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Home Depot Wins SCOTUS Look at Consumer Class Suit (1)

Sept. 27, 2018, 1:34 PMUpdated: Sept. 27, 2018, 9:40 PM

Home Depot USA Inc. convinced the U.S. Supreme Court Sept. 27 to review whether a consumer class action alleging misleading sales tactics can stay in state court via a procedural tactic decried by defense attorneys.

The company’s position as a third-party defendant in the case doesn’t allow it to invoke federal jurisdiction under the Class Action Fairness Act, which applies to big money class suits, the U.S. Court of Appeals for the Fourth Circuit ruled in January. The Seventh Circuit came to a similar conclusion in a suit raising the same claims against Home Depot in 2017.

The Supreme Court’s acceptance of the case follows its trend in recent years of taking on issues of procedural gamesmanship used by both sides of class litigation. Justice Ruth Bader Ginsburg has written three opinions in as many years for the court on such tactics and, in each instance, has barred them.

Defense attorneys called the Supreme Court’s decision to hear the Home Depot case “welcome news” because it highlights yet another procedural strategy used by plaintiffs’ attorneys to try and avoid having their suits moved to federal court.

“This is a loophole that plaintiffs’ lawyers seek to exploit with some frequency: Plaintiffs’ lawyers routinely identify consumers who are sued in ordinary debt-collection proceedings in state court in order to bring class action lawsuits against a third-party company,” Archis Parasharami, partner at Mayer Brown in Washington, told Bloomberg Law.

Parasharami filed a brief in support of Home Depot for the Product Liability Advisory Council Inc., which presents product makers’ views in high-profile litigation. But he said he only spoke on his own behalf.

Another defense attorney said it is increasingly common for plaintiffs to sue companies as third-party defendants to keep class suits in state court.

CAFA “has succeeded in eliminating many of the abusive practices plaguing class actions across the country,” Laura McNally of Loeb & Loeb LLP in Chicago told Bloomberg Law.

“Unfortunately, as illustrated in this case, class action lawyers are increasingly using the third-party action vehicle to evade CAFA and to avoid protections afforded defendants under the act,” she said. McNally represents amici the Retail Litigation Center Inc. and the U.S. Chamber of Commerce in support of Home Depot.

But counsel for the Home Depot customers suing over the allegedly over-hyped water systems defended the effort to keep the case in state court, saying it involves a “truly local dispute.”

“This case is being used by Home Depot and the U.S. Chamber of Commerce as a vehicle to achieve a broader and illegitimate end—to upend the intent of Congress and Supreme Court precedent and force all class-action litigation into federal court, even for small classes only involving local issues,” Brian W. Warwick of Varnell & Warwick P.A. in Lady Lake, Fla., told Bloomberg Law.

Counsel for Home Depot declined to comment.

Who Counts as a Defendant?

Citibank N.A. brought a debt collection suit against George W. Jackson in state court alleging he failed to pay for a water treatment system he bought using a Citibank credit card. Jackson filed a counterclaim against Citibank and third-party class claims against Home Depot and Carolina Water Systems Inc. for allegedly misleading consumers about their water treatment systems.

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

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

Though no circuits have held otherwise, Home Depot argued the lack of a circuit split means only that the Supreme Court needs to step in to correct a widespread error by the federal appeals courts.

Gamesmanship Disfavored

The procedural posture of having class claims asserted against third-party defendants may not happen very often, but, the issue is still enough to get civil procedural wonks excited.

“It makes for a really interesting question of statutory interpretation and a test of a potential strategy for consumers to keep certain class actions in state court despite CAFA,” Howard Erichson, who studies complex litigation at Fordham University School of Law in New York, told Bloomberg Law.

Another of those wonks is Ginsburg, a justice that has proved herself equally demanding of plaintiffs and defendants when it comes to strategies she sees as nothing more than bids to skirt class action rules and statutes.

Last term, she used a securities fraud suit to bar subsequent class actions after the deadline for filing the initial action has passed—a win for business interests.

And, in 2017 in another win for corporate interests, she sided with Microsoft Corp. to shut down another plaintiffs’ strategy of immediately dismissing a case after a denial of class status to get an immediate appeal of the decision.

But in 2016 Ginsburg took aim at defendants, writing an opinion that barred them from paying off lead plaintiffs to defeat class cases.

Goldstein & Russell P.C. represent Home Depot.

Varnell & Warwick P.A. and Public Citizen Litigation Group represent the consumers.

The case is Home Depot USA, Inc. v. Jackson, U.S., No. 17-1471, review granted 9/27/18.

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

To contact the editor responsible for this story: Steven Patrick at spatrick@bloomberglaw.com