Spokeo v. Robins – which confirmed that a plaintiff’s allegation of a defendant’s statutory violation without accompanying concrete harm fails to satisfy Article III’s “case or controversy” requirement – has brought the issue of standing to the forefront in a variety of class action cases. Standing has become a frequent weapon in the defense’s arsenal, both as an initial hurdle for a class plaintiff to overcome, and as a basis for resisting class certification by demanding that each putative class member demonstrate actual, concrete injury. A recent decision by the Seventh Circuit, however, reminds us that there can be a downside to a successful standing challenge: the permanent loss of a federal forum for adjudication of the claim.

The Standing Trap: Will a Spokeo Challenge Lock a Class Action Defendant into a State Court Forum?Collier v. SP Plus Corporation involved a class action brought against the operator of public parking facilities, claiming that the receipts generated by the defendant contained the expiration dates of consumers’ credit and debit cards, in violation of the Fair and Accurate Credit Transaction Act (FACTA). Plaintiffs alleged willful violation of FACTA and sought statutory and actual damages. Their complaint, however, did not describe any concrete harm resulting from the alleged statutory violation. SP Plus removed the case to federal court, invoking the court’s federal question jurisdiction under FACTA, and then moved to dismiss under Fed. R. Civ. P. 12(b)(1), contending that plaintiffs lacked Article III standing because they alleged no injury in fact.  Plaintiffs responded by moving to remand the case to state court, contending that SP Plus had failed to establish subject matter jurisdiction. The district court denied the motion to remand, and granted plaintiffs leave to amend to make factual allegations in support of their request for actual damages. When plaintiffs did not amend their complaint, the trial court dismissed the case with prejudice. Plaintiffs appealed to the Seventh Circuit.

The appeals court reversed. The court agreed that plaintiffs’ complaint did not allege an actual injury sufficient to establish Article III standing under Spokeo. Nonetheless, relying on the mandatory language of 28 U.S.C. § 1447(c), the court held that remand to state court was the only permissible option upon a finding of lack of subject matter jurisdiction. The court also noted that even if a dismissal had been proper, it should have been one without prejudice, as a jurisdictional dismissal is not an adjudication on the merits. In a parting shot, the court expressed displeasure that the defendant had removed the case to federal court and then promptly attacked federal jurisdiction; SP Plus’s “dubious strategy has resulted in a significant waste of federal judicial resources, much of which was avoidable.”

There are several takeaways from this decision:

  • From the defense perspective, seeking a Rule 12(b)(1) jurisdictional dismissal in a case removed from state court is strategically risky. The weight of authority (which Collier reflects) and the language of 28 U.S.C. § 1447(c) instruct that a successful challenge to plaintiff’s standing will result in a remand to state court. And the benefit of a federal court’s ruling of “no Article III standing” is far from clear, unless the state court’s standing jurisprudence mirrors Article III. Even then, as a non-final (and, at best, appealable by permission only) ruling, it is difficult to imagine that a state court would consider the remand order to be preclusive. There is authority in some circuits that a district court can dismiss rather than remand to state court if remand would be futile, i.e., if it is clear that the state court would likewise dismiss for lack of standing. But making that showing is likely to be difficult, as many states’ standing rules differ from federal standards. And – as Collier also teaches – a jurisdictional dismissal by the federal court should be one without prejudice, leaving the plaintiff free to refile the case in state court anyway.
  • Of course, ignoring standing altogether does not eliminates the trap. The plaintiff himself can raise the issue in an effort to have the case remanded. And as the late, great Dan Meador taught many of us in his Federal Courts class, “even the janitor can raise subject matter jurisdiction.” But beyond those scenarios, the defendant is better served by saving its standing arguments for class certification, in particular the argument that each class member must show actual injury, thus defeating commonality, typicality and predominance. Not all courts have bought into the concept that every member of the class must have standing, but arguing these issues under the Rule 23 factors can create traction for the defense while minimizing the risk of remand.
  • Collier also serves as a reminder that federal jurisdictional statutes (including the Class Action Fairness Act) may be of limited utility to the defendant facing a class action involving statutory violations without actual injury. Federal district courts have a duty independent of any Congressional enactment to determine whether an action involves an actual “case or controversy” under Article III.
  • Defense counsel’s natural instinct in “touch foul” class actions is to argue early and often that “plaintiff hasn’t been hurt at all.” In class cases removed from state court, however, it may be wise to curb that instinct. Attacking standing can result in the defendant being left to the tender mercies of the state court where plaintiff’s counsel initially chose to bring the suit.

Growing Consensus in the Courts of Appeals against Alternative-Citizenship Theory of Diversity under CAFAIf a putative class of plaintiffs, all citizens of State A, sues a corporate defendant, which the law considers to be a citizen of State A and State B, in state court, may the defendant remove the case to federal court under the Class Action Fairness Act (CAFA)? Recently, the Sixth Circuit became the third court of appeals to answer “no.”

CAFA, 28 U.S.C. § 1332(d), provides for federal jurisdiction over class actions involving at least 100 class members, with $5 million or more at stake, and in which “any member of a class of plaintiffs is a citizen of a State different from any defendant.” Unlike diversity jurisdiction in most other contexts, CAFA allows minimal diversity—as long as one plaintiff maintains citizenship in a state different from one defendant’s citizenship, diversity is satisfied, regardless of where all other parties reside. Frequently, diversity under CAFA is straightforward. If one plaintiff resides in California and one defendant resides in Tennessee, the case passes muster. In contrast, a class of plaintiffs from one state facing a defendant from the same state cannot satisfy even minimal diversity.

Sometimes, however, the nature of corporate citizenship creates a hybrid situation. Under § 1332(b), a corporation is a citizen of both its state of incorporation and the state where it maintains its principal place of business. Defendants in the Sixth, Fourth, and Eleventh Circuits have argued that minimal diversity exists within the meaning of CAFA when one of these places aligns with the citizenship of a class of plaintiffs but the other does not. The intent of CAFA to expand federal jurisdiction beyond the traditional confines of complete diversity is often relied upon in support of this argument. Under this “alternative-citizenship” theory of diversity, the corporation can pick between citizenship in one state or the other to either satisfy or defeat minimal diversity under CAFA.

Unfortunately for removing defendants, the theory has failed thus far in each of the three courts of appeals to squarely address it. The reasoning in each court follows similar lines: First, they say, the text of § 1332 is clear—a corporation is a citizen of its place of incorporation and where it maintains its principal place of business, not either-or. Second, the courts have reasoned, allowing jurisdiction based on the alternative-citizenship theory would not comport with the historical purpose behind federal diversity jurisdiction—to protect an out-of-state litigant from prejudice within a court in the opposing party’s home state. The Sixth Circuit’s opinion even suggests that the alternative-citizenship theory would push the limits of Article III. If that is right, even express Congressional legislation would not make the alternative-citizenship theory effective.  And unless and until another Circuit rules differently, this issue is not likely to reach the Supreme Court for clearer resolution.

7th Circuit Affirms Plaintiff’s Own Estimates of Class Size Can Satisfy CAFAIn Roppo v. Travelers Commercial Insurance Company, the Seventh Circuit held that even after a motion to remand CAFA removal jurisdiction can be sufficiently established by a defendant’s “good faith estimates” of the amount in controversy based on the number of class members plaintiff had alleged in the complaint. The lawsuit challenged Travelers’ alleged practice of not disclosing the existence of umbrella policies in settlement discussions. The complaint alleged that there were at least 500 members of the Illinois-only class. Nevertheless, the plaintiff argued that once removal was challenged, the burden fell on the defendant to prove with independent evidence the actual number of class members, or at least that the size of the class exceeded CAFA’s minimum of 100. The Seventh Circuit disagreed, even while acknowledging that although a defendant’s mere good faith allegation of the amount in controversy will suffice in the notice of removal, more proof is generally required from the defendant once the plaintiff challenges that jurisdictional allegation (see Dart Cherokee Basin Operating Co., LLC v. Owens, 135 S. Ct. 547, 554 (2014)). Specifically, the court found that the duties of candor and due diligence associated with filing a complaint under the Illinois analogue of Rule 11 made reliance on class size estimates contained in a complaint permissible and probative even after the plaintiff challenged the propriety of CAFA removal. Thus, the complaint’s allegation that the class was comprised of at least 500 members, combined with an affidavit from Travelers that its minimum umbrella face amount was $1 million, was enough to carry the day jurisdictionally, especially given the complaint’s further allegation that insurance limits were the “de facto cap” on the personal injury cases placed at issue in the complaint. The court went on to affirm dismissal of the complaint for failure to state a claim.