Fifth Circuit Examines Mechanisms To Secure Federal Jurisdiction In Class Action And Arbitration Contexts

• Published date: 07 January 2022
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution, Class Actions
• Law Firm: Kilpatrick Townsend & Stockton LLP
• Author: Mr James F. Bogan III

Takeaway: When litigating class certification and motions to compel arbitration, defense attorneys virtually always prefer federal over state courts. In two cases involving home security provider ADT, L.L.C. (ADT), and a rogue employee of ADT who literally spied on ADT customers in their homes, ADT deployed different mechanisms to secure federal jurisdiction. In the first, a putative class action filed against the rogue employee (but not ADT) in Texas state court, ADT resorted to a Texas Rule of Civil Procedure authorizing unilateral intervention in the action as a defendant, and then used its newly-conferred status as a party-defendant to remove the case to federal court under the Class Action Fairness Act (CAFA). In the second, involving individual claims against ADT and the non-diverse employee that could not be removed to federal court, ADT initiated an independent action in federal court to compel arbitration of the dispute. In recent appellate decisions in these two cases, the Fifth Circuit (1) agreed with ADT's strategy of intervening as a defendant and then removing, and (2) indicated a federal petition to compel arbitration (concerning a dispute initially filed in state court) could work, so long as the rogue non-diverse employee is not an indispensable party to the petition to compel arbitration.

In Madison v. ADT, L.L.C., 11 F.4th 325 (5th Cir. 2021), Texas resident Taylor Madison contracted with ADT to install a security system in her home. But the ADT employee who installed that system, Telesforo Aviles, used his access privileges to spy on ADT customers in their homes, including, presumably, Ms. Madison. Indeed, Mr. Aviles allegedly spied on over 200 ADT customers located in and around Dallas, Texas.

ADT discovered Aviles misconduct and terminated him. ADT also reported him to the authorities, and Mr. Aviles ended up being sentenced to prison.

Ms. Madison and her mother, Angie Dickson, filed a putative class action against Mr. Aviles in Texas state court, seeking millions of dollars in damages. But they did not name ADT as a defendant. ADT learned about the case when plaintiffs served it with third party discovery. ADT then intervened in the suit under Texas Rule of Civil Procedure 60, which provides that "[a]ny party may intervene by filing a pleading, subject to being stricken out by the court for sufficient cause on the motion of any party." Madison v. Aviles, --- F. Supp. 3d ----, No. 3:20-CV-2516-B, 2021 WL 2291016, at *1, *3 (N.D...