Achieving Balance: Which Cases Belong in Which Courts?
Legal Sidebari
Achieving Balance: Which Cases Belong in
Which Courts?
Kevin M. Lewis, Coordinator
Legislative Attorney
Liberty Sacker
Research Associate
July 25, 2019
Subject to certain limitations, Congress retains the freedom to regulate the jurisdiction of the federal
courts. While Article III, Section 2 of the U.S. Constitution sets outer limits to how far the federal courts’
jurisdiction can extend, Congress need not—and often does not—authorize the federal courts to hear the
entire universe of cases and controversies that Article III might otherwise allow them to adjudicate. The
Supreme Court’s recent decision in Home Depot v. Jackson illustrates how Congress’s decisions
regarding how to draft and structure jurisdictional statutes can affect which cases end up in which
forums—and, in turn, can implicate significant legal considerations. This Sidebar analyzes Home Depot
and its place within the debate over the balance of power between the state and federal courts and
Congress’s role in delineating the boundaries between the two.
Background
Congress has attempted to address the balance of power between the state and federal courts by enacting
statutes delimiting which cases the federal courts possess jurisdiction to hear. State courts are courts of
general jurisdiction and broadly retain the power to hear most types of cases not explicitly reserved to the
federal courts by constitutional or statutory law. By contrast, federal courts are courts of limited
jurisdiction, and may only hear cases as permitted by Article III, § 2 of the Constitution and related
statutes. For example, Article III, § 2, cl. 1 provides that the federal “judicial Power shall extend to . . .
Controversies . . . between Citizens of different States,” which are known as ‘diversity’ cases. To
effectuate that constitutional grant of judicial power, Congress enacted 28 U.S.C. § 1332(a)(1), which
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grants federal courts jurisdiction to hear diversity cases subject to certain limitations. Among other
limitations, the amount in controversy at issue in the dispute must exceed $75,000. Additionally, diversity
jurisdiction under Section 1332(a)(1) usually requires complete diversity, meaning that all defendants are
citizens of different states than the plaintiffs.
The federal courts enjoy ‘exclusive jurisdiction’ over some categories of cases, which means that state
courts cannot adjudicate those types of disputes. For example, under 28 U.S.C. § 1338(a), the federal
courts have exclusive jurisdiction over cases involving patents and copyrights. In other contexts, however,
the federal and state courts enjoy ‘concurrent jurisdiction,’ which means that either forum may adjudicate
a case. The federal courts’ ability to hear a case under diversity jurisdiction is an example of concurrent
jurisdiction. Where there is concurrent jurisdiction, defendants may seek to ‘remove’ or move the case
against them from state to federal court. 28 U.S.C. §§ 1441(a) and 1446, the general statutes governing
the removal of civil actions from state to federal court, ordinarily allow a defendant to remove a case
against it so long as the jurisdictional requirements are satisfied, removal is timely, and (unless consent is
unnecessary) all defendants consent to the removal. Additionally, where removal is based on diversity of
citizenship, no defendant may be a citizen of the state in which the action is brought. Allowing a
defendant to remove a case from state to federal court may result in federal courts deciding a broader
array of cases that the state courts would otherwise adjudicate, implicating principles of federalism.
Congress’s decisions regarding the scope of federal jurisdiction can directly affect litigants in several
ways. First, federal courts use federal procedural law, which is often complex and can place barriers in the
way of plaintiffs’ claims. For instance, in Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal, the
Supreme Court interpreted federal procedural law to require a heightened pleading standard whereby a
claim must be “plausible on its face” to pass muster, and the court need not accept legal conclusions and
conclusory allegations as true when deciding whether to dismiss a complaint. By contrast, many state
courts still use notice pleading, a lower pleading standard that only requires plaintiffs to provide
defendants with fair notice of the claims against them. As a result, claims that may survive an initial
motion to dismiss in state court may be thrown out in federal court for failing to meet the federal pleading
standard. (Notably, however, although state courts and federal courts generally use different procedural
law, under the Erie doctrine, federal courts sitting in diversity jurisdiction must generally apply state
substantive law.)
Second, many defendants prefer to have claims heard in federal courts, in part because of a fear of state
court bias in favor of citizen plaintiffs and against out-of-state defendants and business interests.
Commentators sometimes claim that the different procedures for selecting judges are to blame for
concerns about impartiality. Whereas federal court judges are appointed to serve during “good
Behaviour”—which, as a practical matter, usually means until the judge dies or voluntarily retires—many
state judges are elected for limited, potentially renewable terms. According to critics, state court judges
who face highly politicized reelection or retention campaigns may be motivated to decide cases according
to the prevailing popular will, creating a risk of unfair decision making particularly against non-
constituent parties.
Class Action Fairness Act
Congress has periodically amended the statutes governing federal jurisdiction to alter the balance of
power between federal and state courts. In 2005, for instance, Congress enacted the Class Action Fairness
Act (CAFA), which sought to prevent what some Members perceived to be the abuse of class action
lawsuits in plaintiff friendly state forums. Subject to certain exceptions, the statute provides the federal
courts original jurisdiction over class action lawsuits where the amount in controversy exceeds
$5,000,000 and there is minimal diversity among parties. Unlike complete diversity, minimal diversity
requires only that “any member of a class of plaintiffs is a citizen of a State different from any
defendant.”
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The choice of a federal over a state forum can have significant implications for litigants, as discussed
above. Some of the biggest effects for class action lawsuits occur because of the difference in choice of
procedural law between federal and state forums. Prior to the enactment of CAFA, many class action
lawsuits were litigated in state court, sometimes leading to forum shopping, whereby plaintiffs, tending to
prefer more favorable state class action certification standards, would file in state courts. CAFA allowed
more defendants to remove cases to a federal forum, subjecting claims to the more rigorous requirements
of Federal Rule of Civil Procedure 23, which often requires that common questions of fact or law
predominate over individual claims and that a class action suit is superior to other forms of resolution. In
some cases, a proposed class that would satisfy a state’s class certification standards would not satisfy
Federal Rule of Civil Procedure 23’s more demanding certification requirements. Failure to obtain class
certification often sounds the “death knell” for class action litigation because the individual claims
involved may be too small to make litigation worthwhile, making the choice of forum a critical issue in
such litigation.
Supreme Court Decision
The Supreme Court’s recent decision in Home Depot v. Jackson illustrates how congressional decisions
regarding the language and structure of jurisdictional statutes can have significant effects on litigants. The
dispute underlying Home Depot began when Citibank sued respondent George Jackson in state court in an
attempt to recover a credit card debt incurred through purchases at Home Depot. Jackson countersued,
raising individual counterclaims against Citibank and filing class action claims against Home Depot and
another entity. When Citibank subsequently dismissed its claims against Jackson, Jackson was no longer a
defendant to the original action, but instead appeared solely as a plaintiff to the emergent class action
lawsuit against Home Depot and the other entity. Home Depot sought to remove the case to federal court,
but Jackson moved to remand the case to state court, arguing that precedent barred removal by a third-
party counterclaim defendant like Home Depot. The district court ruled for Jackson in the first instance,
remanding the case to state court, and the Fourth Circuit affirmed that decision. The Supreme Court
granted certiorari to consider whether either the general removal statute or CAFA’s class action removal
provision allow a third-party counterclaim defendant to remove a case from state to federal court.
In an opinion written by Justice Thomas, the majority of the Court first concluded that the general
removal statute does not permit removal to federal court based on a counterclaim because a district court
should consider only the initial lawsuit filed when determining if there is a right to removal. The operative
statute, § 1441(a), provides for the removal of “any civil action” by the “defendant or the defendants” to
that action. The majority interpreted the phrase “the defendant or the defendants” to apply only to parties
named by an original plaintiff and to exclude third parties named for the first time in a counterclaim.
Then, shifting to an analysis of CAFA’s class action specific removal provision, the majority held that the
text of the statute allowing removal by “any defendant without the consent of all defendants” merely
modifies the requirement under the general removal statute that all defendants consent to a change in
forum; it does not enlarge the category of defendants who can remove a case. The Court further reasoned
that because the procedures for removal under both statutes are governed by § 1446, which also uses the
term ‘defendant,’ interpreting the term differently in either removal provision would lead to inconsistency.
The dissent, authored by Justice Alito, disagreed with the majority, arguing that the majority’s decision
creates a “loophole” in CAFA whereby a defendant to an initial claim, for example, a debt collection
action, can turn around and sue a third party in a counterclaim class action lawsuit, leaving the third party
powerless (absent an alternative statutory basis) to remove the case to federal courts. The dissent pointed
out that if Home Depot had been a party to the original case, it could have removed the class action
lawsuit under CAFA. According to the dissent, the majority’s holding conflicts with Congress’s intent in
enacting CAFA, which was to curb potential abuses of class action lawsuits by making it easier for
defendants to remove cases to federal courts. The majority, however, stressed that its interpretation of
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CAFA’s removal statute was a consequence of how the statute was written, and that the authority to
amend the statute to include third-party counterclaim defendants rests with Congress alone.
Considerations for Congress
Home Depot illustrates that the way in which Congress drafts and structures jurisdictional statutes can
affect which courts adjudicate which claims—and, by extension, can implicate broader considerations
pertaining to federalism and choice of procedural law. Because Congress did not explicitly authorize
third-party counterclaim defendants to remove under CAFA or § 1441(a) in the text of either statute, the
majority concluded that such parties cannot remove cases against them. Some commentators have
predicted that the situation in Home Depot is unlikely to arise with great frequency. However, as a
product of Congress’s choice of language in those statutes, there may be at least some increase in the
number of class actions that are filed in state court and end up remaining there. This, as described above,
may alter the success of such lawsuits.