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The U.S. Supreme Court ruled in a 5-4 decision Tuesday that third-party counterclaim defendants in class action cases cannot move litigation from more consumer-friendly state courts to federal courts.
The ruling will make it harder in some cases for businesses to transfer cases to federal court, which is perceived to be a more level playing field for defendants, says an expert.
The ruling in Home Depot USA v. Jackson focused on the U.S. code’s general removal statute and the 2005 Class Action Fairness Act, and whether Home Depot USA Inc. could be considered a defendant under both laws.
In June 2016, Citibank NA filed a debt-collection action against George Jackson in North Carolina state court alleging he was liable for charges incurred on a Home Depot credit card, according to the ruling.
In August 2016, Mr. Jackson filed a counterclaim against Citibank and third-party class action claims against Atlanta-based Home Depot and Charlotte, North Carolina-based Carolina Water Systems Inc.
He alleged there was a scheme between Home Depot and Carolina Water Systems to induce homeowners to buy water treatment systems at inflated prices, said the ruling.
Citibank dismissed its claim against Mr. Jackson in September 2016. A month later, Home Depot filed a notice to remand the case to federal court.
Mr. Jackson, who removed any reference to Citibank in the litigation, moved to remand the case back to state court. The U.S. District Court in Charlotte approved Mr. Jackson’s motion, which was subsequently upheld by the 4th U.S. Circuit Court of Appeals in Richmond, Virginia.
The Supreme Court affirmed the 4th Circuit’s ruling. The U.S. civil code’s general removal statute provides “any civil action” over which a federal court would have original jurisdiction may be removed to federal court, said the ruling. In addition, the Class Action Fairness Act provides that class actions may be removed to federal court by “any defendant without the consent of all defendants,” said the opinion.
“In this case, we address whether either provision allows a third-party counterclaim defendant — that is, a party brought into a lawsuit through a counterclaim filed by the original defendant — to remove a counterclaim against it” to federal court.
The court ruled they do not because the term “defendant” in these statutes “refers only to the party sued by the original plaintiff,” said the majority opinion, in affirming the 4th Circuit’s ruling.
The dissent said both the original and third-party defendants are defendants to legal claims and did not choose to be in state court. The majority opinion “reads an irrational distinction into both removal laws and flouts their plain meaning, a meaning that context confirms, and today’s majority simply ignores.”
Observers say the vote in the case had an unusual configuration, with conservative Justice Clarence Thomas, who wrote the majority opinion, joined by liberal justices Ruth Bader Ginsburg, Stephen G. Breyer, Elena Kagan and Sonia Sotomayor.
Judge Samuel A. Alito wrote the dissenting opinion, and was joined by Justices John G. Roberts Jr., Neal M. Gorsuch and Brett M. Kavanaugh.
Mr. Jackson’s attorney had no comment, while Home Depot did not respond to a request for comment.
Matthew A. Waring, an associate with Mayer Brown LLP in Washington, who was not involved in the case, said the ruling “creates a certain group of class action lawsuits that businesses won’t be able to remove to federal court.”
Ordinarily, if a business were sued in state court in a class action case, and it meets certain requirements of the Class Action Fairness Act, “the business can remove it to the federal courts, which is where most businesses prefer to be. “
But now, an individual can file class actions in state court against businesses that were not part of the original lawsuit, which was the case with Home Depot.
Mr. Waring said Congress passed the Class Action Fairness Act “because they felt that the defendants in these big class actions were not getting a fair shake in the state court.” In federal court, he said, “You have more procedures to make sure things like class actions are handled appropriately.”
Pharmaceutical manufacturers scored a victory in a unanimous Supreme Court ruling last week that said judges, not juries, must decide whether state law failure-to-warn claims are preempted by federal law, experts said.
Research by U.S.-based consultancy firm Deloitte Touche Tohmatsu found that several organizations' third-party risk management processes were "ad hoc" or "reactive," Security Boulevard reported. The research found that 28% of respondents cited gaps in third-party risk management while 13% said that their leadership viewed it as a compliance-driven requirement.