SCOTUS Limits Removal of Class Actions to Federal Court

In a 5-4 decision, the U.S. Supreme Court recently held that third-party counterclaim defendants may not remove class actions from state to federal court under either the general removal statute or the Class Action Fairness Act (CAFA).  Rather, only the “original defendant” sued by the “original plaintiff” can remove class action claims, and not a third-party defendant or a counterclaim defendant.

Under the general removal statute, 28 U. S. C. §1441(a), “any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants” to federal court.  Under the CAFA removal provision, 28 U. S. C. §1453(b), a class action may be removed to federal court by “any defendant without the consent of all defendants.”

The underlying case was a debt collection action by a national bank against a borrower for charges incurred on a home improvement retail company credit card.  The borrower counterclaimed against the bank, and asserted a third-party class-action claim against the home improvement company—which had not been a party to the original collection action—alleging a scheme to induce homeowners to buy water treatment systems at inflated prices.  The bank dismissed its claims against the respondent, after which the company filed a notice of removal of the class action counterclaims to federal court under both the general removal statute and CAFA.  The district court granted the consumer’s subsequent motion to remand the action back to state court, and the U.S. Court of Appeals for the Fourth Circuit affirmed.

The Supreme Court reasoned that the general removal statute does not allow removal of class action third-party claims because it allows “the defendant” to remove only “civil action[s],” not “claims.”  Consequently, the operative defendant for removal purposes under the general removal statute is the original defendant to the original plaintiff’s complaint, not a third-party counterclaim defendant.  The removal provision under CAFA—which provides that “such action may be removed by any defendant without the consent of all defendants”—also does not cover a third-party counterclaim defendant.  Rather, the Court held that, in context, the phrase “any defendant” refers to the original defendants to the lawsuit, not third-party counterclaim defendants.