Additional Counterclaim-Defendant Not Entitled to Remove a Case Under CAFA: Seventh Circuit

In Bauer v. Home Depot USA, Inc., the US Court of Appeals for the Seventh Circuit held that the Class Action Fairness Act (CAFA) does not entitle a counterclaim-defendant added to the case in an amended pleading to remove the case to federal court.

Practical Law Litigation

On December 2, 2016, in Bauer v. Home Depot USA, Inc., the US Court of Appeals for the Seventh Circuit held that the Class Action Fairness Act (CAFA) does not entitle a counterclaim-defendant added to the case in an amended pleading to remove the case to federal court. (2017 WL 57804 (7th Cir. Jan. 5, 2017)).

Tri-State Water Treatment, Inc. (Tri-State) sued Stacey and Michael Bauer in small claims court in Madison County, Illinois, alleging that the Bauers failed to pay for a water treatment system that Tri-State installed in their house after a free in-home water test. The Bauers then filed a multi-state class-action counterclaim against Tri-State, contending that the sale was fraudulent because the free in-home water test identified only minerals in the water, not contaminants. Tri-State was the sole counter-claim defendant.

The Bauers later amended their counterclaim to add Home Depot and Aquion, Inc. (Rainsoft) as counterclaim-defendants. In their amended counterclaim, the Bauers defined the class as consumers who purchased a water treatment system from Tri-State, Home Depot, or Rainsoft after an in-home water test.

Home Depot moved to remove the case to the US District Court for the District of Illinois. The Bauers moved to remand, contending that CAFA does not permit counterclaim-defendants of any kind to remove a case.

The district court ruled that only original defendants have removal power and that CAFA does not grant additional counter-claim defendants the ability to remove a case, and remanded the case to state court. Its ruling relied on First Bank v. DJL Properties, LLC (598 F.3d 915 (7th. Cir. 2010)). In this case, the Seventh Circuit held that CAFA did not permit removal by an original plaintiff who became a counterclaim-defendant. Home Depot appealed. On appeal, Home Depot argued that:

  • Any party brought into the case through service of process should be entitled to remove the case under CAFA.

  • In First Bank, the Seventh Circuit addressed only whether the original counterclaim-defendant is entitled to remove a case under CAFA. While the original counterclaim-defendant may not have removal power, an additional counterclaim-defendant should have removal power because it was brought into the case only on amended pleading.

The Seventh Circuit held that an additional counterclaim-defendant is not entitled to remove a case under CAFA. It reasoned that:

  • The traditional removal statute, 28 USC § 1441, has always prohibited removal by an original plaintiff. Normally, the original plaintiff to the case becomes the counterclaim-defendant.

  • The language of CAFA would have to be read inconsistently to give removal power to counterclaim-defendants only if those defendants were added to the case in an amended pleading.

  • A rule that only the original defendant may remove a case under CAFA is the simplest solution, and it minimizes satellite litigation over which court should hear a case.

  • The Fourth and Ninth Circuits have also held that an additional counterclaim-defendant is not entitled to remove a case under CAFA. No circuit has given additional counterclaim-defendants removal ability.

  • CAFA jurisdiction has always been selective, and Congress has never amended CAFA to give it encompassing jurisdiction over all multi-state class actions.

For these reasons, the Seventh Circuit affirmed the district court's order remanding the case.

 
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