Home / Compliance / Supreme Court Rules on Class Action Removal in Case That Could Have Implications For Collections Industry

Supreme Court Rules on Class Action Removal in Case That Could Have Implications For Collections Industry

The Supreme Court yesterday affirmed decisions from the District Court and Appeals Court that a third-party defendant can not use the Class Action Fairness Act (CAFA) to remove a state court action to federal court in a case that started as a run-of-the-mill collection suit.

In a 5-4 ruling, the Supreme Court yesterday held that parties that file lawsuits in state courts may have to defend class action counterclaims in that same court, unless there is a governing arbitration or forum selection language in the underlying agreement.

A copy of the ruling in Home Depot v. Jackson can be accessed by clicking here.

The defendant was sued by Citibank for not paying for a water treatment system he purchased on his Home Depot-branded credit card. The defendant filed a counterclaim in the same state court in North Carolina in which the original suit against him was filed, but included the water treatment manufacturer and Home Depot in the counterclaim. Home Depot sought to have the case moved to a federal court, which was denied. A subsequent appeal to the Fourth Circuit was also denied, which led to the appeal to the Supreme Court.

Justice Clarence Thomas, writing for the majority, ruled that a “defendant” refers to the party that was sued by the original plaintiff, and does not refer to a third party. CAFA allows a class action to be removed to a federal court by “any defendant” without needing the consent of all defendants.

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