U.S. Bank National Association v. Adams, No. 3:10CV555, 2010 WL 3022445 (N.D. Ohio, Aug. 02, 2010).
A District Court in Ohio remanded the action to state court holding that a counterclaim defendant cannot remove the action under CAFA; and while holding so, it agreed with the majority opinion of the Fourth Circuit in Shorts that “reading §1453(b) to also allow removal by counter-defendants … is simply more than the language of §1453(b) can bear.”
Here, when U.S. Bank National Association brought a foreclosure action in state court against James M. Adams, he filed a class action counterclaim against, inter alia, Wells Fargo Bank, the loan servicer, alleging violations of the Fair Debt Collection Practices Act.
Wells Fargo, as an additional counterclaim defendant, removed the case to the federal court under 28 U.S.C. §1453 of CAFA. Adams moved to remand, which the District Court granted.
The Court noted that the general removal statute, 28 U.S.C. §1441(a), provides that an action may be removed by “the defendant or the defendants,” whereas, CAFA’s removal provision, 28 U.S.C. § 1453(b), provides that an action may be removed by “any defendant without the consent of all defendants.”
The Court noted that the Sixth Circuit has not addressed the issue whether the use of the word “any” in §1453(b) includes additional counterclaim defendants, and such a counterclaim class action defendant may properly remove under §1453(b), and other courts are split on this issue.
The majority of courts held that a counterclaim defendant may not remove under §1453; whereas, Deutsche Bank Nat’l Trust Co. v. Weickert, 638 F. Supp. 2d 826, 829-830 (N.D. Ohio 2009) and the dissent in Palisades Collections, LLC v. Shorts, 552 F.3d 327, 334-36 (4th Cir. 2008) held otherwise. (Editors’ Note: See the CAFA Law Blog analysis of Weicker posted on May 26, 2009).
(Editors’ Note: See the CAFA Law Blog analysis of the Fourth Circuit decision in Palisades posted on March 9, 2009 and the analysis of the district court decision in Palisades posted on July 23, 2008. As an added bonus, don’t forget about the guest post by Jonathan Bridges, counsel for Shorts, who shared his thoughts on the appeal filed by counter-defendant AT&T, and even showed us his briefs (thanks, Jonathan). His Guest Post was published on September 11, 2008).
The Court thus noted that the disagreement centered on the meaning of the word “any” preceding “defendant” in §1453(b).
The district court in Capital One Bank v. Jones, 2010 WL 1258110, *3-4 (N.D. Ohio) explained that “any” can only modify the word “defendant” as that word had been previously defined by the Supreme Court in Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 103 (1941)–as an original defendant.
Shamrock Oil held that a counterclaim defendant who was the original plaintiff in a case could not remove to federal court under §1441’s predecessor statute. Similarly, the Sixth Circuit, in First Nat’l Bank of Pulaski v. Curry, 301 F.3d 456, 462-65 (6th Cir. 2002) found that the word “defendant” as used in §1441(a) means an original defendant. Curry explained that the right of removal applies only to the action as framed by the pleading that commences the action; thus, counterclaims, cross-claims, and third-party claims cannot be the basis for removal under § 1441(a). Accordingly, a counter defendant is not a defendant joined in the original action and therefore not a party that can remove a state action to federal court.
The Seventh Circuit in First Bank v. DJL Properties, LLC, 598 F.3d 915, 917 (7th Cir. 2010) remarked that if the drafters of CAFA wanted to negate Shamrock Oil, “they could have written ‘defendant (including a counterclaim defendant)’ or ‘any party’ … . But they chose the unadorned word ‘defendant,’ a word with settled meaning.” The Fourth Circuit in Shorts has similarly concluded that the word “defendant” in that statute also does not include a counterclaim defendant. (Editors’ Note: See the CAFA Law Blog analysis of First Bank posted on May 13, 2010).
The Jones court stated that as 28 U.S.C. §1452(a) uses the word, “a party”, while allowing removal in bankruptcy cases, Congress knows how to use a different word to extend the reach of removal statute.
In First Bank§1453(b) is to establish that §1441(b), which provides that a home-state defendant can’t remove a diversity suit, does not apply. The function of the second “any” in §1453(b) is to establish that a single defendant’s preference for a federal forum prevails. Neither instance of the word “any” implies that “defendant” means something different in §1441(b) and §1453(b). Similarly, the Fourth Circuit, in Short, opined that use of the word “any” juxtaposed with the word “all” was not intended to alter the definition of the word “defendant.” , the Seventh Circuit explained that the function of the first “any” in
Jones court and Liberty Credit Servs. v. Yonker, 2010 WL 2639903, *4 (N.D. Ohio) explained that the fact that §1453(b) references removal “in accordance with §1446 (§1446 eliminates at least three of the traditional limitations on removal)–which, under Shamrock Oil and Curry, does not allow removal by counterclaim defendants of any kind,” supports the view that counterclaim defendants may not remove under CAFA. (Editors’ Note: See the CAFA Law Blog analysis of Yonker posted on September 23, 2010).
The dissent in Shorts, however, remarked that the use of “any defendant” in §1453, in contrast with “the defendant or defendants” in §1441, is indicative of Congress’s broader purpose to expand federal jurisdiction through CAFA. Agreeing with the dissent, Weickert held that the plain text of CAFA–“any defendant”–and the expressed congressional purpose in passing the statute, supports a conclusion that §1453(b) authorizes class-action defendants, joined by way of a counterclaim, to remove to federal court. Both Weickert and the dissent in Shorts explained that while the word “the” limits the word “defendant” in §1441(a), the word “any” in §1453(b) necessarily broadens the definition of defendant.
In Wells Fargo v. Gilleland, 621 F. Supp. 2d 545, 547-48 (N.D. Ohio 2009), the Court had remarked that although Congress intended that CAFA expand federal jurisdiction over class actions, this expansion “was achieved, not by allowing removal by third-party defendants, crossclaim defendants, or counterclaim defendants, but by but by doing away with the nonaggregation rule and providing for minimal diversity.” (Editors’ Note: See the CAFA Law Blog analysis of Gilleland posted on October 23, 2009).
Having reviewed these cases and statutory language, the Court found the interpretation and reasoning of the majority cases more persuasive and concluded that §1453(b) did not expand the ability to remove to counterclaim defendants. The Court agreed with the majority opinion in Shorts that “reading §1453(b) to also allow removal by counter-defendants, crossclaim defendants and third-party defendants is simply more than the language of §1453(b) can bear.”
Accordingly, the Court concluded that Wells Fargo lacked authority to remove under § 1453(b).
(Editors’ Note: As loyal readers know, we don’t always agree with the decisions of our Article III judges, and we don’t mind saying so. This is one of those instances. For a different viewpoint on removal by counterclaim defendants, you may want to check out the following scholarly articles: "How to Avoid Reaping What You Didn’t Sow: CAFA’s Solution for Removal of Counterclaim Class Actions," Consumer Financial Services Law Report, Volume 13, Issue 16, 2/2010; A Move in the Right Direction – The Tide is Turning for Removal by Counterclaim Defendants Under CAFA,” BNA, Inc. Class Action Litigation Report, Vol. 10, No. 22 (November 27, 2009); Requested En Banc Rehearing Petition to 4th Circuit in Palisades Could Breathe New Life into CAFA Removal Petition,” Consumer Financial Services Law Report, Vol. 12, Issue 14 (January 21, 2009). Although, this is all pretty moot now.