First Bank v. DJL Properties, LLC, Slip Copy, 2010 WL 380904 (S.D. Ill., Jan 27, 2010) (NO. 09-CV-970-JPG).

In this case, the Illinois District Court held that CAFA does not expressly or impliedly permit a plaintiff/counter-defendant to remove a class action to federal court.  (Editors’ Note:  See the CAFA Law Blog analysis of the Seventh Circuit’s decision in First Bank v. DJL Properties published on May 8, 2010).

The plaintiff, First Bank, brought a mortgage foreclosure suit in the state court against the defendant, DJL Properties. In response, DJL Properties filed a class action counterclaim alleging state law causes of action. Believing the class action counterclaim created original federal jurisdiction over this action under CAFA, First Bank as the plaintiff/counter-defendant removed the action to the federal court.

The District Court observed that Shamrock Oil & Gas v. Sheets, 313 U.S. 100, 106-08 (1941) stated that the federal law authorizing removal by a defendant does not include removal by a counter-defendant.  Shamrock Oil concluded that when the removal statute allowed for removal by ‘the defendant or defendants,’ it did not confer that right on plaintiff/counter-defendants.

The District Court found that while enacting CAFA, although the Congress expanded federal jurisdiction, it did not intend to change the proposition in Shamrock Oil to include a plaintiff sued in a class action counterclaim.  In doing so, the District Court agreed with the Fourth Circuit’s decision in Palisades Collections LLC v. Shorts, 552 F.3d 327, 333, 36 (4th Cir. 2008), which held that U.S.C. 28 § 1441(a) did not permit removal by a counter-defendant because under Shamrock Oil,counter-defendant is not a ‘defendant’ allowed to remove a case under § 1441(a).

(Editors’ Note: See the CAFA Law Blog analysis of 4th 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). (Editors’ Note: See the CAFA Law Blog analysis of Preciado published on August 1, 2007).

The District Court further agreed with the decision in Palisades and in Progressive West Insurance Co. v. Preciado, 479 F.3d 1014, 1017-18 (9th Cir. 2007) that the text of § 1453(b) also does not expressly or impliedly permit a plaintiff/counter-defendant to remove a class action to federal court.  It noted that for decades before Congress passed CAFA, the law was well-established that, in the removal context, ‘defendant’ meant only an original defendant.  The District Court maintained that Congress was presumed to have known this, and it would not find that Congress intended to alter this understanding in the absence of express language doing so, as it did when it wanted to change other aspects of class action jurisdiction.  

Furthermore, the District Court found that the use of the phrase ‘any defendant’ in § 1453(b) did not mean ‘any type of defendant,’ but only ‘any of the defendants,’ which means ‘defendants’ as interpreted in Shamrock Oil.  Reading § 1453(b) to also allow removal by counter-defendants, cross-claim defendants, and third-party defendants was simply more than the language of § 1453(b) could bear.

Finally, the District Court concluded that Congressional intent to expand federal jurisdiction with CAFA did not justify expansion of jurisdiction to cases not expressly authorized by statute, and “respect for federalism still requires a narrow reading of the removal statutes, and the Court can only interpret the laws as they are written.”

(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).