Courthouse Steps Decision: Home Depot U.S.A., Inc. v. Jackson

Listen & Download

The Class Action Fairness Act permits "any defendant" to remove a class action to federal court. May a third-party defendant brought into a suit through a counterclaim by the original defendant remove a class action to federal court? In Home Depot v. Jackson, the Court, in a 5-4 decision by Justice Thomas, held that "any defendant" does not include third-party defendants in either the Class Action Fairness Act or in other removals under 28 U.S.C. § 1446. Justice Alito's dissent questioned that statutory interpretation. Ted Frank will join us to discuss this decision and its implications. 

Featuring:

Ted Frank, Director of Litigation and Senior Attorney, Hamilton Lincoln Law Institute

Event Transcript

Operator:  Welcome to The Federalist Society's Practice Group Podcast. The following podcast, hosted by The Federalist Society's Litigation Practice Group, was recorded on Thursday, May 30, 2019, during a live teleforum conference call held exclusively for Federalist Society members.     

 

Wesley Hodges:  Welcome to The Federalist Society’s teleforum conference call. This afternoon’s topic is a Courthouse Steps Decision discussion on Home Depot U.S.A., Inc, v. Jackson. My name is Wesley Hodges, and I’m the Associate Director of Practice Groups at The Federalist Society.

 

As always, please note that all expressions of opinion are those of the expert on today’s call.

 

Today, we are fortunate to have with us Mr. Ted Frank, who is Director of Litigation at the Hamilton Lincoln Law Institute. After our speaker gives his remarks today, we’ll move to an audience Q&A, so please keep in mind what questions you have for this case or for our speaker, in particular. Thank you very much for sharing with us today. Ted, the floor is yours for your remarks.

 

Ted Frank:  Thank you. Thank you to The Federalist Society for hosting this. The General Removal Statute, 28 U.S.C. § 1141(a), provides that any civil action over which a federal court would have original jurisdiction may be removed to federal court by the defendant or the defendants, if all of them agree. This was modified by the Class Action Fairness Act of 2005, which provides that, in addition to this, a class action as defined by the statute may be removed to federal court by any defendant without the consent of all defendants. And that’s 28 U.S.C § 1453(b). The question that Home Depot v. Jackson raises is whether either provision allows a third-party counterclaim defendant – that is a party brought into a lawsuit due to counterclaims filed by the original defendant to remove the counterclaim filed against it.

 

And as background, there was a decision decades ago called Shamrock Oil and Gas Corporation v. Sheets that held that a counterclaim defendant, that is the original plaintiff who’s then sued by the original defendants in a counterclaim, does not have the right to remove under § 1441. After all, the counterclaim defendant, who’s the original plaintiff, chose to be in the state court in the first place and, therefore, given the general limits and narrow constructions of federal jurisdiction -- given those limits, the removal statute did not extend to such counterclaim defendants. The Class Action Fairness Act was passed in 2005 because of a general sense that plaintiffs’ attorneys were using state courts to evade federal jurisdiction, especially in the problem of class actions.

 

And you had problems of state courts in very plaintiff friendly jurisdiction exercising nationwide jurisdiction on matters of national importance and often in ways that were very favorable to plaintiffs’ attorneys based in that jurisdiction – so Madison County, Illinois; Texarkana, Arkansas. Those sorts of places were hosting very abusive class actions that were viewed by Congress as abuses of the system. And they expanded federal jurisdiction to account for that. And the Supreme Court has elsewhere held that the traditional limits on federal jurisdiction do not apply in the context of the Class Action Fairness Act because of Congress’ intent to expand federal jurisdiction to address the problems identified in the Class Action Fairness Act.

 

So this particular case came about in 2016. Citi Bank filed a debt collection action in state court against George Jackson for money that he owed on a Home Depot credit card. Jackson turned around and filed a counterclaim for a putative class action against Citi Bank, against Home Depot, and against another defendant, Carolina Water Systems, alleging a massive conspiracy to induce homeowners to buy expensive water treatment systems that they couldn’t actually afford. And Jackson claimed that this was consumer fraud under North Carolina law. Home Depot, who had nothing to do with the original lawsuit, says, “I don’t want to be in North Carolina state court defending a class action, so I’m going to use the Class Action Fairness Act and remove this to federal court.” But Jackson moved to remand, arguing that a third-party additional counter-defendant like Home Depot does not get to remove cases under either § 1441 or § 1453.

 

The district court and the United States Court of Appeals for the Fourth Circuit agreed with Jackson. And Home Depot petitioned to the Supreme Court. This is a decades old question, when it applies to § 1441, and I guess a question as old as the Class Action Fairness Act when it applies to the Class Action Fairness Act. So the Supreme Court was entrusted in the case and took it. And the opinion itself had an interesting line up. Justice Thomas wrote for a 5-4 majority, but it’s not your typical 5-4 majority that Justice Thomas writes for in that he joins with Ginsburg, Breyer, Sotomayor, and Kagan, and held that removal was not available to a third-party defendant who, not purposefully, availed itself of federal court.

 

Thomas’ reasoning was as follows. “Section 1441 can only apply to original defendants. The Federal Rules of Civil Procedure distinguish between defendants and counter-defendants and third-party defendants. Since the statute says defendants, that must be what it means.” Through all our other removal statutes, Congress has used broader language, so it must have, by interference, must have meant the narrower term when it applied -- when it used the word defendants in § 1441. In addition, the other language in § 1441 that Thomas was persuaded by was that, to remove a case under § 1441, you need the consent of all of the defendants. And if third-party defendants are defendants under § 1441, well, why aren’t counterclaim defendants and other sorts of defendants? And then, do you need the permission of the original defendant, who’s now the counter-plaintiff, to remove? And that doesn’t make sense. So therefore, § 1441 must only apply to just the original set of defendants that were sued.

 

Well, but there’s still § 1453. And after all, this is exactly the scenario Congress cared about – a defendant who doesn’t want to be in state court getting hailed in for a nationwide class action or, at least in this case, just a North Carolina class action. But still, it’s the same sort of thing that Alexander Hamilton warned about in Federalist Number 80 – the danger of an out-of-state defendant being unfairly treated by state courts. And that’s the sort of thing that our federal system was supposed to solve for in permitting diversity jurisdiction. § 1453 and then the Class Action Fairness Act, in general, is a very broad exercise in diversity jurisdiction.

 

So can Home Depot use that to remove to federal court? And Thomas said, once again, no; that § 1453 only permitted the sort of removal permitted by § 1441. And while § 1453 states that any defendant can remove, that still is limited to the set of defendants that could remove under § 1441 because it’s modified by the clause “without the consent of all defendants.” Therefore, it’s just getting rid of those limits that § 1441 imposes, but it doesn’t go beyond what § 1441 permits in terms of who can exercise that in the first place. Justice Alito dissented, along with -- joined by the Chief Justice and Justices Gorsuch and Kavanaugh. He raised the arguments that I’ve sort of alluded to here; that this is not the case of the counterclaim defendant, like Shamrock Oil.

 

This is a third-party defendant who was hailed in the court and had no interest in being there. And that’s exactly what Congress was trying to reach when it passed the Class Action Fairness Act. And therefore, that’s the plain meaning of defendants, with respect to § 1453. As he phrased it, it’s plain and unambiguous text that must be enforced according to its terms. A defendant is a person sued in a civil proceeding, as opposed to a plaintiff. And it shouldn’t just be limited to defendants within the Federal Rules of Civil Procedure, especially given that it’s modified by any defendant. The fact that Home Depot is a third-party defendant -- it’s adjectives like third-party modify nouns.

 

They pick out a subset of the category that possesses a certain quality. Home Depot is still a defendant, even though they’re a third-party defendant. So given that CAFA, § 1453 says that any defendant can remove, unlike the general removal provision that allows removal by the defendant or defendants. CAFA extends to any defendant, and “any” has an expansive meaning. It means one or some, indiscriminately of whatever kind. And that’s what should be applied to here. So as Alito says, unless third-party defendants like Home Depot differ in some way that is relevant to removal, as a matter of text or precedence or common sense, they fall within CAFA’s coverage of defendants.

 

Alito goes into great detail about the history of CAFA and why it was meant to go beyond what § 1441 indicated. The lower courts have not indicated otherwise, and there’s nothing in CAFA that indicates that Congress was intending to exclude third-party defendants from any defendant. The respondents argue, “Well, that you have removal statutes like the America Invents Act, which permits any party to remove a lawsuit involving patent or copyright claims.” Thus, Jackson argued, if Congress wanted to include more than original defendants, it could have said “any party” or a “party.” But Alito distinguishes that, because he doesn’t believe that CAFA was meant to reach original plaintiffs and/or overturn Shamrock Oil, CAFA had to use narrower language than “any party,” even if it did want to go beyond what § 1441 applied to. So the fact that it didn’t use the America Invents Act language of “any party” doesn’t indicate that it didn’t mean to include third-party defendants.

 

That’s where we are now. We now have a substantially narrower Class Action Fairness Act. Plaintiffs have a loophole to keep class actions in state courts. And with the current makeup of Congress, it’s unlikely that that loophole will be closed any time soon. That will certainly encourage potential future third-party defendants, at least, to want to use arbitration clauses in their contractual arrangements to avoid the problem of being hailed into state court, as they were before the Class Action Fairness Act passed in 2005.

 

If we have time after questions, I’m happy to discuss how all of this came about because of the Erie decision, which I think is an unpopular view even within The Federalist Society. But I think it’s worthwhile to understand how Erie sort of changed the dynamic of diversity jurisdiction 62 -- excuse me, 82 years ago and has had some drastic effects that the Class Action Fairness Act was meant to correct to some extent. It will now be somewhat limited in doing that. Happy to take your questions.

 

Wesley Hodges:  Well, thank you so much, Ted. We do appreciate your remarks. It does look like we do have two questions in the queue so far. Ted, here comes your first caller.

 

Bob Fitzpatrick:  Hi, this is Bob Fitzpatrick. I have two quick questions. You talk about loophole. I’m an employment lawyer, so tell me, if I were representing plaintiffs, how this creates a loophole that would get employment cases stuck in state court. Or just tell me about other loopholes outside of employment law.

 

And then, the second thing I’m interested in is, I guess, how one would put it -- what accounts for losing Justice Thomas? And is the unstated reason -- because there’s nothing in his opinion about it. But is the unstated reason because Justice Thomas, at bottom, is a states’ rightist and believes strongly in state courts and, therefore, was motivated to keep these cases in state court, despite CAFA?

 

Ted Frank:  With respect to the first question, I’m not sure how you can sort of get an employment law case in as a third-party defendant. The typical scenario where this comes in is a third-party defendant. It is debtor owes a creditor money. Creditor sues. The suits are for a few hundred dollars, so they’re in a small claims court or state court or in arbitration. And faced with a suit for $300 -- I mean, sometimes it’s larger, if it’s, say, for a mortgage. The debtor countersues the creditor and then brings in lots of other defendants, as happened here where this was just a dispute between Citi Bank and Jackson over a debt that Jackson owed on his Home Depot branded credit card. But Jackson turned around and alleged a wide-ranging conspiracy.

 

Just off the top of my head, I don’t see a scenario where that would come in in an employment class action. The employee would need to be sued and then would need to sue an employer who wasn’t in the original suit. It’s hard to imagine what sort of nexus would be there. You could create some sort of weird scenario where an employee is --

 

Bob Fitzpatrick:  But this is really creditors, right?

 

Ted Frank:  This is a debtor/creditor dispute. I think that’s pretty much the only scenario where a consumer -- where a typical plaintiff is a defendant to begin with and then brings somebody in as a third-party defendant. Maybe you’re aware of cases where employees get sued by an employer’s client.

 

Bob Fitzpatrick:  That’s a rare day in you know what when that happens. What’s your take on Justice Thomas, if I can ask?

 

Ted Frank:  As you know, Justice Thomas doesn’t give many signals at oral argument, so we’ll have to wait for his papers to be realized 30 years after we’re all dead, I guess. But I think your speculation is as good as any speculation I can come up with. He could just be skeptical of -- he just might have been persuaded by the textual analysis that the plaintiffs made or disapproved of this sort of implicit attack on state courts that may have been exhibited in some of the amicus briefs. We know that he’s skeptical of preemption -- federal preemption, for example.

 

And so the typical civil justice arguments that hold sway with the other four justices on the right side of the aisle carry a lot less weight with Thomas. So on the other hand, on Frank v. Gaos, he was perfectly happy to be very critical of cy pres settlements and the abuse of plaintiff’s attorneys there. So it’s a mystery.

 

Bob Fitzpatrick:  Well, thanks and thanks for everything that you do.

 

Ted Frank:  Thank you.

 

Wesley Hodges:  Thank you so much caller. We do appreciate your question. Ted, here’s your next caller.

 

Sam Erelli (sp):  Hey, Ted. It’s Sam Erelli. I’m wondering if you have any thoughts on how we might start to see creatively pleaded plaintiff lawyer complaints coming in to try to maybe bring in a third-party defendant that maybe they know has a view on this and might try to blow up the CAFA jurisdiction on their case, which would potentially give them the opportunity to bring back the bad old days of the abusive settlements.

 

Ted Frank:  You know, it’ll be interesting to see whether you start to see, say, sham lawsuits where a sham plaintiff sues a sham defendant. And then, the sham defendant brings the real suit, which is a third-party class action against a variety of defendants. You would need a very friendly state court judge to stretch certain things out. But as we know from the state of the world in 2004, such judges exist. These sorts of complaints would only be brought before them in the first place. I think we’ll have to wait to see how much this shakes out. I think it’s far from clear.

 

But certainly, the plaintiff’s bar is very entrepreneurial, and they’ll come up with creative ways to take advantage of this interpretation of CAFA. We saw earlier attempts to try to create loopholes in CAFA that the Supreme Court was happen to close down on in Standard Fire v. Knowles. We saw the Microsoft case last term where plaintiff’s would voluntarily dismiss their case and then appeal that, seeking to get a de facto interlocutory review on the class certification decision. The Supreme Court was happy to shut down those sorts of gamesmanship plays, but not here.

 

It’s hard to imagine how they’ll ever get this back in front of the Supreme Court again because, certainly, third-party defendants can try to remove and then can appeal the denial of the removal. But I think you’re going to have to see several years of abuse before you’d get a five-justice majority on the Supreme Court willing to acknowledge that they made a mistake here. There’s, I think, also a sense that, when it comes to Supreme Court rulings that made, quote/unquote, mistakes on statutory interpretation, they’re happy to let Congress fix it, even though, I think, we also know that Congress isn’t likely to fix this any time soon.

 

Sam Erelli:  I tend to agree with you, especially seeing the entrepreneurialism with new definitions of what is and isn’t a coupon.

 

Ted Frank:  Absolutely.

 

Wesley Hodges:  Well, thank you, caller. We do appreciate your question. So here is our next caller.

 

Michael Rossman:  Hi, this is Michael Rossman with the Center for Individual Rights. I have two questions for you, Ted. First, suppose Home Depot, instead of trying to remove -- next time, they just run into federal court, and they file a declaratory judgement against the counterclaim plaintiff and a class of such individuals that he represents and seek a declaratory judgement. Is there any reason -- obviously, the district judge might choose to stay that action in its discretion butt? Given CAFA and its goals, it might not.

 

So my first question is is there anything to prevent the defendant from doing that? And my second question is to what degree do you think the Court was influenced -- or Justice Thomas, maybe, was influenced by the previous holding of the Court that a plaintiff who was then a counterclaim defendant was not a defendant for purposes of removal?

 

Ted Frank:  Certainly. Well, it’s funny you ask that first question because that is something a client of mine tried 15 years ago. They were getting --

 

Michael Rossman:  This was before or after CAFA?

 

Ted Frank:  This is before CAFA. They were getting sued in Illinois state court. The Illinois state court wouldn’t enforce the arbitration clauses. They couldn’t, under the Seventh Circuit’s interpretation of diversity jurisdiction -- they couldn’t remove the class actions or, I guess, the individual -- I guess it was the class action. They couldn’t remove the suits into federal court because there wasn’t diversity jurisdiction because the initial plaintiff didn’t have a $75,000 claim. So they attempted just what you proposed – a class action brought against a class of plaintiffs -- or a class of defendants, excuse me. And I forget the abstention doctrine that was at issue. It was one of the abstention doctrines.

 

Michael Rossman:  Well, I mean, there’s just a general abstention, if there’s another case going on that has the same events. But it’s not -- it’s a discretionary doctrine, I think, for the most part.

 

Ted Frank:  It is a discretionary doctrine --

 

Michael Rossman:  -- And perhaps CAFA has changed the exercise of that discretion.

 

Ted Frank:  And certainly clever defense attorneys are paid to come up with clever ideas like that, and maybe some of them are on this call and are taking notes. And they’ll think of a way to distinguish the Seventh Circuit case, Cigna v. Kaiser, and why the CAFA changes the abstention doctrines identified in that case. But not having looked at that in 15 years, I’m not really prepared to more than issue spots rather than --

 

Michael Rossman:  -- Well, let me put it -- CAFA would still apply to the proposed lawsuit. In other words, you wouldn’t need complete diversity jurisdiction.

 

Ted Frank:  Right. Well, I think that’s interesting. I don’t know off the top of my head whether class action as defined in CAFA applies to class defendants, but it’s possible. It’s possible that it does, if there’s $5 million at stake and an interstate class of defendants. Though, I don’t know if a declaratory judgement creates diversity jurisdiction for the amounts in controversy. That’s an interesting question also. Again, there’s an answer there, and all I can do on this phone call, without preparation, is to spot the issue and say there’s an answer there that will cut one way or the other.

 

So that’s a creative approach, and it might work. And it might not. And there might already be law out there completely precluding it that I don’t know off the top of my head that research would turn up one way or the other. You had a second question.

 

Michael Rossman:  Second question had to do with the degree and extent to which the prior holding -- I forgot the name of the case now.

 

Ted Frank:  Oh, in Shamrock, yes.

 

Michael Rossman:  In Shamrock, yes. Thank you.

 

Ted Frank:  Well, both the majority and dissent refer to it. It cuts both ways. And in law review articles and federal practice and procedure horn books, everybody sort of noted that there was just this outstanding question of § 1441 after Shamrock. Where, okay, obviously, counter-defendants can’t remove, but what about a third-party defendant? Shamrock Oil had a lengthy discussion of the history and the purposes of removal. The arguments that apply to a counter-defendant don’t entirely map onto the arguments that apply to a third-party defendant, given that one is voluntarily in state court and one is involuntarily in state court. Thomas, I think, looking very closely at the text, is happy to say that, well, defendants mean defendants.

 

And it doesn’t mean counter-defendants. And therefore, it doesn’t mean third-party defendants. So it’s interesting. It has some similarities to sort of the Burford case, where you had a much clearer text. And a 6-3 majority, including Roberts and Kennedy, held, well, that’s not what Congress meant. So the only justices being consistent of the seven who voted in the Burford case and this one are Justice Thomas who, both ways, said the text is the text. And that’s the end of it, even if that’s not what Congress meant -- and Justice Roberts, who joined the Justice Alito dissent here and said let’s read the text in a manner that makes senses of what Congress was trying to do here.

 

Michael Rossman:  Thank you.

 

Ted Frank:  Burwell, not Burford. Sorry. Burford’s an abstention doctrine. King v. Burwell is what I meant to say there.

 

Michael Rossman:  Ah, that one I remember.

 

Ted Frank:  Yeah. That was Josh Blackman, in case he’s still on the call.

 

Wesley Hodges:  Well, caller, thank you so much for your questions. We do appreciate you participating today. It looks like we do have one more question in the queue, Ted. Here is our next caller.

 

Caller 4:  Good afternoon. I just had a quick question or maybe ask for a comment -- that Home Depot certainly has stores in North Carolina. And Volkswagen and all those cases -- they probably had an expectation that they could or would be sued in state court. And I’ll just let you comment on that.

 

Ted Frank:  The CAFA has an exception for local disputes. So Home Depot might not even have been able to get CAFA removal, even under that circumstance. But the fact that CAFA creates broader federal jurisdiction in that it doesn’t require complete diversity, just partial diversity, you’ll note that one of the three -- one of the two third-party defendants was a local North Carolina dealer, which was presumably brought in not because they were hoping to collect millions of dollars from the local dealer, but to defeat complete diversity. So that sort of just leaves the CAFA removal. I didn’t look at the Fourth Circuit decision or the district court decision to see if they reached the exception relating to local disputes.

 

After all, every member of the class would probably be in North Carolina. But Home Depot, while they have stores in North Carolina and there’s no question about North Carolina state court having personal jurisdiction over Home Depot, they’re not a citizen of North Carolina and, therefore, are entitled to, even if they were sued -- even if it was just George Jackson bringing a personal injury suit against Home Depot for an injury that he suffered slipping on the floor of a Home Depot -- and if he brought it forward seeking more than $75,000, Home Depot would, despite the fact that it had stores in North Carolina, would be able to remove under standard diversity jurisdiction. That Home Depot has stores in North Carolina doesn’t really go to the issue of whether they’re entitled to a federal forum.

 

Wesley Hodges:  Thank you, caller. We do have one more question in the queue. Let’s go ahead and go to our next caller.

 

Bob Fitzpatrick:  Hey, Ted. This is Bob Fitzpatrick again. I just wanted to comment back, if I could, real quickly about the gentleman who called in about suing a defendant class. I think there’s two things that ought to be considered there. One is I think the Noerr-Pennington doctrine may shut that down. But he’d also want to take a look at one of the new judges on the Fourth Circuit. I’m probably butchering his name. Judge Quatttlebaum wrote an opinion back, I think, in April in a defendant class action case, Bell v. Burkett, where he compares defendant class actions to unicorns.

 

So that’s a rarity that we never see. It’s an interesting opinion. You ought to take a look at that. My question -- putting aside those comments. My question is Justice Thomas, in his opinion, in a footnote, says, “If we’re going to buy into Home Depot’s argument, then we have to reverse Shamrock.” And I gather you’d say, “No, not necessarily so. One can distinguish the holding in Shamrock and still have ruled in Home Depot’s favor.” Could you articulate that for us?

 

Ted Frank:  Shamrock was speaking solely of § 1441. And it was relying on just a sort of sense that it’s the difference between a counter-defendant, who is voluntarily availed itself of a state court and is deemed equitably, at least, to be stuck with that decision. First of all, I’m not a -- I don’t know that it’s such a bad thing if Shamrock is reversed. That you decide that you’re okay with a state court forum for a $300 dispute doesn’t mean that you’re okay with a state court forum for a $5 million dispute. Would it be such a horrible thing if a plaintiff, having been counterclaimed against, decides that they now want to be in federal court?

 

That doesn’t bother me, personally. Though, obviously, a court that cares about stare decisis doesn’t want to reverse itself willy-nilly. And maybe that’s, at the end of the day, what’s Justice Thomas was concerned about; that he didn’t think he could distinguish between, at least textually, the difference between a counter-defendant and a third-party defendant. And for better or worse, Shamrock Oil was written at a time where they sat and tried to parse the intent of Congress, rather than look at the text, and decided that the intent of Congress wasn’t to give the removal right to counter-defendants.

 

Though, again, Thomas does have, I think, the point that, since § 1441 speaks of the consent of all the defendants and defendants includes third-party defendants and counter-defendants, that makes no sense because it’s talking about the removal of civil actions rather than the removal of claims. There’s an argument that can go both ways. I think the Alito dissent focuses on § 1453, rather than on § 1441. But Alito discusses Shamrock Oil and why it doesn’t dictate a reading of § 1453, at least, that precludes third-party defendants from removing, even if it isn’t meant to overturn Shamrock.

 

Bob Fitzpatrick:  Well, thanks. That’s interesting. That’s helpful. Appreciate it.

 

Wesley Hodges:  Thank you, caller. We do appreciate your question. We do have another question in the queue. Here is our next audience caller.

 

Dan Gibson:  Hey, Ted. This is Dan Gibson. I was just curious. It appears to me, as you pointed out, that Justice Thomas’ opinion is basically the text is the text. And a great deal of the dissent is devoted to sort of a purposive reading of the text, if you will. But I wonder if they were giving at least a hint or suggestion that, even if you read it text as text the way Thomas does, that there may be a constitutional problem with the distinction that’s drawn. And I look at a little bit of the language that says “I cannot imagine why a Congress eager to remedy alleged state court abuses in class actions would have chosen to discriminate between two kinds of defendants” and later on says “a good interpreter reads texts charitably, not lightly ascribing irrationality to its author.”

 

I’m wondering if anybody made an argument in the case or if you think there’s any merit to the suggestion that it should have been read the way that the dissent indicates because it actually poses a constitutional equal protection problem of an irrational distinction, if you read it the way Justice Thomas has?

 

Ted Frank:  I don’t think anybody phrased it in terms of constitutionality. And certainly, that wasn’t in the question presented – that the statute’s unconstitutional because it discriminates against third-party defendants. Rational basis review is a light enough touch that the reasoning -- if it’s any possible reasoning, well, the possible reasoning is we wanted some additional federal jurisdiction. But we didn’t want to have too much additional federal jurisdiction. So it’s not even clear that rational basis review would get you anywhere.

 

Dan Gibson:  I certainly can see that. I only meant to suggest that the dissent was very strong in the sort of type of language they used to describe the distinction as being, effectively, irrational.

 

Ted Frank:  I certainly find the dissent persuasive. It’s not often that I disagree with Justice Thomas. But I think here, Justice Alito has the stronger of it. It’s a 5-4 decision, so those are often, especially in statutory interpretation -- those are often going to be close cases. But maybe that’s something a future Home Depot can attempt to raise; that what’s the remedy, then? Is the remedy, well, we’re striking 1453 entirely? It’s not that -- though, the Court has done it from time to time. But the Court generally does not avail itself of the power to rewrite a statute to correct a constitutional infirmity like that.

 

Dan Gibson:  Yeah. And I think the ship has sailed on that, probably, because the interpretation has come down. I meant it more from a constitutional avoidance doctrine, even, to suggest that it ought to be read Alito’s way. But now that the decision is here, I certainly wouldn’t want to strike down CAFA.

 

Ted Frank:  All of that is true. I don’t recall the briefs off the top of my head. I don’t think anybody raised a canon of constitutional avoidance. It’s not even clear that it would create a constitutional problem to do that. It’s arbitrary, certainly. But it’s no more arbitrary than the distinction between a $5 million class action and a $4 million class action. And one gets federal jurisdiction and one doesn’t.

 

Wesley Hodges:  Very good. Thank you so much for your question. We do appreciate the back and forth. I see no immediate questions from the audience. Ted, I turn the mic back to you. You’re welcome to expound further on anything you’ve talked already, jump into the Erie decision, or just give us your closing thoughts today. What would you like to do?

 

Ted Frank:  I’m not sure that we have the time on the call to go into a lengthy discussion of Erie. But Erie Railroad v. Tompkins did sort of change the dynamic between federal and state law when it removed the federal common law. Before Erie, if you sued an out-of-state defendant, you had a choice. You could sue the out-of-state defendant in their home state and prevent removal and subject yourself to the out-of-state defendant’s state law. Or you could sue in your home state. And if your home state had unfavorable law, the defendants could remove to federal court and take advantage of federal common laws and default.

 

And because of that, states had no incentive to structure their law to favor plaintiffs or defendants. If they structured their law too heavily to favor plaintiffs, it would prejudice in-state defendants, and in-state plaintiffs couldn’t take advantage of it because any suits they brought would be removed to federal court and subjected to federal common law. When Erie got rid of the federal common law—and Michael Greve has written very wisely about this—it has now changed the incentives of the way state courts do structure their laws. Now, state courts have the incentive to make their laws as plaintiff friendly as possible because out-of-state defendants who bear the costs of any expansion of the law to favor plaintiffs at the expense of defendants.

 

And it’s in-state plaintiffs who will benefit. And therefore, just simply as a matter of public choice, you’d rather favor your in-state plaintiffs rather than the out-of-state defendants. And there’s sort of a race to the bottom to create plaintiff friendly state court jurisdiction. One has sympathy for Thomas’ respect for state courts. And it certainly makes since under the original understanding of the Constitution. But because Erie Railroad has destroyed the federal common law, that has sort of disrupted the original structure of the Constitution and the relationship in the federal and state courts and creates sort of a need for federal jurisdiction to avoid the problems, identified by Alexander Hamilton in Federalist Number 80, that didn’t exist before – where diversity jurisdiction could protect defendants for prejudicial state laws.

 

In that absence we have the sort of problems we saw that lead to the Class Action Fairness Act and are at risk of seeing again.

 

Wesley Hodges:  Well, thank you, Ted. Everyone, thank you for calling in today. Ted, do you have anything else you’d like to add before we wrap up today?

 

Ted Frank:  Nope. Thanks again for having me and thanks for interesting questions and discussion.

 

Wesley Hodges:  Of course. Well, we found this very enjoyable, and we do appreciate your time. So on behalf of The Federalist Society, I’d like to thank you for the benefit of your very valuable time and expertise today. We welcome all listener feedback by email at info@fedsoc.org. Thank you all for joining. This call is now adjourned.

 

Operator:  Thank you for listening. We hope you enjoyed this practice group podcast. For materials related to this podcast and other Federalist Society multimedia, please visit The Federalist Society's website at fedsoc.org/multimedia.