Depot in No. 17-1471, p. 13. That disagreement gave rise to this Supreme Court case.
Background This case began in June 2016 when Citibank filed a debt-collection lawsuit against George Jackson, a North Carolina man, in North Carolina state court. The lawsuit alleged that Jackson had failed to make required payments "incurred on a Home Depot credit card."Home Depot, 139 S.Ct., at 1747. Jackson responded by filing a countercomplaint, which included claims against Citibank, as well as third-party class action claims against Home Depot—a corporation headquartered and domiciled out-of-state—and Carolina Water Systems, an in-state corporation.
In his countercomplaint, Jackson alleged that Home Depot and Carolina Water Systems had conspired to "induce homeowners to buy water treatment systems at inflated prices." On a legal level, Jackson charged that this scheme involved unlawful referral sales and deceptive and unfair trade practices in violation of state law.Gen. Stat. Ann. §§ 25A-37, 75-1.1 (N. Cal. 2013) Jackson's claim against Citibank was that it was jointly and severally liable for this scheme and that "his obligations under the sale were null and void."
In September 2016, Citibank agreed to "dismiss its claims against Jackson." A month after that, Home Depot removed the case to federal court, invoking various provisions of federal law, including the general removal statute and CAFA.28 U.S.C. §1332.28 U.S.C. §1446.28 U.S.C. §1453. Jackson filed a motion to remand the case to state court, contending that a third-party defendant was not permitted to remove a case to federal court. The District Court agreed and remanded the case to the state court. The Court of Appeals for the Fourth Circuit affirmed.
Supreme Court On April 23, 2018, lawyers for Home Depot filed a petition for a writ of certiorari, presenting the question: "Whether an original defendant to a class-action claim can remove the class action if it otherwise satisfies the jurisdictional requirements of the Class Action Fairness Act when the class action was originally asserted as a counterclaim against a co-defendant."Carrington, Sarah E (Apr. 23, 2018). Petition for Certiorari in No. 17-1471, at https://www.supremecourt.gov/DocketPDF/17/17-1471/44281/20180423113333374_Home%20Depot%20Petition.pdf. In their petition, the lawyers argued that a third-party counterclaim defendant is a "defendant" permitted to remove a case to federal court under the general removal statute, and that, in any event, CAFA authorizes removal by "any defendant," which includes third-party counterclaim defendants. Jackson's attorneys filed a brief opposing certiorari on June 25, 2018. In their brief, they argued the Court should not intervene because every court of appeals to consider the question to that point had agreed with their position, meaning there was no circuit split to resolve.Warwick, Brian (June 25, 2018). Brief in Opposition in No. 17-1471, p. 11, at https://www.supremecourt.gov/DocketPDF/17/17-1471/51234/20180625145126000_17-1471%20Home%20Depot%20v.%20Jackson%20Brief%20in%20Opposition.pdf. They further argued that the decisions of the appeals courts were consistent with relevant Supreme Court precedent, weakening the case for review.Brief in Opposition, p. 18. After the petitioner filed a reply to Jackson's brief on July 10, the Court granted certiorari on September 27.
Oral arguments