In some putative class actions, the defendant seeks dismissal of the complaint on the grounds that the named plaintiff lacks standing to sue. Where the case has been removed to federal court, however, one possible outcome of such a motion is an order remanding the case back to state court. This may not be what the defendant desires, especially if the state court has a different standard for evaluating standing than the federal standards under Article III. Further complicating matters, a remand on these grounds also might not be reviewable on appeal, as a recent Tenth Circuit decision demonstrates.
In Hill v. Vanderbilt Capital Advisors, LLC, No. 11-2213, 2012 U.S. App. LEXIS 26463 (10th Cir. Dec. 27, 2012), the plaintiffs, state education employees in New Mexico, brought a putative class action alleging that an improper investment was made by a retirement fund from which they would receive pension benefits. The defendants removed the case to federal court and then moved for dismissal on the grounds of lack of standing. The district court agreed, concluding that the plaintiffs had failed to allege facts demonstrating that there was an appreciable risk that the fund would be unable to pay pension benefits, and therefore the plaintiffs lacked standing. Concluding that the lack of standing demonstrated a lack of subject matter jurisdiction, the district court then remanded the case to state court, even though a federal securities law claim, subject to exclusive federal jurisdiction, had been pled after the removal. Id. at *5.
The plaintiffs appealed, and the Tenth Circuit dismissed the appeal for lack of appellate jurisdiction. It first applied a limited standard of review on the issue of whether the district court’s decision was based on a lack of subject matter jurisdiction, and therefore unreviewable under 28 U.S.C. § 1447(d). The court wrote that “our inquiry is essentially a superficial determination of plausibility,” which it described as a “highly deferential standard.” Id. at *10. The court found that the district court had plausibly found a lack of subject matter jurisdiction because standing has frequently been characterized as a requirement of subject matter jurisdiction. The court also noted that several courts of appeals had remanded cases to state court rather than dismissing them where the court found a lack of standing. Id. at *10-12. The court further concluded that, even though the federal securities law claim was subject to exclusive federal jurisdiction, there was nothing the court of appeals could do about that because it lacked appellate jurisdiction over the remand order. Id. at *15-16.
The key lesson I see here from a defense strategy perspective is that defendants should be careful about what they ask for. A finding that the named plaintiff in a putative class action lacks standing, if it results in a remand to state court, may not be a desirable outcome for the defendant, particularly if it is not clear that the state court will analyze the standing issue in the same manner.