Locke Lord QuickStudy: You Can’t Have Your Cake And Eat It Too—Seventh Circuit Warns Defendants Not To Remove To Federal Court And Then Move To Dismiss Under Spokeo.

On May 14, 2018, the Seventh Circuit Court of Appeals issued a significant jurisdictional decision that further limits defendants’ use of Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016). In Collier v. SP Plus Corp., No. 17-2431, 2018 WL 2186786 (7th Cir. May 14, 2018), the Seventh Circuit held that it is improper for a defendant who removes a case based on federal-question jurisdiction to subsequently file a Spokeo-style motion to dismiss the case for lack of Article III standing. The Seventh Circuit also issued a thinly veiled warning to defendants—don’t try this again.

Factual and Procedural Background
Plaintiffs Kathryn Collier and Benjamin Seitz used parking lots operated by Defendant SP Plus Corporation. When they used their credit or debit card to pay for parking, the receipts included the expiration date of the credit or debit card. Collier and Seitz filed a putative class action complaint in the Circuit Court of Cook County, Illinois claiming that printing the expiration dates on the receipts violated the Fair and Accurate Credit Transaction Act (“FACTA”), 15 U.S.C. § 1681c(g)(1). Although Collier and Seitz alleged actual damages that “exceed Twenty-Five Thousand Dollars,” they did not buttress that conclusory allegation with supporting facts. As the Seventh Circuit later noted, “no one, for example, had experienced credit-card fraud or identify theft.”

The Defendant removed to federal court based on federal-question jurisdiction. A week later, it moved to dismiss under Rule 12(b)(1), arguing that Collier and Seitz failed to allege sufficient injury in fact to satisfy Article III. Interestingly, Collier and Seitz agreed that they failed to allege sufficient injury in fact to satisfy Article III. But instead of dismissal, they requested that the district court remand the action back to the Circuit Court of Cook County because the removal papers failed to satisfy the burden of establishing the federal court’s jurisdiction.

United States District Court Judge Charles Norgle denied Collier and Seitz’s request for remand, finding that because FACTA is a federal statute, there was federal-question jurisdiction. He then separately analyzed the standing issue and, relying on Spokeo, Inc., v. Robins, 136 S. Ct. 1540 (2016) and Meyers v. Nicolet Restaurant of De Pere, LLC, 843 F.3d 724 (7th Cir. 2016), concluded that Collier and Seitz failed to allege sufficient injury in fact. Judge Norgle granted Collier and Seitz leave to amend the complaint, but when they failed to do so, he dismissed the complaint with prejudice. Collier and Seitz appealed to the Seventh Circuit.

Legal Analysis
The Seventh Circuit found several flaws in Judge Norgle’s decision. Under United States Supreme Court precedent, the party invoking federal jurisdiction is required to establish all aspects of jurisdiction, including Article III standing. That meant it was a viable injury in fact not enough for the Defendant to establish that the case arose under a federal statute; it was required to also establish that Collier and Seitz “suffered an injury in fact beyond a statutory violation.” But Collier and Seitz did not allege any injury in fact (and acknowledged as much). Accordingly, the Seventh Circuit concluded that Collier and Seitz lacked Article III standing and the district court lacked subject-matter jurisdiction.

The Seventh Circuit next addressed the argument that its interpretation would allow plaintiffs to game the system by making conclusory allegations of injury in fact to avoid removal, but then buttressing those allegations once the time to remove had expired. The Seventh Circuit rejected the argument; 28 U.S.C. § 1446(b)(3) permits a defendant to remove (again) if a plaintiff amends his or her complaint to plead a viable injury in fact or files any other paper that establishes the presence of the predicates for removal. As such, a plaintiff gains nothing by withholding allegations or evidence of actual damages.

Because the district court lacked subject-matter jurisdiction, the Seventh Circuit remanded the case to the district court with instructions to return it to the state court. But the court also made a few other points, both generic and case specific. More generally, a federal court lacking jurisdiction is required to remand a removal, not dismiss it. And it certainly cannot dismiss “with prejudice” because “with prejudice” denotes that the decision was on the merits, and a court must have jurisdiction to reach a decision on the merits. As to this case specifically, the court noted that the dismissal with prejudice could not be justified as a Rule 41(b) sanction for Collier and Seitz’s failure to amend. The court reasoned that Rule 41(b) only permits such a harsh sanction when there is a “clear record of delay or contumacious conduct, or where other less drastic sanctions have proved unavailing,” none of which were applicable here.

The Seventh Circuit concluded with a warning to state court defendants generally. Federal law (28 U.S.C. § 1447(c)) allows a party seeking remand to recover attorneys’ fees and costs incurred as a result of an improper removal to federal court. Although the Seventh Circuit denied Collier and Seitz’s request for fees and costs, it appeared to do so only because Collier and Seitz failed to develop their argument on that point. The court nevertheless strongly hinted that an award of fees and costs was justifiable because the Defendant’s “dubious strategy has resulted in a significant waste of federal judicial resources, much of which was avoidable.”

Implications
The Seventh Circuit could not have been more clear—state court defendants cannot remove to federal court and then seek dismissal of the case for lack of Article III standing per Spokeo. And the court’s position makes sense—a defendant removing to federal court is the one invoking federal jurisdiction; it is incongruous for that defendant to then turn around and claim the district court lacks jurisdiction. Defendants would be wise to take heed of the Collier decision because it is likely that the Seventh Circuit and the district courts under its authority will sanction defendants who remove to federal court and then seek a Spokeo dismissal.