MyinfoGuard, LLC v. Sorrell, 2012 WL 5469913 (D. Vt. Nov. 9, 2012).

Although the enactment of CAFA was meant to expand federal court jurisdiction over class actions, the Vermont district court did not deviate from the traditional “whole complaint”/ wholesale approach analysis when evaluating whether the State is the real party in interest in this parens patriae action. 

The State of Vermont was investigating companies for practices that violated Vermont’s Consumer Protection Act (“CPA”), Vt. Stat. Ann. tit 9 § 2451 et seq. These practices included, but were not limited to, charging consumers for telephone services without consumers’ authorization (i.e. “cramming”) and failing to comply with notification requirements.

While the parties were engaged in initial settlement discussions, ten companies located in Florida and New York (collectively, “the Sellers”) filed a suit in the district court of Vermont challenging the constitutionality the CPA’s notification provision, Vt. Stat. Ann. tit 9 § 2466, on Commerce Clause, equal protection, and First Amendment grounds.

The State filed a civil enforcement action in the Washington Superior Court against the Sellers, thirteen related individuals, and three other companies for alleged violations of the CPA §§2453 and 2466. The Sellers removed the state enforcement action to the district court claiming original jurisdiction based upon ordinary diversity jurisdiction under 28 U.S.C. § 1332(a); the “mass action” provision of CAFA 28 U.S.C. § 1332(d)(1); and the “class action” provision of CAFA, 28 U.S.C. § 1332(d)(2)-(10). 

The State asserted that removal was improper, and it moved that the district court remand the action to the Washington Superior Court. 

The State argued that it was not a citizen for the purpose of diversity jurisdiction. Moreover, the State asserted that both the class action and mass action prongs of CAFA required at least 100 members. With the State being the sole plaintiff in the enforcement action, the Sellers could not establish the CAFA numerosity requirement.

The Sellers responded that the court must look beyond the face of the complaint and determine whether there was jurisdiction based on the citizenship of the “real and substantial parties to the controversy,” who were the affected consumers and their telephone providers. The fundamental dispute, thus, was whether the State or the group of consumers subjected to cramming was the real party in interest. 

The district court noted that if those consumers, numbering over one thousand, were the real parties in interest, then the Sellers had no difficulty satisfying the CAFA numerosity requirement and may satisfy complete diversity for the purposes of § 1332(a).

With respect to both § 1332(a) and CAFA, federal courts are in general agreement that a crucial distinction must be drawn between a plaintiff who sues solely in his capacity as an agent and a plaintiff who sues not only as an agent but also as an individual who has his own stake in the litigation. The district court referenced the circuit split regarding the proper approach for determining whether the State is a real party in interest in parens patriae actions noting that “[t]he Fifth Circuit has adopted a “claim-by-claim” analysis, which despite its name, actually requires a court to consider whether a party will benefit from each form of relief requested. The Fourth, Seventh, and Ninth Circuits, on the other hand, apply a wholesale approach, which requires consideration of the complaint in its entirety. The Second Circuit is yet to decide this question, but a district court in Connecticut has joined the Fourth, Seventh, and Ninth Circuits in applying the wholesale approach.”

Employing literary rhetoric, the district court concluded that “in the woods of statutory interpretation, this Court may occasionally be convinced to take a road less traveled, but by advancing a rather tortured construction of the Vermont’s since-amended Consumer Protection Act (“CPA”), the Sellers were essentially asking the Court to bushwhack”. Thus electing to apply the wholesale approach, the district court found that the State was the real party in interest in its enforcement action. The court noted that the fact that the State sought restitution for Vermont consumers affected by cramming practices did not undermine the State’s broader interest in its case. Because the State sought remedies unavailable to consumers (i.e. civil penalties and a statewide injunction against cramming), the district court found that the State had concrete interests in the litigation as the benefits of remedies flowed to the State as a whole.

The Sellers argued that the civil penalty and injunction portions of the complaint were irrelevant to the determination of whether the State is the real party at interest because the injunction and civil penalty provisions of the CPA were facially inapplicable.

The district court, nevertheless, concluded that the State was relying on a reasonable interpretation of Vermont Statutes Annotated Title 9 § 2458, the State’s requests for injunctive relief and civil penalties were not facially inapplicable, and those forms of relief were relevant to the determination that the State was a real party in interest.

Therefore, the district court found that it lacked original jurisdiction under either the general diversity provision 28 U.S.C. § 1332(a) or CAFA and removal was improper. Remanding the action to the Washington Superior Court, the district court added that “[t]he Sellers are of course entitled to raise their arguments again on remand; however, this Court suspects that the Sellers will find themselves entangled in the prickly-ash if they do not blaze an interpretive trail that is more enticing to follow”.