Tri-State Water Treatment, Inc v Bauer, 2017 WL 57804 (7th Cir. Jan. 5, 2017).
In this action, the Seventh Circuit affirmed a district court’s order remanding the case back to state court, holding that an additional counterclaim-defendant, like all other counterclaim-defendants, is not entitled to remove a case under CAFA.
The plaintiff, Tri-State Water Treatment, Inc., brought a collection action in the Small Claims Court of Illinois alleging that the defendants Stacey and Michael Bauer failed to pay for a water treatment system it had installed at their house following an in-home assessment of their water. The Bauers filed a counterclaim asserting a multi-state class action against Tri-State for fraud in connection with the sale of its water-treatment systems, and subsequently added water treatment system sellers, Home Depot U.S.A., Inc. and Aquion, Inc. as additional counterclaim-defendants.
Home Depot filed a notice of removal, arguing that additional counterclaim-defendants, unlike original counterclaim-defendants, are entitled to remove a case under CAFA when the action otherwise meets CAFA criteria. The Bauers moved to remand, arguing that no counterclaim-defendant (original or additional) can remove under the statute. The District Court remanded the action to state court, concluding that CAFA “did not disturb the longstanding rule that only original defendants can remove cases to federal court.”
Home Depot argued that 28 U.S.C. § 1453(b)’s provision stating that a class action can be removed “without regard to whether any defendant is a citizen of the State in which the action is brought, except that such action may be removed by any defendant without the consent of all defendants” broadens the type of defendant that can remove under the statute to include any party that is brought into an action through service of process rather than by actually filing the case itself.
Responding to Home Depot’s argument, the court went into a discussion of Shamrock Oil & Gas Corp. v. Sheets, a 1941 Supreme Court case in which the court held that a plaintiff who files suit in state court cannot later remove his case to federal court, even if he later becomes a counterclaim-defendant.
The Seventh Circuit also referenced First Bank v. DJL Properties, LLC, in which adhered to the Shamrock ruling by holding that a counterclaim-defendant is not entitled to remove a case from state court to federal court under the provisions of CAFA. First Bank made the same statutory interpretation argument as Home Depot, urging that because “defendant” is modified by the term “any” in §1453(b), “defendant” includes counterclaim-defendants. The court rejected that argument, finding that such an interpretation would be inconsistent with established legal meaning of “defendant” and would make for inconsistent and incoherent usage. First Bank dealt with the traditional scenario of a plaintiff becoming a counterclaim-defendant after the original defendant files a counterclaim against it. Here, however, Home Depot was added to the suit later, and did not chose to litigate in state court like Tri-State, the original counterclaim-defendant.
Ultimately, the court decided that even though Home Depot was never a plaintiff in this case, allowing a counterclaim-defendant, of any type, to remove a case to federal court would run contrary to longstanding removal rules. The Seventh Circuit also commented that there was nothing wrong with keeping some cases in state court and that CAFA was meant to “only selectively increase[] federal jurisdiction over multi-state class actions,” not “roll out the welcome mat for all multi-state class actions.”
Accordingly, the Seventh Circuit affirmed the District Court’s order remanding the case to state court.
Posted by Amanda Laviage