When the Hunter Becomes the Hunted – Counterclaims, Removal, CAFA, and Realignment . . . .
What happens when the hunter becomes the hunted? In General Credit Acceptance Corp. v. Deaver, 2013 WL 2420392 (E.D. Mo., June 3, 2013), the hunter remains in state court unless he realigns the parties prior to removal. In that case, GCAC filed a simple one-count petition for breach of a retail installment contract in St. Louis County, and got hit with a counterclaim seeking to certify a consumer class action under the UCC. GCAC promptly tried to get its head out of the bear trap by dismissing its breach of contract claim and removing the case to the Eastern District, using the class action counterclaim as a hook to assert removal jurisdiction under CAFA.
While it is well-settled that a plaintiff may not remove a case to federal court based on a counterclaim, GCAC argued that it was only a nominal plaintiff and in reality a de facto defendant, having already dismissed its only claim. Judge Webber disagreed, distinguishing the line of cases cited by GCAC as those where the original plaintiff/counterclaim defendant had not only dropped their claims prior to removal, but had been realigned as plaintiffs prior to removal. Having chosen St. Louis County as the forum in which to prosecute its breach of contract claim, the Court concluded that GCAC was bound by its choice of forum and unable to remove the case.
Under the better late than never theory, GCAC then moved the Court to realign the parties, arguing that, when addressing realignment, the Court should consider the predominate purpose of the litigation at the time of removal. The Court disagreed, noting that under Universal Underwriters Ins. v. Wagner, 367 F.2d 866, 871 (8th Cir. 1966), Eighth Circuit courts must analyze questions of realignment involving jurisdiction by looking at the interests of the parties at the time of filing the complaint (although Wagner involved realignment for purposes of destroying existing diversity jurisdiction, rather than removal).
Under both the “principal purpose” test favored by the Eighth Circuit, and the rival “actual and substantial conflict” test, the Court found no basis for realigning the parties. The only justification for realignment, the Court found, was that the original complaint had been voluntarily dismissed, which it found insufficient to justify GCAC’s request to change its status for purposes of facilitating removal.
So when hit with a class action counterclaim, don’t bank on being able to remove the case to federal court simply by jettisoning your original claims. Realign the parties first in state court to reset yourself as defendant, but be conscious that under Wagner and the application of either the “principal purpose test” or the “substantial conflict” test or analogous state law standards, that may be easier said than done.