January 17, 2017 Practice Points

Think Twice Before Seeking Dismissal for Lack of “Standing”

Tips for thinking through when and how to present standing challenges.

By Robert J. Herrington

After the Supreme Court’s decisions in Clapper and Spokeo, a common defense to consumer and privacy class actions is to seek dismissal based on a lack of Article III standing. But recent decisions have made this a risky proposition in cases removed to federal court, with several courts remanding class actions to state courts—and one even awarding attorneys’ fees for improvident removal—based on a defense challenge to standing. These cases highlight how practitioners need to think through when and how to present standing challenges.

Does a Lack of Article III Standing Require Remand?
The recent decision in Mocek v. Allsaints USA Ltd., --- F. Supp. 3d ---, 2016 WL 7116590 (Dec. 7, 2016), highlights the risk of challenging standing in a removed class action. Mocek involved a federal claim under the Fair and Accurate Credit Transaction Act. The case was filed in state court, the defendant removed to federal court based on federal question jurisdiction, and immediately sought dismissal under Spokeo. The court remanded the case based on 28 U.S.C. § 1447(c), concluding that the parties were “aligned in the view” that the court lacked subject-matter jurisdiction. The court also awarded more than $58,000 in attorney fees, concluding that the defendant “tried to have it both ways by asserting, then immediately disavowing, federal jurisdiction….” Ouch.

Several other courts have reached the same conclusion as Mocek, remanding class actions asserting federal claims based on a lack of Article III standing. See, e.g., Tyus v. United States Postal Serv., 2016 WL 6108942, at *1 (E.D. Wis. Oct. 19, 2016) (remanding Fair Credit Reporting Act claim after finding plaintiff lacked standing); Hopkins v. Staffing Network Holdings, LLC, 2016 WL 6462095, at *4 (N.D. Ill. Oct. 18, 2016) (remanding FCRA claim based on lack of standing); Schartel v. One Source Technology, LLC, 2016 WL 6024558, at *3 (N.D. Ohio Oct. 14, 2016) (same); Disalvo v. Intellicorp Records, Inc., 2016 WL 5405258, at *5 (N.D. Ohio Sept. 27, 2016) (same); Davis Neurology v. DoctorDirectory.com LLC, 2016 U.S. Dist. Lexis 84391, at *1 (E.D. Ark. June 29, 2016) (sua sponte remand of TCPA claim based on defendant’s motion seeking dismissal for lack of standing).

Courts also have remanded cases asserting state law claims based on a lack of standing that were removed under CAFA. See, e.g., Polo v. Innoventions Int’l, LLC, 833 F.3d 1193, 1196 (9th Cir. 2016) (“a removed case in which the plaintiff lacks Article III standing must be remanded to state court”; remanding state consumer protection claim removed under CAFA); Wallace v Conagra Foods Inc., 747 F.3d 1025, 1033 (8th Cir. 2014) (remanding state law consumer protection claims based on lack of standing); Khan v. Children’s Nat’l Health Sys., ---- F. Supp. 3d ----, 2016 WL 2946165, at *7 (D. Md. May 19, 2016) (remanding state law claims in data breach class action after finding lack of standing).

In other words, a defendant can incur the expense of removing a case to federal court and demonstrating that the plaintiff lacks standing, only to have all that work be for naught, with the case ending up back in state court and possibly being responsible for the plaintiff’s attorney fees as well.

How Can Standing Challenges Be Presented to Mitigate These Risks?
Given these decisions, what can defense practitioners do to effectively present standing challenges in a way that won’t simply result in a case being remanded to state court and putting your client at risk for attorneys’ fees? This section provides a few suggestions.

Consider whether state law standing principles provide a better basis for seeking dismissal. Rather than immediately removing a case to federal court and seeking dismissal for lack of standing, consider whether to remove the case at all. Many states have adopted the same (or more stringent) standing requirements as Article III (log-in required), and a defendant may be better off making those arguments in state court rather than removing.

Think about timing. If you do remove, consider whether it is wise to immediately file a motion arguing that the plaintiff lacks standing. The Mocek court appears to have been concerned that the defendant was taking inconsistent positions, arguing for federal jurisdiction, while at the same time claiming the plaintiff did not have standing to assert the claim in federal court. Be aware of that risk. It may be better to concede that the allegations of the complaint establish standing and then challenge whether the plaintiff has any actual injury at a later time based on a more developed evidentiary record.

Focus on statutory standing. Not all “standing” is created equal. If you remove a case and argue that the plaintiff lacks Article III standing, you run the risk of having the case remanded to state court or dismissed without prejudice, in which case you may have accomplished nothing. But there is a different flavor of standing. “Statutory” standing focuses on the merits of the claim, including whether the claim requires proof of injury. A successful challenge to statutory standing results in dismissal with prejudice, rather than remand or dismissal without prejudice. Maya v. Centex Corp., 658 F.3d 1060, 1067 (9th Cir. 2011) (discussing differences between statutory and Article III standing). Therefore, rather than framing arguments in terms of Article III standing, consider focusing on the statutory standing requirements, which may include actual injury, reliance and causation. The argument may sound similar to an Article III challenge, but the result should be different.

Focus on “divestment” of federal question jurisdiction. For cases removed based on federal question jurisdiction, a defendant has another argument: divestment. In Advocates for Individuals with Disabilities Found. Inc. v. Russell Enterprises Inc., 2016 WL 7187931, at *1 (D. Ariz. Dec. 12, 2016), the court faced a situation similar to that in Mocek, but declined to remand the federal claim, notwithstanding a lack of standing. The Russell case involved claims filed in state court under the Americans with Disabilities Act (ADA). The defendant removed based on federal question jurisdiction and moved to dismiss for lack of standing. In response, the plaintiff filed a motion to remand. Although the court agreed that it lacked subject matter jurisdiction, it declined to remand the ADA claim, concluding that “Plaintiff is actually arguing that a state’s more-lenient standing requirements can divest a federal court of its 28 U.S.C. § 1331 federal question jurisdiction, which Defendant invoked by removing this case to federal court.” The court held that it “f[ound] no authority [] that such divestment is possible” and declined to remand the federal claim.

Consider whether Congress can create a cause of action where plaintiff lacks Article III standing. For cases that involve federal claims, a defendant also may want to argue that remand would be “futile” because Congress cannot create a cause of action that, whether in state of federal court, runs afoul of Article III. First, a caveat. The Ninth Circuit recently noted that the cases providing a “futility” exception to remand under 28 U.S.C. § 1447(c) “may no longer be good law,” although the court declined to decide the issue. Polo v. Innoventions Int’l, LLC, 833 F.3d 1193 (9th Cir. 2016). Nevertheless, many cases recognize that Congress cannot create a cause of action that would not satisfy Article III, and it would seem odd to conclude that a state court could adjudicate a federal claim that could not be decided in federal court. See Paul J. Katz, Standing in Good Stead: State Courts, Federal Standing Doctrine, and the Reverse-Erie Analysis, 99 Nw. U. L. Rev. 1315 (2005) (“it seems unreasonable that the Constitution would allow Congress to utilize state courts to enforce statutory directives where federal courts cannot”). Therefore, whether in federal or state court, a defendant should consider digging into the case law recognizing that Congress cannot simply do away with Constitutional requirements, including Article III’s injury requirement.

Robert J. Herrington is a shareholder with Greenberg Traurig in Los Angeles, California.

Robert J. Herrington – January 17, 2017