In Thompson v. Army and Air Force Exchange Service, No. 23-2447 (7th Cir. Jan. 8, 2025), the Seventh Circuit holds that a federal agency that removes an action from state court under 28 U.S.C. § 1442 is not entitled to dismissal in federal court on a finding that the federal court lacks subject-matter jurisdiction, and that such action must be remanded back to state court under the provisions of 28 U.S.C. § 1447.
“This appeal involves the rare case where the parties agree that the district court lacked subject matter jurisdiction over the plaintiff’s claim. At issue is what happens next.”
“Linda Thompson filed a putative class action against the Army and Air Force Exchange Service (the ‘Exchange’) in Illinois state court, alleging that the Exchange printed her credit card’s expiration date on purchase receipts in violation of the Fair and Accurate Credit Transactions Act (‘FACTA’). The Exchange removed the case to federal court pursuant to 28 U.S.C. § 1442(a)(1), which provides for federal agency removal. Once in federal court, Thompson moved to remand the case back to state court, and the Exchange moved to dismiss under Federal Rule of Civil Procedure 12(b)(1)” for lack of Article III standing.
The district court agreed with the agency that under § 1442, as an arm of the federal government, it was entitled to a federal forum to decide the case. And because the plaintiff lacked Article III standing, the judge held that the only course was dismissal without prejudice, not remand to state court.
The Seventh Circuit vacates and remands. No party contested the ruling on standing, so the question presented on appeal is whether the district court correctly dismissed the case or ought to have, instead, remanded the case to state court. (The panel leaves, for another day, the issue of whether a federal agency must present a colorable federal defense to the plaintiff’s claims to support removal per Mesa v. California, 489 U.S. 121, 139 (1989).)
“The parties . . . dispute what happens once a federal court determines that it lacks subject matter jurisdiction over a FACTA action removed pursuant to § 1442(a)(1). We hold, based on the text of the federal removal provisions and FACTA, that courts faced with these circumstances must remand the case to state court . . . . [§ 1447] governs ‘procedure after removal generally.’ 28 U.S.C. § 1447. It refers to ‘any case removed from a State court,’ § 1447(a), and instructs that ‘[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded,’ § 1447(c).”
The defendant argued that because only federal courts had power to adjudicate disputes with federal agencies, it was not logically possible that § 1447 could mandate remand of a removed case to state court. But the panel holds that the plain language of § 1447 dictates remand to state court. Section § 1447 refers to “any case removed from a State court,” § 1447(a), and directs that “[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded,” § 1447(c).
Section 1447(c) thus “resolves this case. It requires federal courts to remand cases removed from state court over which the federal courts lack subject matter jurisdiction. Nothing on the face of § 1447(c) limits its application to cases removed under a specific removal provision.”
“Indeed, reading § 1447(c) to exclude cases removed pursuant to § 1442 would make little sense when viewing the statute as a whole. Subsection 1447(d) generally precludes appellate review of district court decisions to remand. But it creates a carveout for cases removed under § 1442 and remanded pursuant to § 1447(c). 28 U.S.C § 1447(d) (‘An order remanding a case to the State court from which it was removed is not reviewable …, except that an order remanding a case to the State court from which it was removed pursuant to section 1442 … shall be reviewable’) . . . . A determination that § 1447(c) does not apply to cases removed pursuant to § 1442 would therefore strip § 1447(d) of its full effect.”
The panel notes that a subject-matter jurisdiction issue that can otherwise doom a case in federal court, here a “lack of a sufficiently concrete injury for purposes Article III standing,” may not apply to a state court. Thus a remand to state court may not be futile.
“Nor are we swayed by the Exchange’s contention that § 1442(a)(1) grants federal officers and agencies an unfettered right to litigate in federal court . . . . [I]n enacting § 1442(a)(1), Congress gave covered entities the ability to remove a case even where the federal court would not have had original (e.g., ‘arising under’) jurisdiction . . . . They do not equate the right to remove with an unfettered right to litigate in federal court” (emphasis added).
Because the district court erred by not following the dictate of § 1447 to remand to state court, the Seventh Circuit vacates and remands with instructions to remand the action to state court.