Class Action, Product Liability, Publications

“Stay In Your Lane:” SCOTUS Affirms Third-Party Defendants Can’t Remove Class Action Lawsuits from State to Federal Court

June 24, 2019

Overview: A bank filed a debt-collection action in state court against the defendant, alleging he was liable for charges on a hardware store’s credit card. The defendant responded with an individual counterclaim against the bank, and filed third-party class-action claims against the hardware store and a water purification company. The defendant’s claims alleged that the hardware store and the water purification company worked together to induce homeowners to buy water treatment systems at inflated prices.  The defendant claimed these two entities engaged in unlawful referral sales and deceptive trade practices under state law. The defendant also claimed that the bank was jointly liable for the conduct of both companies.  Moreover, given these circumstances, the defendant claimed his obligations under the sale were null and void.  The bank dismissed its claims against the defendant and was removed from the third-party class-action claims. One month later, the hardware store filed a notice to remove the case from state to federal court.  The defendant moved to remand, arguing that precedent barred removal by a third-party/additional counter defendant such as the hardware store.  The district court granted the defendant’s motion to remand the dispute to state court, and the Fourth Circuit Court of Appeals granted the hardware store permission to appeal, but affirmed the lower court’s ruling. The U.S. Supreme Court granted the hardware store’s petition for a writ of certiorari to determine whether a third party named in a class-action counterclaim brought by the original defendant can remove if the claim otherwise satisfies the jurisdictional requirements of Class Action Fairness Act (CAFA).

Outcome: The Supreme Court affirmed the Fourth Circuit’s ruling in a 5-4 decision.  The majority ruled that neither the general removal provision, 28 U. S. C. §1441(a), nor the removal provision in the Class Action Fairness Act of 2005, §1453(b), permit a third-party counterclaim defendant to remove a class-action claim from state to federal court.

Impact: The Supreme Court’s ruling establishes that third party defendants are left to litigate in the state forum chosen by the plaintiff and the direct defendants, at least where removal to federal court is concerned.

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