CAFA Loophole Keeps Class Action in State Court

"Any" is a small word with a meaning that suggests both inclusivity and possibility. But a recent 7th Circuit ruling that creates a loophole in the Class Action Fairness Act's (CAFA) jurisdictional powers found there are limits to the power of "any."

As written in CAFA, "any defendant" includes defendants only--not counterclaim defendants too, according to the 7th Circuit's March 24 decision in First Bank v. DJL Properties, LLC. That literal interpretation means that although "any" of the defendants in the initial class action lawsuit can remove the case to federal court if they meet CAFA's other requirements, a plaintiff who becomes a defendant in a subsequent counterclaim class action cannot.

AT&T attempted to remove the case to federal court, but the 4th Circuit affirmed 2-to-1 the district court's decision that counterclaim class action defendants can't remove cases--even if, like AT&T, they weren't originally a direct party in the case. The 9th Circuit followed suit in a similar case.

Each of these circuits, including the 7th, based its analysis on Shamrock Oil & Gas Corp. v. Sheets, a case from 1941 in which the Supreme Court held a plaintiff can't remove a case to federal court, even if it becomes a counterclaim defendant. Shamrock Oil remains the broad standard for deciding removal.

Associate Editor

Lauren Williamson

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