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7th Cir. Remands Putative Class Action to State Court for Lack of Spokeo Standing

The U.S. Court of Appeals for the Seventh Circuit recently held that a putative class action alleging violations of the federal Fair and Accurate Credit Transactions Act (FACTA) could not be removed to federal court because the plaintiffs lacked Article III standing, which deprived the federal trial court of subject matter jurisdiction.

Accordingly, the Seventh Circuit remanded the case to the federal trial court with instructions to return the case to state court.

A copy of the opinion in Kathryn Collier v. SP Plus Corporation is available at:  Link to Opinion.

The lead plaintiffs filed a class action complaint in Illinois state court alleging that the defendant, which operates public parking lots at Dayton International Airport, allegedly violated 15 U.S.C. § 1681c(g)(1) by printing the expiration date of the plaintiffs’ credit cards on their parking receipts. The complaint did not allege that the plaintiffs had suffered any credit card fraud or identity theft.

The defendant removed the case to federal court.  The defendant then moved to dismiss, arguing that because the plaintiffs had not alleged any concrete injury in fact, they lacked Article III standing to sue and the court lacked subject matter jurisdiction.

In response, the plaintiffs, in a surprise move designed to keep their case alive in another forum despite the lack of any concrete injury, also moved to remand the case to state court, arguing that the defendant bore the burden of establishing subject matter jurisdiction and, lacking that, the federal court had to return the case to state court.

The federal trial court denied the motion to remand the case to state court, reasoning that it had federal question jurisdiction because the case arose under FACTA , and therefore it had subject matter jurisdiction under 18 U.S.C. § 1331, which gives federal courts “original jurisdiction” over claims “arising under” a federal statute.

The federal trial court then turned to the issue of standing, reasoning that because they did not allege any actual harm, but only statutory violations, the plaintiffs could not establish that they had standing and, accordingly, the court did not have subject matter jurisdiction. The federal trial court granted the plaintiffs leave to amend, but when they failed to do so, dismissed the case with prejudice.

On appeal, the Seventh Circuit noted that as the party invoking federal jurisdiction, the defendant had the burden of establishing “that all elements of jurisdiction—including Article III standing—existed at the time of removal. … Removal is proper only when a case could originally have been filed in federal court.”

The Appellate Court rejected the defendant’s reasoning that removal to federal court was proper “because § 1441(a) allows removal of cases over which federal courts would have had ‘original jurisdiction’ and 28 U.S.C. § 1331 grants federal courts ‘original jurisdiction’ over claims ‘arising under’ a federal statute.” It reasoned that “reliance on the phrase ‘original jurisdiction’ is not enough, because federal courts have subject-matter jurisdiction only if constitutional standing requirements also are satisfied.”

In other words, the Seventh Circuit reasoned, under the Supreme Court’s holding in Spokeo, Inc. v. Robins, in order to establish federal subject-matter jurisdiction, the removing defendant must also show that the plaintiffs suffered a “concrete and particularized” injury that is “actual or imminent” and not just a technical statutory violation.

The Seventh Circuit noted that the plaintiffs “did not sufficiently allege an actual injury” because merely alleging “’actual damages’ in the complaint’s prayer for relief does not establish Article III standing.”

The Appellate Court concluded that because Article III standing was lacking, 28 U.S.C. § 1447(c) required that a federal trial court remand the case to state court if “at any time before final judgment it appears that the district court lacks subject matter jurisdiction.”

In addition, the Seventh Circuit concluded that the case should not have been dismissed with prejudice because “[a] suit dismissed for lack of jurisdiction cannot also be dismissed ‘with prejudice’; that’s a disposition on the merits, which only a court with jurisdiction may render.” Dismissal with prejudice was also not appropriate as a sanction under Federal Rule of Civil Procedure Rule 41(b) because while the plaintiffs failed to amend their complaint and “[a] willful failure to prosecute can fit the bill, … no finding of willfulness in this case justified a punitive dismissal on the merits.”

The Appellate Court declined to award the plaintiffs their attorney’s fees under § 1447(c) because their “brief does not adequately develop a basis to do so.” However, the Seventh Circuit pointed out the defendant’s “dubious strategy has resulted in a significant waste of federal judicial resources, much of which was avoidable.”

Accordingly, the trial court’s judgment was vacated with instructions to remand the case to state court.

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Hector Lora has substantial experience in all phases of complex commercial litigation, including motion practice, written discovery, depositions, mediations, bench and jury trials, and appellate practice. For more than a decade, his practice has focused extensively on the defense of civil enforcement actions filed by the FTC, as well as real estate litigation, and contested mortgage and condominium lien foreclosures and foreclosure of security interests under UCC Article 9. Hector also has substantial experience in advising a variety of types of businesses regarding their compliance with applicable federal and state laws, including the Federal Trade Commission Act, the Telephone Consumer Protection Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Telemarketing Sales Rule, the Controlling the Assault of Nonsolicited Pornography and Marketing Act of 2003, and Florida laws governing telephone solicitation and communication. Hector received his Juris Doctor from the Georgetown University Law Center, and his undergraduate degree with honors from the University of Florida.

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