Home Depot Inc. couldn’t convince the U.S. Supreme Court to close a loophole it says consumers use to keep class actions out of federal court.

The Class Action Fairness Act, which creates federal jurisdiction for certain large class actions, can’t be invoked by counterclaim defendants as well as traditional defendants, the court said in a 5–4 decision by Justice Clarence Thomas joined by the liberal justices.

The breakdown is notable in a term in which Chief Justice John G. Roberts Jr. and Justices Neil M. Gorsuch and Brett M. Kavanaugh have crossed over in 5–4 decisions.

“The interesting part of today’s decision is not the result that is consistent with long-standing federal practice but is that Justice Thomas found the language of the statute so clear that he was unwilling to join his conservative colleagues who found his reading to be irrationally compelling a bizarre result,” plaintiffs’ attorney Aaron Zigler, partner at Korein Tillery in St. Louis, said.

Home Depot argued that its position as a third-party counterclaim defendant in a class action over misleading sales practices shouldn’t prevent it from exercising the removal rights extended to typical defendants.

Here, plaintiff George W. Jackson was sued in state court for failing to pay for a water treatment system he bought at Home Depot using a Citibank credit card. Defendants allege he exploited a CAFA loophole to bring a removal-proof counterclaim class action against Home Depot, which he alleged misled him about his need for the system.

But if Congress agrees that this “tactic” is improper, “it certainly has the authority to amend the statute,” the majority said.

“The decision gives final approval to a tactic that the plaintiffs’ bar can use to manipulate jurisdiction so as to keep otherwise removable class actions in state court,” defense attorney Rusty Perdew of Locke Lord LLP in Chicago said.

But Janet R. Varnell, who represented Jackson, said it is “extraordinarily uncommon” for a case to play out the way this one did: “a consumer with no money and no lawyer on speed dial is sued in state court on a small debt manages to obtain experienced and knowledgeable consumer protection lawyers to recognize all of the potential defendants, file a class action counterclaim and successfully fight removal.”

Dissent: ‘Irrational Distinction’

Justice Samuel A. Alito Jr. dissented, joined by Roberts, Gorsuch, and Kavanaugh.

The dissent argued that treating defendants and third-party counterclaim defendants differently “reads an irrational distinction” into the removal statutes.

“Both kinds of parties are defendants to legal claims. Neither chose to be in state court. Both might face bias there, and with it the potential for crippling unjust losses,” Alito said.

Varnell said she’s most concerned that the dissent implies defendants don’t get a fair shake in state court.

“It is shocking that Justice Alito and the other conservative members of the court would further this myth at a time when Americans so clearly distrust our governmental institutions,” she said. “This is the new normal. Supreme Court justices willing to contort long-existing law to protect big business at the expense of confidence in our system of justice.”

More Counterclaim Class Actions?

Defense attorney Matthew Waring with Mayer Brown in Washington said the decision will lead to more class actions filed as counterclaims in preexisting state court suits, “now that it is clear that such class actions will not be removable.”

But Perdew suggests the defense bar will get creative to find ways to remove the suits to federal court.

“Perhaps a motion to sever in state court could render the third-party class action a separate case and thus removable under Home Depot,” he said.

Paul Bland of Public Justice P.C. in Washington argued for Jackson. Associate general counsel William Barnette argued for Home Depot.

The case is Home Depot U.S.A., Inc. v. Jackson, 2019 BL 192732, U.S., No. 17-1471, 5/28/19.