DocketNumber: MDL No. 2843; Case No. 18-md-02843-VC; Case No. 18-cv-06486-VC
Citation Numbers: 354 F. Supp. 3d 1122
Judges: Chhabria
Filed Date: 1/29/2019
Status: Precedential
Modified Date: 7/25/2022
The question presented by this motion is whether a lawsuit against Facebook, filed in Illinois state court by the Cook County State's Attorney, asserting violations of Illinois law and seeking civil penalties along with statewide injunctive relief, was properly removed to federal court. The answer is no.
I.
In 2018, the media reported that Cambridge Analytica, a British political consulting firm, had obtained personal data on millions of Facebook users and exploited those data in connection with the 2016 presidential campaign. In response, dozens of lawsuits were filed in federal courts around the country. Most of the lawsuits were class actions brought by individual Facebook users on behalf of a proposed nationwide class of people whose data had been obtained by Cambridge Analytica or other third parties. All the lawsuits named Facebook as a defendant; some included Cambridge Analytica and other defendants as well.
When multiple similar federal lawsuits are filed around the country, the Judicial Panel on Multidistrict Litigation considers whether to transfer the cases for pretrial proceedings to a single federal judge. The purpose of a transfer is to promote efficiency and fairness by avoiding conflicting results and ensuring that multiple judges are not called upon to adjudicate the same pretrial issues. Assuming the lawsuits survive all the pretrial rulings and don't settle, the judge releases them back to the districts where they were originally filed for trials to be conducted.
The Panel has assigned several dozen cases arising from Facebook's data sharing to the undersigned federal district judge for pretrial purposes. There is a dispute about whether one of those cases should be part of the group: a lawsuit that was originally filed in Illinois state court, under the Illinois Consumer Fraud and Deceptive Business Practices Act, by Cook County State's Attorney Kimberly Foxx in the *1124name of the "People of the State of Illinois." Foxx seeks a statewide injunction to require Facebook to better protect user data, as well as civil penalties for Facebook's prior conduct. The lawsuit does not seek restitution or damages for Facebook users based on past conduct.
A case can get into federal court, even when a lawsuit does not allege federal law violations, through diversity jurisdiction. Diversity jurisdiction exists when a party from one state brings claims under state law against a defendant from another state and the amount in controversy exceeds $ 75,000.
Facebook removed the Foxx lawsuit from Illinois state court to federal court in the Northern District of Illinois, asserting federal jurisdiction based on diversity of citizenship (specifically, the County is a citizen of Illinois while Facebook is a citizen of California and Delaware). Foxx moved to remand the case to state court. The multidistrict litigation panel transferred the case before the remand motion was decided, so the motion is now pending before this Court.
II.
A case brought by a state, under state law, cannot be filed in or removed to federal court. This is so even if the defendant is from another state. Diversity jurisdiction is lacking in such a case because the state is not a citizen of anywhere. See Mississippi ex rel. Hood v. AU Optronics Corp. ,
When a case has been removed from state court, doubts about federal jurisdiction must be resolved in favor of remand. See Gaus v. Miles, Inc. ,
*1125Furthermore, although federal courts should always be careful before exercising removal jurisdiction, and should be even more careful when the case has been brought by a state or one of its officials, the concern is even more pronounced in the context of multidistrict litigation. When a case is folded into multidistrict litigation, it will almost inevitably be delayed. Its fate will be bound up in the fates of many others. The transferee judge may decide that certain claims should be prioritized or addressed first. The plaintiff may thus lose control over the direction of the lawsuit. And this is a serious concern if the plaintiff is a government entity or official - the multidistrict litigation process would intrude on state or local sovereignty. Therefore, where a case is originally filed in state court to vindicate a state's sovereign interests, federal courts should exercise the greatest possible caution before asserting jurisdiction. The purpose of the multidistrict litigation process is to make the adjudication of federal cases more efficient and fair, not to interfere with the ability of state courts to adjudicate claims brought under state law by state or local officials.
III.
In support of her remand motion, Foxx notes that although she is merely a county prosecutor (a "State's Attorney" in Illinois is the equivalent of a District Attorney in California and other states), her lawsuit was brought in the name of the People of Illinois, under the authority conferred upon her by the Illinois Consumer Fraud Act. See 815 Ill. Comp. Stat. 505/7(a). This, according to Foxx, means the lawsuit was effectively brought by the State of Illinois, and Illinois is the real party in interest for purposes of the diversity jurisdiction analysis.
In response, Facebook primarily offers four somewhat related arguments for why Illinois is not the real party in interest in Foxx's lawsuit. First, Facebook reads a 1901 Supreme Court case as standing for the proposition that a state cannot be the real party in interest unless the relief sought in the lawsuit would benefit only the state, as a distinct entity, without any benefit going to private parties or discrete parochial interests. Second, Facebook appears to contend that even if this is not always the rule, it should at least be the rule in a case brought by a subordinate official or entity (such as a county prosecutor), as opposed to the state's chief legal officer (usually the Attorney General). Third, Facebook argues that, as a matter of Illinois law, a subordinate official like the Cook County State's Attorney is not authorized to bring actions for statewide relief on behalf of the state, meaning that Illinois could not possibly be the real party in interest. Fourth, Facebook asserts that the civil penalties sought by Foxx would go to the Cook County treasury, and argues that a state cannot be considered the real party in interest if the penalties from an action by a county prosecutor do not go directly to the state.
A.
For its initial argument, Facebook primarily cites Missouri, Kansas & Texas Railway Co. v. Missouri Railroad & Warehouse Commissioners ,
*1126
The United States Supreme Court vacated the ruling, concluding that the railway company should have been permitted to remove the case to federal court on diversity jurisdiction grounds. Missouri Railroad ,
It is not an action to recover any money for the state. Its results will not enure to the benefit of the State as a State in any degree. It is a suit to compel compliance with an order of the railroad commissioners in respect to rates and charges. The parties interested are the railway company, on the one hand, and they who use the bridge, on the other; the one interested to have the charges maintained as they have been, the others to have them reduced in compliance with the order of the commissioners. They are the real parties in interest, and in respect to whom the decree will effectively operate.
In reaching this ruling, the Court also stated: "[I]t may fairly be held that the State is such real party when the relief sought is that which enures to it alone, and in its favor the judgment or decree, if for the plaintiff, will effectively operate." Missouri Railroad ,
The Supreme Court next considered this issue in Port of Seattle v. Oregon & Washington Railroad Co. , another case pitting a local government entity - the Port of Seattle - against an out-of-state railway company.
The Supreme Court has not had a case since 1921 about whether a state is the real party in interest for diversity purposes. But most courts have applied those early precedents in a fashion that significantly *1127undermines Facebook's reliance on the "enures to the state alone" phrase from Missouri Railroad . For example, in Nevada v. Bank of America Corp. , the Nevada Attorney General brought a case against an out-of-state bank alleging fraudulent mortgage and foreclosure practices statewide.
In reaching this conclusion, the Ninth Circuit distinguished its ruling from a year earlier in Dep't of Fair Employment & Housing v. Lucent Technologies, Inc. ,
Our rationale for finding that the aggrieved individual was the real party in interest in Lucent compels the conclusion that Nevada is the real party in interest here. Unlike the California DFEH, which sued on behalf of a single aggrieved employee, here, the Nevada Attorney General sued to protect the hundreds of thousands of homeowners in the state allegedly deceived by Bank of America, as well as those affected by the impact of Bank of America's alleged frauds on Nevada's economy.
Other circuits have taken a similar approach. Like the Ninth Circuit, those courts examine the case as a whole to assess whether the primary relief sought and interests served are the state's, even if parochial interests are also served by the lawsuit. See, e.g. , AU Optronics Corp. v. South Carolina ,
Meanwhile, another line of cases, not discussed by either party or by the cases referenced above, is relevant here. These are "false claims act" cases, otherwise known as "qui tam" cases, which are brought by private citizens on behalf of the government, alleging that the defendant has defrauded the government and seeking to recover money on its behalf. There is a federal False Claims Act,
The upshot, considering all these cases together, is that the Supreme Court's statement in Missouri Railroad - that "the State is such real party when the relief sought is that which enures to it alone" - cannot be understood to mean that this is the only circumstance in which a state can be deemed the real party in interest for diversity purposes. Rather, it must be understood as referencing an example of a circumstance in which the state is the real party in interest. See *1129Florida v. Exxon Mobil Corp. , No. 4:10CV21-RH/WCS,
B.
Next, Facebook seems to contend that even if the "enures to the state alone" language doesn't apply when a lawsuit is brought by a state's chief legal officer - usually the Attorney General - it should at least apply when a lawsuit is brought by a subordinate government official or entity (such as a county prosecutor). Facebook reasons that where subordinate entities have brought cases, like in Missouri Railroad , Port of Seattle , and Lucent , courts have declined to find the state to be the real party in interest, whereas in cases like Nevada , which was prosecuted by the Attorney General, courts have been willing to deem the state the real party in interest despite the benefits private parties would receive from the lawsuit. Therefore, Facebook asserts, where a subordinate official or entity brings the case, there is sort of a presumption against deeming the state the real party in interest, such that the relief sought must benefit the state as a governmental entity alone, with no additional parochial benefit to be derived by individual citizens or by the subordinate entity that brought the suit. This interpretation of the case law, however, has some major problems.
As it relates to Missouri Railroad , there's no indication the Supreme Court's ruling would have been different had the State of Missouri, rather than the Railroad Commission, initiated the lawsuit. In fact, the Missouri Attorney General, Edward Crow, represented the Commission in the Supreme Court, and he presumably did so in the lower courts as well because Missouri law provided that the Attorney General would represent the Commission in rate actions.
Nor does Port of Seattle support Facebook's interpretation. Although the Court's analysis in that case was admittedly less than clear, there's no indication it intended to create a legal presumption against subordinate entities suing to vindicate state interests. Rather, the Court was concerned with the particular interests the Port sought to vindicate in that lawsuit, which the Court viewed as fundamentally parochial.
Facebook's argument also does not account for the qui tam cases, which show that even when a private party - much less a subordinate state official - sues on behalf of the state, and even when that private party would obtain a portion of the recovery for themselves, the state may be deemed the real party in interest.
But more fundamentally, Facebook's proposed approach confuses two distinct inquiries. Although the question of whether a state is the real party in interest for diversity purposes is one of federal common law, the question of who has the *1130authority to represent the state's interests in a lawsuit is a question of state law. Unless a state constitution somehow were to preclude it, a state legislature obviously has the power to authorize more than one official or entity (including a subordinate official or entity) to bring actions on behalf of the state. And once it's determined that a subordinate official has the authority under state law to represent the state's interests and seek relief for the state writ large, there's no reason to analyze the federal "real party in interest" question differently when it happens to be the subordinate official, rather than the Attorney General, who has brought the lawsuit. Perhaps a case brought by a subordinate official will be more likely, as a predictive matter, to serve parochial interests, but the legal test is the same: If the suit brought by a state, or by a party authorized to represent the state, would serve primarily a parochial interest, then the state is not the real party in interest for diversity purposes. But if the suit would primarily serve the state's interests rather than parochial ones, seeking relief primarily for the benefit of the state as a whole, the state is the real party in interest.
C.
Facebook argues that even if the test is the same when a subordinate official brings the lawsuit, that would not help Foxx in this case, because under Illinois law a State's Attorney does not have authority to represent the state's interests in a civil fraud action. Specifically, Facebook contends the Illinois Consumer Fraud Act should be construed as limiting the scope of actions by State's Attorneys to the jurisdictions they represent, such that a lawsuit by a State's Attorney may only target conduct that occurred within the county, and may only seek relief for the county or the people within it. These state-law limitations on Foxx's power, according to Facebook, mean that she is not prosecuting this action on behalf of the State of Illinois.
But the plain language of the Consumer Fraud Act suggests very strongly that a State's Attorney can bring a lawsuit to enforce it on behalf of Illinois itself, with authority to remedy statewide conduct and seek statewide relief. The Act, without distinguishing between the Attorney General and a State's Attorney in terms of their roles, provides that either may seek injunctive relief, penalties, and restitution in the name of the People of Illinois:
Whenever the Attorney General or a State's Attorney has reason to believe that any person is using, has used, or is about to use any method, act or practice declared by this Act to be unlawful, and that proceedings would be in the public interest, he or she may bring an action in the name of the People of the State against such person to restrain by preliminary or permanent injunction the use of such method, act or practice ....
In addition to the remedies provided herein, the Attorney General or State's Attorney may request and the Court may impose a civil penalty in a sum not to exceed $ 50,000 against any person found by the Court to have engaged in any method, act or practice declared unlawful under this Act.
815 Ill. Comp. Stat. 505/7.
The legislative history, while sparse, further suggests that the Legislature did not intend the State's Attorney to have a more circumscribed role. Initially, only the Attorney General could sue under the statute, but in 1986 the Legislature added State's Attorneys. In a statement on the Senate floor immediately before unanimous passage, Senator Timothy F. Degnan, the sponsor of the legislation, explained that the bill "amends the Consumer Fraud and Deceptive Practices Act, authoriz[ing] the state's attorneys of any *1131county to bring an action to enforce the Act on the same basis as the Attorney General." Transcript of Floor Debate, Senate, June 26, 1985, at 156, (emphasis added), https://cite.law/B7K3-MPBF. Senator Degnan added that the amendment "gives those state's attorneys the same investigative and subpoena powers as the Attorney General with regard to the Act."
All this comes against a constitutional and statutory backdrop that treats State's Attorneys as state officers with authority to vindicate not just county interests but state interests. It's a longstanding principle, the Illinois Supreme Court has explained, that a "State's Attorney is a constitutional officer with rights and duties 'analogous to or largely coincident with the Attorney General ... and the one to represent the county or People in matters affected with a public interest." People ex rel. Alvarez v. Gaughan ,
Facebook asserts it would be absurd to allow multiple public prosecutors to enforce the State's consumer fraud laws on a statewide basis, and so the Illinois Consumer Fraud Act should be construed more narrowly than its plain language suggests. To the contrary, it makes perfect sense for the Legislature to have conferred this authority on multiple prosecutors.
First, it makes sense in light of the goals of the Consumer Fraud Act itself. Consumer fraud, after all, can be difficult to detect. It can be expensive to investigate. And it can be challenging to prosecute. At the same time, combating consumer fraud is a high legislative priority in Illinois. Cf. Avery v. State Farm Mutual Auto. Insurance Co. ,
A legislative decision to give multiple prosecutors the power to bring statewide fraud actions makes sense from a governance standpoint as well. The Attorney General, as the State's chief legal officer, has the power "to control all litigation on behalf of the State including intervention in and management of all such proceedings." People v. Massarella ,
Nor is a system of multiple public prosecutors unfair. Facebook raises the specter of a company defeating one statewide consumer fraud action by a county prosecutor, only to be forced to defend subsequent statewide actions based on the same conduct by the Attorney General. But the company likely wouldn't face that scenario because of claim preclusion. If a State's Attorney brought a civil consumer fraud action on behalf of the State, a judgment on the merits in that action would very likely preclude the Attorney General or other State's Attorneys from bringing a similar statewide action in the future. Whether an action by one state entity precludes an action by another state entity depends in part on their respective "functions and responsibilities." Restatement (Second) of Judgments § 36 (Am. Law Inst. 1982). When it comes to bringing civil lawsuits under the consumer fraud statute, the functions and responsibilities of the Attorney General and county prosecutors are largely the same. And as discussed above, the Attorney General has supremacy over actions brought by State's Attorneys under the statute, and will inevitably be aware of such actions. From the Legislature's standpoint, a predictable and tolerable consequence of beefing up fraud enforcement in this fashion is that sometimes the Attorney General might get beaten to the punch on a lawsuit, and might be barred from bringing one later if she doesn't intervene in the present one.
For all these reasons, Facebook is wrong to argue that adherence to the plain language of the Consumer Fraud Act with respect to the scope of a county prosecutor's authority would create absurd results. To the contrary, it is Facebook's construction that would create all manner of problems. Imagine a scenario where a defendant engages in fraud throughout the state - fraud that affects people in similar ways regardless of county. Further imagine that the Attorney General (for reasons relating to resources, priorities, competence, or politics) fails to act. Then imagine that a county prosecutor brings an action against the wrongdoer and prevails. If the suit could cover only conduct within the county, or if relief were limited to the *1133jurisdictional boundaries of the county, then only the residents of that county would be protected, and only the fraud that affected the county would be punished, despite the fraud's effects being felt statewide. For people from the other 101 counties in Illinois, either their rights would not be vindicated or each county prosecutor would need to bring a copycat action. Such a system does not seem sensible from anyone's standpoint, including the defendant's.
Facebook notes that the Illinois Consumer Fraud Act is quite similar to California's Unfair Competition Law ("UCL"). Compare 815 Ill. Comp. Stat. 505/1 et seq., with
In sum, the best reading of the plain language of the Illinois Consumer Fraud Act is that it authorizes county prosecutors to represent the State of Illinois in consumer fraud actions on the same terms as the Attorney General. This finds support in the little legislative history that exists, and there is certainly nothing absurd about it. Accordingly, there is no basis for this Court to conclude, as a matter of Illinois law, that Kimberly Foxx is not authorized to represent the interests of the State of Illinois in a statewide enforcement action. This is particularly true where reasonable doubts about jurisdiction should be resolved in favor of remand, which in this context means that doubts should be resolved in Foxx's favor on this question of state law.
D.
Of course, the fact that Foxx has state law authority to represent the interests of Illinois in a statewide consumer fraud action does not automatically mean that, in this particular action, Illinois is the real party in interest for purposes of federal jurisdiction. Facebook next argues that, in this case, Illinois cannot be the real party in interest because any civil penalties recovered by Foxx will go to Cook County's treasury rather than the State's.
The Consumer Fraud Act does not specify where penalties should go for this type *1134of case. This means, according to the parties, that when a state court awards civil penalties in an action brought by a State's Attorney under the Consumer Fraud Act, the court has discretion to direct those penalties to the county treasury. Cf. 815 Ill. Comp. Stat. 505/7. Facebook is probably right to predict that a court would direct penalties to the county treasury in an action brought by a county prosecutor. But the likelihood that civil penalties would end up in a county treasury is less important than Facebook assumes, at least in this context.
Recall that the purpose of a civil penalty is not to compensate a victim but to punish the wrongdoer and deter future wrongdoing by others. Thus, from a punishment and deterrence standpoint, it serves the interests of the statute (and therefore the interests of Illinois) equally whether the penalties end up in state or county treasury. Cf. Indiana v. Alleghany Oil Co. ,
Recall further that in this case the action is brought by a county official pursuant to a grant of authority by the Legislature, to empower - and likely to incent - county prosecutors to enforce the Consumer Fraud Act. It is consistent with the system of enforcement incentives created by the statute (and it thus furthers the statute's goal of consumer fraud protection statewide) to allow the counties themselves, rather than the state, to recover penalties in actions brought by their own officials.
What's more, counties are political subdivisions of the state. Counties serve state functions, performing services (like administering the marriage laws or providing health care to the indigent) mandated by state law. Just as appropriations by state legislatures to counties serve state interests, so too does allowing civil penalties to go to the treasury of a county whose prosecutor brought a lawsuit pursuant to a statute that seeks to incent public prosecutors to vigorously enforce the consumer protection laws. In this regard, Foxx's lawsuit stands in contrast to the action brought by the local government entity in Port of Seattle . Here, an Illinois State's Attorney seeks to impose civil penalties for violations of a state consumer protection law that the Legislature has tapped county prosecutors to vindicate. In Port of Seattle , a special-purpose municipality filed a lawsuit that the Supreme Court viewed as seeking to exploit the municipality's narrow and unique interest in a piece of land. See
*1135Facebook also points to In re Avandia Marketing, Sales Practices & Product Liability Litigation , a case where a district court in Pennsylvania, adopting a report and recommendation from a special master, concluded that California was not the real party in interest in an action brought by the Santa Clara County Counsel, in large part because penalties would go to the county rather than the State.
IV.
Once all these concerns presented by Facebook are laid to rest, the analysis becomes fairly straightforward. If Foxx's lawsuit primarily serves parochial or private interests, then Illinois is not the real party in interest. See Lucent ,
IT IS SO ORDERED.
Although some courts have referred to the case as Missouri, Kansas & Texas Railway Co. v. Hickman , this Court uses the caption of the case from the U.S. Reports.
At the time, a defendant needed permission to remove a case; now a defendant can simply file a notice of removal in federal court.
Because transferee courts in multidistrict litigation proceedings apply the federal law of their home circuit even when the case came from a different circuit, the remand motion is governed by Ninth Circuit law. See In re Korean Air Lines Co., Ltd. ,
In Purdue Pharma L.P. v. Kentucky , the Second Circuit recognized that the "whole-complaint" approach, as adopted by the Ninth Circuit in Nevada , has emerged as the majority rule, but it didn't need to decide whether to adopt that standard in that case. See
The dicta in two contemporaneous Supreme Court cases citing this language from Missouri Railroad - although not mentioned by either party here - must be understood in the same way. See Ex parte Young ,
The Court stated that the Port of Seattle was not a state entity for Eleventh Amendment immunity purposes, implying that if it were, the State may have been the real party in interest. As discussed in Subsection D, to the extent the Eleventh Amendment analysis is relevant, it cuts against Facebook here, because a county prosecutor is a state official for Eleventh Amendment purposes when bringing a suit like this.
It appears that the Illinois Attorney General and the Cook County State's Attorney fully agree on this point. See Plaintiff's Second Supplemental Brief at 1, Dkt. No. 76; Illinois Attorney General's Amicus Curiae Brief at 2, Dkt. No. 78.
When a State's Attorney brings an action that is limited to conduct taking place within the county, and limited to seeking county-wide relief, a subsequent action by an Attorney General or another State's Attorney would presumably not be barred under the doctrine of claim preclusion. That said, the official bringing the subsequent action may be restricted by other doctrines like the double-recovery rule or, in a criminal matter, double jeopardy. See, e.g. , 520 Michigan Ave. Associates, Ltd. v. Devine ,
In contrast to California's statute, which requires counties to use such penalties for further enforcement of the consumer protection laws, the Illinois statute does not speak to where the penalties go or mandate how they are used. Compare
On a related note, to the extent it remains relevant under current case law, county prosecutors, when acting to enforce the state's laws, are state officials for Eleventh Amendment purposes. See, e.g. , Vasquez v. Rackauckas ,
See In re Community Bank of N. Virginia Mortgage Lending Practices Litig. ,