Defendants Can’t Have It Both Ways: Seventh Circuit Rejects “Dubious Strategy” of Removing to Federal Court and then Seeking Dismissal for Lack of Standing under Spokeo

Federal courts are courts of limited jurisdiction; they cannot hear every case. A dispute must fall within the federal court’s specific “subject matter jurisdiction” in order for the federal court to hear and decide the dispute. One element of subject matter jurisdiction is Article III or constitutional standing. Federal courts can only adjudicate disputes where an injury in fact—a concrete, as opposed to theoretical, harm—has been alleged.

The Supreme Court addressed these topics in 2016 when it issued its decision in Spokeo, Inc. v. Robins, holding that a plaintiff must show an “injury in fact” to establish standing and explaining that the injury needs to be both “concrete and particularized.” As such, a mere violation of a federal statute—in Spokeo, the Fair Credit Reporting Act—is not enough to confer standing.

Ever since the Supreme Court handed down its Spokeo decision, defendants have relied upon it in making arguments to dismiss actions or defeat class claims for lack of standing. In Collier v. SP Plus Corp. (May 14, 2018), the Seventh Circuit firmly rejected one argument as a “dubious strategy,” holding that state court defendants cannot remove a case to federal court and then move to dismiss for lack of standing under Spokeo.

Factual and Procedural Background 

Plaintiffs Kathryn Collier and Benjamin Seitz used public parking lots at Dayton International Airport operated by Defendant SP Plus Corporation. Plaintiffs allege that they received printed receipts that included the expiration date of their credit or debit cards in violation of the Fair and Accurate Credit Transaction Act (“FACTA”). Plaintiffs filed a putative class action complaint in Illinois state court alleging that Defendants willfully violated FACTA. While the complaint requested actual damages and alleged that actual damages exceed $25,000, the complaint did not describe any concrete harm suffered by Plaintiffs because of the exposure of their cards’ expiration dates. For example, there were no allegations of credit-card fraud or identity theft.

Defendant removed the action to federal district court based on federal-question jurisdiction. A week later, Defendant moved to dismiss the case because Plaintiffs did not allege actual harm (an injury in fact), and, therefore, Plaintiffs did not have standing to bring the case and the district court lacked subject matter jurisdiction. Plaintiffs responded by moving to remand to state court, conceding that they lacked Article III standing and arguing that, absent standing, the case should have never been removed from state court.

The district court denied the motion to remand, reasoning that the case arose under federal law since FACTA is a federal statute. The district court then turned to the issue of standing. Relying on Spokeo, the district court found that Plaintiffs had not established standing because they failed to sufficiently allege injury in fact. Accordingly, the district court found that Plaintiffs had not established subject matter jurisdiction. The district court granted Plaintiffs leave to amend. When Plaintiffs did not amend, the district court dismissed the case with prejudice (barring Plaintiffs from bringing another action on the same claim).

Back to the Basics: Plaintiff Lacks Constitutional Standing, Court Lacks Jurisdiction

The Seventh Circuit’s analysis begins with a review of the basics. The party invoking federal jurisdiction bears the burden of establishing that all elements of jurisdiction existed at the time jurisdiction is invoked. As Defendants invoked federal court jurisdiction by removing the case, it was their burden to prove jurisdiction, including Article III standing.

Federal courts have subject-matter jurisdiction only if constitutional standing requirements are met, and a district court must remand a case to state court if “at any time … it appears that the district court lacks subject matter jurisdiction.” The Seventh Circuit agreed with both parties and the district court that Article III standing did not exist. Thus, the Seventh Circuit explained, the district court was required to remand the case to state court. The Court further noted that the district court should not have dismissed the case with prejudice; a dismissal with prejudice is a disposition on the merits, which only a court with jurisdiction may render. The Court also observed that in this case there were no findings that could have justified the “harsh sanction” of punitive dismissal under Rule 41(b).

The Seventh Circuit vacated the judgment below and remanded for the district court to return the case to state court.

A Successful Spokeo Argument Doesn’t Mean the Case Goes Away 

The Seventh Circuit’s conclusion that a federal district court lacking subject matter jurisdiction must remand a removed case, not dismiss it, is consistent with decisions by other courts that were rendered pre-Spokeo. In 1989, the First Circuit Court of Appeals concluded in Maine Association of Interdependent Neighborhoods v. Commissioner, Maine Department of Human Resources that the federal remand statute, 28 U.S.C. § 1447(c), requires district court to remand, not dismiss, for lack of standing. Similarly, in 2008, the United States District Court for the Middle District of Louisiana stated in McAfee, Inc. v. Wilmer, Cutler, Pickering, Hale & Dorr, L.L.P. that “[t]he weight of authority clearly establishes that § 1447(c) operates mechanically, and a removed case ‘shall be remanded’ if the Court determines it lacks subject matter jurisdiction.”

Of course, state courts are not bound by Spokeo and a state court may or may not have a similar requirement of standing to bring a lawsuit. In other words, while a federal district court may not have subject matter jurisdiction to hear a case due to lack of a concrete injury to the plaintiff, a state court absolutely could.

A Warning to Defendants in the Seventh Circuit (and Elsewhere) 

The Seventh Circuit’s decision in Collier is consistent with the common sense notion that a defendant should not be able to avail itself of federal jurisdiction and then turn around and take the position that jurisdiction does not exist in order to have the case dismissed with prejudice. While the Seventh Circuit declined to award attorney fees or expenses to Plaintiffs (28 U.S.C. § 1447(c) permits a party seeking remand to recover attorneys’ fees and costs incurred as a result of an improper removal to federal court), explaining that Plaintiffs’ brief failed to adequately develop their argument on this point, the Court noted that Defendant’s “dubious strategy has resulted in a significant waste of federal judicial resources, much of which was avoidable.” Given this rebuke and the clarity of the holding in Collier, courts in the Seventh Circuit could have grounds for awarding plaintiffs’ fees and expenses from defendants who remove to federal court and then seek dismissal under Spokeo for lack of standing and lack of federal jurisdiction.