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Home Depot May Not Get Its Way at Supreme Court (1)

Jan. 15, 2019, 4:31 PMUpdated: Jan. 15, 2019, 7:31 PM

Home Depot Inc. may not have a reliable vote in a class action jurisdiction case from Justice Neil M. Gorsuch, who seemed to break with his typically business-friendly conservative colleagues at U.S. Supreme Court oral argument Jan. 15.

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

But Gorsuch pushed back. “Now how can it be that the word ‘defendant’ expands and contracts like that?” he asked. “What I can’t abide or understand at least, is how the word ‘defendant’ could be so Procrustean as to just happen to fit you.’

Other justices also struggled to keep the parties’ titles straight. Justice Stephen G. Breyer got hung up on what to call the party who brought class claims against Home Depot. George W. Jackson isn’t technically a plaintiff because he was sued by Citibank and later brought Home Depot in as a third-party defendant. Breyer compared the case to an “Abbott and Costello movie.”

Justice Ruth Bader Ginsburg—who seems to enjoy this type of procedural case—was absent again while recovering from lung cancer surgery but will still vote on the case. Justices Sonia Sotomayor and Elena Kagan took on the mantle in her absence, hammering Home Depot’s associate general counsel William Barnette on interpretation of the removal statutes.

“Substance governs, not labels of the parties’ situation,” Barnette argued.

Surge of Class Claims?

If the court sides with Jackson, Home Depot argues it will lead to a surge of consumers waiting to be sued in a routine debt collection action so they can hit a large company with an unremovable class action claim.

Chief Justice John G. Roberts Jr. and Justices Samuel A. Alito Jr. and Brett M. Kavanaugh seemed concerned about that outcome.

Alito asked Jackson’s counsel if Congress really intended the Class Action Fairness Act to allow a class action to stay in state court just because “it comes into the state court in this strange sort of back-door way.”

Paul Bland of Public Justice P.C. in Washington argued that Congress has often changed the language of jurisdiction statutes to correct issues like this. But hasn’t changed CAFA to expressly include third-party counterclaimants, he said.

Public Justice started the morning strong as the court announced a decision in its favor in New Prime Inc. v. Oliviera. There, the court held that the transportation workers exception to the Federal Arbitration Act covers independent contractors as well as employees. Public Justice Chairman Arthur Bryant was in the audience and received fist bumps from those sitting around him.

No Circuit Split

The dispute here arose from a state court debt collection action filed by Citibank N.A. against Jackson 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.

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

To contact the reporter on this story: Perry Cooper in Washington at pcooper@bloomberglaw.com

To contact the editors responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com; Nicholas Datlowe at ndatlowe@bloomberglaw.com