Home Depot Inc. will try to convince the U.S. Supreme Court at oral argument Jan. 15 that consumers game the system to keep class actions out of federal court.

The company’s position as a third-party counterclaim defendant in a class action over misleading sales tactics shouldn’t prevent it from exercising the removal rights extended to typical defendants, it says.

“When all you are is a defendant, you should be treated as a defendant,” Home Depot counsel Sarah Harrington of Goldstein & Russell P.C. in Washington told Bloomberg Law.

But the consumer here argues that Congress didn’t intend “defendant” in the general removal statute or the Class Action Fairness Act, which creates federal jurisdiction for certain large class actions, to include counterclaim defendants.

Congress explicitly allows counterclaim defendants to remove patent suits under the America Invents Act, Paul Bland, who is arguing for the consumer, told Bloomberg Law. If it wanted CAFA to include counterclaim defendants, it would have said so, Bland, of Public Justice P.C. in Washington, said.

Who Counts as a Defendant?

Citibank N.A. sued George W. Jackson in state court alleging he fell behind on payments for a water treatment system he bought using a Citibank credit card. Jackson filed a counterclaim against Citibank and third-party class claims against Carolina Water Systems Inc., which made the system, and Home Depot, which sold it to him.

The Fourth Circuit ruled that, as an additional defendant to a counterclaim, Home Depot couldn’t invoke federal jurisdiction.

The Fourth, Sixth, Seventh, and Ninth circuits have held that the statutory language allowing “any defendant” to move class actions filed in state court to federal court only applies to the original defendant, not third-party or counterclaim defendants.

Although no circuits have held otherwise, Home Depot argued the Supreme Court needs to step in to correct what it sees as the lower courts’ interpretive error.

Class Action Impact

Home Depot and its amici argue this procedural posture isn’t unusual, and will become more common if endorsed by the Supreme Court.

“It’s not a traditional way that a class action comes up but the courts of appeals have created this loophole in the removal protections that CAFA provides,” Harrington said.

She pointed to an almost identical case against Home Depot filed in Madison County, Ill. The Seventh Circuit also refused to allow Home Depot to remove it because it was a counterclaim defendant.

“The experience of my client—having had it happen twice—is that it’s picking up speed,” Harrington said. “I think we have every reason to believe if we don’t prevail in this case it will be viewed as a road map to get around the CAFA requirements.”

She called it a “particularly easy way” for plaintiffs to file unremovable class actions. They can wait for a simple collection action or mortgage foreclosure to be filed in state court, “and then hijack that as a vehicle for a class action that if you had just filed it on your own undoubtedly would have been removed under CAFA.”

But Bland said counterclaim class actions don’t come up that often. Whatever the outcome of the case, it’s “going to have almost no impact at all in the actual world of class actions,” he said.

Home Depot warns of a “tip of an approaching iceberg,” but the reality seems to be “more of an ice cube,” he said.

He scoffed at the idea that a consumer would go into debt and ruin his credit just to file a class action that stays in state court.

Wider Effect?

The question the Supreme Court added to the case could be more consequential, but for cases outside the class action sphere, Bland said.

The new question presented asks if the court should extend its holding in a 1941 case—that an original plaintiff can’t remove a counterclaim against it—to third-party counterclaim defendants even outside the class context.

A “no” to that question isn’t likely to have much effect on class actions, but could open the door to federalizing personal injury and products liability cases.

He gave two examples: A plaintiff sues the local defendant that harmed him in state court, and the defendant brings in its out-of-state insurer. Or a plaintiff sues the local store where it bought a product that injured her, and the store brings in the national company that made the product.

“I’d be surprised if the Supreme Court really wants to see this enormous number of these cases moved to federal court,” Bland said.

But Harrington said Home Depot just wants the court to correct the lower courts’ interpretation of the case. It’s a narrow ruling that doesn’t say anything about a defendant that is brought in involuntarily, she said.

It’s unusual for the court to add a question presented, she noted.

“It will be interesting to see if these are distinct questions in their minds or if they decide them together,” she said.

Bland will argue for Jackson.

William Barnette of Home Depot will argue for the company.

The case is Home Depot U.S.A., Inc. v. Jackson, U.S., No. 17-1471, argument 1/15/19.