THE STATE OF INDIANA, ex rel. HARMEYER v. THE KROGER CO. et al

Filing 32

ORDER - On February 21, 2017, Defendants The Kroger Co., Kroger Limited Partnership I, KRGP, Inc., Pay Less Super Markets, Inc., and Ralphs Grocery Company filed a Notice of Removal in which they claimed that this case could be removed to this Cou rt on the basis of diversity jurisdiction. [Filing No. 1 .] In a February 23, 2017 Order, the Court identified several deficiencies with the Notice of Removal and ordered Defendants to either file an Amended Notice of Removal addressing the defic iencies, or to file a Motion to Remand this action to state court. [Filing No. 11 .] Defendants filed an Amended Notice of Removal on March 3, 2017, [Filing No. 14 ], and Relator Michael Harmeyer filed his response to the Amended Notice of Remov al pursuant to S.D. Ind. Local Rule 81-1 on March 20, 2017, [Filing No. 20 ]. For the reasons stated in this Order, Relator Harmeyer's Motion to Remand, [Filing No. 20 ], is GRANTED and this matter is REMANDED to the Marion Superior Court. (See Order). Signed by Judge Jane Magnus-Stinson on 6/13/2017.(APD)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
THE STATE OF INDIANA, ex rel. H ARMEYER,
Plaintiffs and Qui Tam Relator,
vs.
THE KROGER CO., KROGER LIMITED
PARTNERSHIP I, KRGP, INC., PAY LESS SUPER
MARKETS, INC., and RALPHS GROCERY
COMPANY,
Defendants.

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No. 1:17-cv-00538-JMS-DML

ORDER
On February 21, 2017, Defendants The Kroger Co., Kroger Limited Partnership I, KRGP,
Inc., Pay Less Super Markets, Inc., and Ralphs Grocery Company filed a Notice of Removal in
which they claimed that this case could be removed to this Court on the basis of diversity
jurisdiction. [Filing No. 1.] In a February 23, 2017 Order, the Court identified several deficiencies
with the Notice of Removal and ordered Defendants to either file an Amended Notice of Removal
addressing the deficiencies, or to file a Motion to Remand this action to state court. [Filing No.
11.] Defendants filed an Amended Notice of Removal on March 3, 2017, [Filing No. 14], and
Relator Michael Harmeyer filed his response to the Amended Notice of Removal pursuant to S.D.
Ind. Local Rule 81-1 on March 20, 2017, [Filing No. 20].
In his Local Rule 81-1 Statement, Relator Harmeyer set forth his position that the State of
Indiana is a real party in interest to this litigation, such that diversity jurisdiction does not exist.
[Filing No. 20 at 2-4.] The Court determined that Relator Harmeyer’s 81-1 Statement should be
treated as a Motion to Remand, [Filing No. 27], and that motion has now been fully briefed and is
ripe for the Court’s decision.

I.
STANDARD OF REVIEW
“[S]ubject matter jurisdiction is a fundamental limitation on the power of a federal court to
act.” Del Vecchio v. Conseco, Inc., 230 F.3d 974, 980 (7th Cir. 2000) (collecting cases). Thus, it
cannot be waived and “always comes ahead of the merits.” Leguizamo-Medina v. Gonzales, 493
F.3d 772, 774 (7th Cir. 2007).
A party that removes a state court case to federal court has the burden of establishing
federal jurisdiction. Schur v. L.A. Weight Loss Centers, Inc., 577 F.3d 752, 758 (7th Cir. 2009);
see also Walker v. Trailer Transit, Inc., 727 F.3d 819, 824-25 (7th Cir. 2013) (“The removing
defendant has the burden of proving the jurisdictional predicates for removal”). “[F]ederal courts
should interpret the removal statute narrowly, resolving any doubt in favor of the plaintiff’s choice
of forum in state court.” Schur, 577 F.3d at 758. “If at any time…it appears that the district court
lacks subject matter jurisdiction, the case shall be remanded” to state court. 28 U.S.C. § 1447.
II.
DISCUSSION
Relator Harmeyer argues that diversity jurisdiction does not exist when a state is a party,
because states are “jurisdiction spoilers.” [Filing No. 20 at 2-3.] He asserts that the Indiana False
Claims and Whistleblower Protection Act (“IFCWPA”) specifically provides that a Relator who
brings an action under the IFCWPA does so “‘on behalf of the State.’” [Filing No. 20 at 3 (quoting
Ind. Code § 5-11-5.5-4(a)).] Relator Harmeyer notes that the IFCWPA entitles the State of Indiana
to recover the majority of money damages awarded, so it is a “real party in interest.” [Filing No.
20 at 3-4.] He concludes that he “has no objection to litigating this action in the Southern District
of Indiana, [but] it appears that this case must be remanded to the Superior Court of Marion
County, Indiana, as a matter of law.” [Filing No. 20 at 4.]
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In response, Defendants argue that “States do not have citizenship, so if the Attorney
General or Inspector General for Indiana had intervened in this case, their presence would defeat
diversity.” [Filing No. 25 at 3 (emphasis omitted).] They contend that in this case, because the
Attorney General and Inspector General specifically elected not to intervene, the State of Indiana
is not a party to the action, “despite the presence of its name in the caption.” [Filing No. 25 at 4.]
Defendants note that the IFCWPA mirrors the federal False Claims Act and acknowledge that “[a]t
least a couple of courts have remanded state qui tam actions” finding that the State was a real party
in interest, but argue that those cases “have not considered the issue in any depth, however, and
have overlooked Supreme Court case law that demonstrates that this Court has jurisdiction to hear
this case, and that removal was proper.” [Filing No. 25 at 4.] Defendants point to cases outside
of the qui tam context, where courts found that other parties – such as a trustee in one case – were
the real parties in interest where they brought claims on behalf of others. [Filing No. 25 at 5-6.]
Defendants also argue that an analysis under the Eleventh Amendment indicates that there is
diversity jurisdiction here, stating “[a]lthough the federal government can sue a state under the
federal FCA, a relator cannot because he is not the equivalent of the government on whose behalf
he brings the suit. Similarly, in this action under the IFCWPA, the relator is not the equivalent of
the state government on whose behalf he brings the suit, so his citizenship, not the state’s lack of
citizenship, controls the issue of diversity.” [Filing No. 25 at 13.] Additionally, Defendants argue
that a state is deemed a real party in interest sufficient to defeat diversity only if the relief sought
enures to the State’s benefit alone, and that here the Relator is entitled to a recovery so is also a
real party in interest. [Filing No. 25 at 14-16.] Finally, Defendants contend that Relator Harmeyer
is not merely the State’s alter ego. [Filing No. 25 at 16-19.]

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On reply, Relator Harmeyer argues that Defendants’ Eleventh Amendment argument is not
relevant because “[t]he State’s status as a real party in interest is distinct from the relationship
between a qui tam relator and the sovereign on whose behalf the False Claims Act action is
brought.” [Filing No. 29 at 3.] Relator Harmeyer reiterates his arguments that the State of Indiana
is a real party in interest, and also contends that the State need not be the sole party in interest to
defeat jurisdiction. [Filing No. 29 at 4-9.]
The Court notes at the outset that although Relator Harmeyer states that he has no objection
to litigating this case in this Court, parties cannot stipulate to the existence of jurisdiction. See
Leguizamo-Medina, 493 F.3d at 774 (subject matter jurisdiction cannot be waived and “always
comes ahead of the merits”). Rather, the Court has a responsibility to ensure that it has jurisdiction,
regardless of the parties’ positions. Hukic v. Aurora Loan Servs., 588 F.3d 420, 427 (7th Cir.
2009).
When determining whether there is diversity jurisdiction, courts look not just to the
citizenship of the parties named in the caption of the Complaint, but rather also to the citizenship
of the real parties in interest. CCC Info. Servs. v. Am. Salvage Pool Ass’n, 230 F.3d 342, 346 (7th
Cir. 2000). For example, in determining the citizenship of a limited liability company, the Court
must look to “the citizenship of all the limited partners, as well as of the general partner.” Hart v.
Terminix Int’l, 336 F.3d 541, 542 (7th Cir. 2003) (quotation and citation omitted). Although the
limited partners and general partner are not “parties” to the litigation, they are “real parties in
interest” and their citizenship is determinative.
In the qui tam context, the United States Supreme Court has held that the United States is
a real party in interest, even when it has not intervened. In U.S. ex rel. Eisenstein v. City of New
York, New York, 556 U.S. 928 (2009), the relators in a qui tam action argued that the 60-day
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deadline for filing a notice of appeal under Fed. R. App. P. 4(a)(1)(A)-(B) when “the United States
or an officer or agency thereof is a party” applied, even though the United States had declined to
intervene in the action. The Supreme Court recognized a clear distinction between “party” and
“real party in interest,” finding that while the United States was not a “party” to the case because
it had declined to intervene, it was still a “real party in interest.” Id. at 935 (“the United States’
status as a ‘real party in interest’ in a qui tam action does not automatically convert it into a ‘party.’
The phrase, ‘real party in interest,’ is a term of art utilized in federal law to refer to an actor with
a substantive right whose interests may be represented in litigation by another”). See also United
States v. Sleep Centers Fort Wayne, LLC, 2016 WL 1358457, *4 (N.D. Ind. 2016) (stating “‘the
United States is a real party in interest even if it does not control the False Claims Act suit,’…as
the ‘harms redressed by the FCA belong to the government’ regardless of who guides the
litigation”); United States ex rel. Price v. Peters, 2014 WL 9866915, *1 (C.D. Ill. 2014) (“The
United States is a real party in interest of this case, notwithstanding its decision not to intervene
and the wholly independent and laudable efforts of Price and her attorneys….to pursue the claim
under the False Claims Act”); United States ex rel. Lusby v. Rolls-Royce, 570 F.3d 849, 852 (7th
Cir. 2009) (“[A]lthough the United States is not a ‘party’ to a qui tam suit unless it intervenes, it
is nonetheless a real party in interest – which is to say that its financial interests are at stake….”).
Although these cases involved the United States as a real party in interest, and not a state,
they are instructive. See New Mexico ex rel. National Educ. Ass’n of New Mexico, Inc. v. Austin
Capital Management Ltd., 671 F.Supp.2d 1248, 1251 (D. N.M. 2009) (“The status of the United
States in the false-claims-act qui tam action at stake in Eisenstein was the same as the State’s status
in this litigation; both potentially stand to benefit financially from the qui tam lawsuit even if they
have declined to intervene in the action. Therefore, the Supreme Court’s acknowledgement of the
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real-party-in-interest status of the United States in a qui tam lawsuit is persuasive authority
regarding the State’s status in this case”). Moreover, while it does not appear that the Seventh
Circuit has dealt with the specific issue of whether a state is a real party in interest in a qui tam
action for purposes of whether there is diversity jurisdiction, other federal court have done so and
have answered affirmatively. See, e.g., Id. (holding that although State was not a party to the
litigation for purposes of the Federal Rules of Civil Procedure, it was a real party in interest for
purposes of the diversity jurisdiction analysis); State of California, ex rel. Services Disabled
Veterans Telecommunications v. MCI Telecommunications Corp., 1999 WL 387034, *1 (9th Cir.
1999) (reversing district court’s finding that “the State of California, having declined to intervene
in the litigation, was only a nominal party and was therefore not a party for jurisdictional
purposes,” and stating that “[t]he California False Claims Act is modeled after the federal False
Claims Act, and under the federal statute we have held that the government is a real party in interest
and may assert its interest even though it has not intervened”).
The Court finds that the State of Indiana is a real party in interest to this litigation, despite
the fact that it has declined to intervene, and so its citizenship must be considered in determining
whether diversity jurisdiction exists here. Defendants’ arguments to the contrary are unavailing.
First, the cases Defendants cite for the proposition that Relator Harmeyer is the only real party in
interest arose outside of the qui tam context. [See, e.g., Filing No. 25 at 5 (citing and discussing
Navarro Sav. Ass’n v. Lee, 446 U.S. 458 (1980), which related to whether trustee or trust
beneficiaries were real parties in interest).]
Second, Defendants’ analogy between determining whether a state is a real party in interest
for diversity purposes and determining whether a state is a real party in interest for purposes of
Eleventh Amendment analysis is also based on cases outside of the qui tam context. [See, e.g.,
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Intel Corp. v. Board of Regents of University of Wisconsin System, 2009 WL 1139930 (W.D. Wis.
2009) (involved 42 U.S.C. § 1983 and state law claims, where court concluded that the Board of
Regents and the University of Wisconsin were both arms of the state for diversity jurisdiction
purposes using an Eleventh Amendment analysis; plaintiff did not bring qui tam claims);
Commissioner of Labor of North Carolina v. Dillard’s, Inc., 83 F.Supp.2d 622 (M.D. N.C. 2000)
(plaintiff asserted claims under the Retaliatory Employment Discrimination Act of North Carolina,
and court considered whether the State of North Carolina was a real party in interest for purposes
of diversity jurisdiction; plaintiff did not bring qui tam claims); Brotnitsky v. New Jersey Transit
Authority, 1985 WL 17877 (E.D. Pa. 1985) (plaintiff alleged negligence claims against New Jersey
Transit Authority, and court determined that Transit Authority was merely an alter ego of the state
such that it did not have diversity jurisdiction; plaintiff did not bring qui tam claims). Cases finding
that the United States is a real party in interest in qui tam actions even when it has elected not to
intervene in the lawsuit are much more analogous to this case.
Third, the Court rejects Defendants’ argument that the State of Indiana has to be the sole
real party in interest for its citizenship to matter for purposes of diversity jurisdiction. The case
Defendants rely upon, Missouri, K. & T. Ry. Co. of Kansas v. Hickman, 183 U.S. 53 (1901), was
not a qui tam case, and Defendants have not cited any cases extending the one sentence in Missouri
Ry. Co. that they rely upon to the qui tam context.
Finally, Defendants’ argument that Relator Harmeyer is not an alter ego of the State is
misplaced. He does not need to be an alter ego of the state in order for the State of Indiana to be
a real party in interest in a qui tam case, and Defendants do not cite any cases standing for that
proposition.

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Having found that the State of Indiana is a real party in interest in this matter, the Court
also finds that the State of Indiana is not considered a citizen of any State and, therefore, its
presence in the litigation destroys diversity jurisdiction. See Illinois v. Kerr-McGee Chem. Corp.,
677 F.2d 571, 575 n.5 (7th Cir. 1982) (“It is well-established that a state is not considered a citizen
of any state for the purposes of diversity jurisdiction. Thus there can be no diversity jurisdiction
when a state is a real party in interest to a lawsuit”). Accordingly, this matter must be remanded
to the Marion Superior Court.
III.
CONCLUSION
For the foregoing reasons, Relator Harmeyer’s Motion to Remand, [Filing No. 20], is
GRANTED and this matter is REMANDED to the Marion Superior Court.

Date: 6/13/2017

Distribution via ECF to all counsel of record

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