Hunton Retail Law Resource

In this post-Spokeo world, a defendant facing the all-too-common “no-injury” putative class action might be tempted to seek dismissal of the lawsuit on Article III grounds. But a panel of Ninth Circuit judges recently gave a compelling reason why defendants should strongly consider otherwise. In Polo v. Innoventions Intern. LLC, a Ninth Circuit panel reversed the dismissal of a putative class action based on a lack of jurisdiction, with instructions to remand the case to state court. We previously reported about this possibility following the issuance of Spokeo, into which a Ninth Circuit panel now has breathed life.

As background, the plaintiff in Polo filed a putative class action lawsuit in California state court, claiming the defendant’s product misled consumers regarding its ability to treat diabetes. The defendant then removed the case to federal court under the Class Action Fairness Act (“CAFA”). On summary judgment, the district court found the plaintiff did not have diabetes, had stopped taking her diabetes medication months before using the product at issue and was refunded her full purchase price. As a consequence, the district court found she was not injured, therefore lacked Article III standing and dismissed the case. The plaintiff appealed the dismissal of only one of her nine claims – her claim for alleged violations of California’s Consumer Legal Remedies Act (“CLRA”). The plaintiff argued that the case should have been remanded to California state court in lieu of dismissal.

A three-judge Ninth Circuit panel agreed. It reversed the district court’s judgment dismissing the case, with instructions to remand the case to state court. In short, the panel held, “upon determining that it lacked jurisdiction, the district court should have remanded the case to state court….” Even where the federal court lacks subject matter jurisdiction, a California state court, which is not governed by Article III, may still have jurisdiction to decide the case. According to the panel, this rule applies with equal force to cases removed under CAFA. Quite simply, when a court lacks subject matter jurisdiction at the outset, the case is not “properly removed” and therefore may be remanded.

The panel also considered the ongoing validity of the “futility doctrine,” and, even if valid, whether the doctrine could be applied to avoid remand. Under the futility doctrine, a district court may dismiss a removed case without remanding it back to state court if remand would be futile. The panel noted that the futility doctrine has been questioned and may no longer be good law. However, it declined to address whether the doctrine remained good law in the Ninth Circuit, particularly since the plaintiff did not make that argument.

Even assuming the ongoing validity of the futility doctrine, the panel found remand would be warranted because that doctrine requires a finding that a state court’s dismissal of the action upon remand would be an “absolute certainty.” According to the panel, it was “far from clear” that a state court would dismiss the lawsuit on remand. The plaintiff claimed she purchased a product from the defendant that she otherwise would not but for the defendant’s alleged misrepresentation. On those facts, the panel noted the plaintiff might even have had Article III standing to bring her CLRA claim – irrespective of whether she actually had diabetes or stopped taking diabetes medication. But the district court found the defendant fully compensated the plaintiff for her purchase price, thus mooting the plaintiff’s CLRA claim under federal law. Irrespective of the propriety of that finding (the plaintiff waived any argument to the contrary on appeal), the panel found that California law would not have allowed the defendant to “pick off” the plaintiff in that manner. Instead, to defeat a class action brought under the CLRA, the defendant must notify class members and provide an opportunity for an appropriate remedy for the defective goods or services. While the defendant refunded the plaintiff’s purchase price, it did not contend that it provided the notice and remedy to class members required by the CLRA. Thus, even if the plaintiff lacked standing under Article III to pursue her CLRA claim in federal court, the panel held she nonetheless might have standing to bring the claim under California law. On that basis, the panel concluded that remand to state court would not have been futile.

The panel’s decision in Polo underscores the need for defendants to carefully consider whether to seek a “quick win” by securing an early dismissal of the case based on a lack of federal subject matter jurisdiction. As Polo illustrates, such a victory could prove to be pyrrhic in nature and result in a loss of a favored federal court forum. Nonetheless, to the extent a plaintiff lacks injury, defendants should consider whether dismissal is appropriate under Rule 12(b)(6) and consider moving for dismissal thereunder and in lieu of Rule 12(b)(1). Indeed, certain statutory consumer protection claims, such as California’s unfair competition laws, have an injury-in-fact element.