Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—DVt: Vermont Consumer Protection Claims Remanded to State Court , (Nov 14, 2012)

By Jody Coultas, J.D.

The State of Vermont was granted remand of Vermont Consumer Protection Act (CPA) claims—against companies that allegedly charged consumers for telephone services without the consumers’ authorization—that had been removed to the federal district court in Burlington, Vermont by the companies (MyInfoGuard, LLC v. Sorrell, November 9, 2012, Sessions, W.).

After the State of Vermont began investigating U.S. companies for practices that violated the CPA, specifically cramming, ten companies located in Florida and New York (the Sellers) filed a suit challenging the constitutionality of Section 2466 of the CPA and asserting a claim under 42 U.S.C. §1983. The State of Vermont filed CPA claims against those companies and others for violating Sections 2453 and 2466 in Washington Superior Court. The Sellers filed notice that they were removing the state enforcement action to the Burlington court. In a separate state action, five of the corporations sought to quash civil administrative subpoenas issued by the Attorney General on the grounds that any continuing investigation should be conducted under the auspices of federal discovery in the other case.

At issue was Assistant Attorney General (“AAG”) Burg’s motion to dismiss the §1983 claim brought by the Sellers; the state’s motion to remand; the Sellers motions to dismiss the CPA claims; the Attorney General’s motion to dismiss under the abstention doctrine; and the Sellers’ motion to stay the proceedings in Washington Superior Court relating to investigative subpoenas sought by the Attorney General.

Section 2453 of the CPA prohibits all unfair methods of competition in commerce, and unfair or deceptive acts or practices in commerce. Section 2466 requires that companies wishing to charge consumers on their local telephone bills notify them of the charges by first-class mail.

Because AAG Burg was entitled to absolute immunity for enforcing the CPA and testifying before legislature, the court dismissed the Sellers’ § 1983 claim against him. The Sellers argued that AAG Burg violated their constitutional rights by drafting the pre-2011 version of Section 2466, enforcing that provision despite being aware that its constitutionality was questionable after a Second Circuit’s decision, testifying before the Vermont Legislature in favor of a replacement for Section 2466, and otherwise improperly using his powers to investigate violations of the provision and to pursue civil cases against the Sellers and other corporations. Absolute immunity extends to government officials performing functions analogous to those of a prosecutor. AAG Burg was acting as the functional equivalent of a prosecutor while investigating potential violations of the CPA. Absolute legislative immunity attached to all actions taken in the sphere of legitimate legislative activity, including testifying before the legislature.

Also, the Sellers’ claim challenging the constitutionality of Section 2466 was dismissed by the court based on the doctrine of abstention. The state argued that the doctrine established by Younger v. Harris, 401 U.S. 37 (1971) precluded federal courts from enjoining ongoing state proceedings. Younger abstention is mandatory when there is a pending state proceeding that implicates an important state interest and the state proceeding affords the federal plaintiff an adequate opportunity for judicial review of his or her federal constitutional claims. There clearly was an ongoing proceeding that implicated an important state issue. The Sellers argued that there was no adequate opportunity for review of their constitutional claims in state court because the state enforcement action must be brought as a compulsory counterclaim to the federal suit. A federal court has no authority to enjoin a state action even if it concerns claims that should have been filed as compulsory counterclaims. Where state criminal proceedings are begun against federal plaintiffs after a federal complaint is filed but before any proceedings of substance on the merits have taken place in the federal court, the principles of Younger apply in full force.

Removal was improper, and the court remanded the case to the Washington Superior Court. The court did not have original jurisdiction over the Sellers’ claims under either the general diversity provision at or the Class Action Fairness Act. The Sellers failed to show that there was original jurisdiction on any grounds. The state was a real party in interest in its enforcement action and sought civil penalties and a statewide injunction against cramming. Thus, the state had concrete interests in the litigation.

A district court may stay state court proceedings to protect its own jurisdiction, according to the court. Because the court dismissed the Sellers’ constitutionality claims and remanded the state’s case, it denied the Sellers’ motion to stay as moot.

The Sellers’ motion to dismiss the CPA claims was also denied as moot because the case was remanded to the state court.

The cases are Nos. 2:12-cv-074 and 2:12-cv-102.

Andrew B. Lustigman (Olshan Grundman Frome Rosenzweig & Wolosky LLP) for MyInfoGuard, LLC. Elliot Mitchell Burg (Vermont Attorney General's Office) for Attorney General William H. Sorrell.

Cases: ConsumerProtection StateUnfairTradePractices VermontNews