UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
September 21, 1982
STATE OF NEW YORK, by ROBERT ABRAMS, Attorney General of the State of New York, Plaintiff,
GENERAL MOTORS CORPORATION, Defendant
The opinion of the court was delivered by: GOETTEL
This action arises from consumer complaints about alleged defects in the General Motors (GM) Turbo Hydra-Matic 200 automatic transmission (THM 200). Suing under section 63(12) of the New York Executive Law,
the State of New York, by its Attorney General, alleges that GM has engaged in "repeated and persistent fraudulent and illegal business practices in connection with its sale, warranting, and repair of automobiles equipped with the [THM 200]." Complaint para. 3. It seeks restitution for aggrieved consumers and various forms of injunctive relief.
The State originally commenced this action in New York State Supreme Court on March 24, 1982.
Shortly thereafter, GM removed the case to this Court on the basis of diversity of citizenship. Before this Court is the State's motion to remand the case on the ground that diversity jurisdiction does not exist. See 28 U.S.C. § 1447(c) (1976).
It is well established that a state is not a citizen for diversity purposes. Moor v. County of Alameda, 411 U.S. 693, 717, 36 L. Ed. 2d 596, 93 S. Ct. 1785 (1973); Ohio v. Wyandotte Chemicals Corp., 401 U.S. 493, 498 n.3, 28 L. Ed. 2d 256, 91 S. Ct. 1005 (1971). It is equally well established, however, that the citizenship of a nominal or formal party is disregarded in determining the existence of diversity; only those with a real and substantial interest in the controversy are considered. Navarro Savings Association v. Lee, 446 U.S. 458, 460-61, 64 L. Ed. 2d 425, 100 S. Ct. 1779 (1980); see 6 C. Wright & A. Miller, Federal Practice and Procedure § 1556 (1971). This is the principle underlying the removal from state court. GM argues that the State of New York is merely a nominal party representing the interests of New York consumers who allegedly have been defrauded by GM's actions concerning the THM 200. Thus, according to GM, diversity exists because the real plaintiffs are citizens of New York and the defendant, GM, is a citizen of Delaware and Michigan. The State, on the other hand, argues that it has a real interest in this controversy, and thus, that a remand is warranted because the Court does not have diversity jurisdiction.
An examination of the nature and effect of this lawsuit leads this Court to agree with the State.
As noted above, the State brought this action in response to numerous complaints about the THM 200. Essentially, it seeks three types of relief.
First, it seeks redress for those who have already purchased automobiles equipped with the THM 200. Second, it seeks to protect prospective purchasers of automobiles equipped with the THM 200 by requiring full disclosure, prior to purchase, of the defects in and problems with the THM 200. Finally, it seeks to protect prospective purchasers of all GM vehicles by requiring disclosure of all known defects in or problems with vehicles as well as the existence of any significant new part, component, or system design. The purpose of seeking this wide-ranging relief is not merely to vindicate the interests of a few private parties. Rather, it is to take a step toward eliminating fraudulent and deceptive business practices in the marketplace. Indeed, the State believes that imposition of the requested sanctions would have the effect of requiring all manufacturers to inform prospective purchasers of known defects in or problems with a part or design. Memorandum of Law in Support of [the State's] Motion to Remand at 6 (quoting Attorney General's press release announcing this lawsuit). This would enhance the economic well-being of all, not merely a few, New York consumers.
The State's goal of securing an honest marketplace in which to transact business is a quasi-sovereign interest.
Kelley v. Carr, 442 F. Supp. 346, 356-57 (W.D. Mich. 1977) ("surely some of the most basic of a state's quasi-sovereign interests include maintenance of the integrity of markets and exchanges operating within its boundaries, [and] protection of its citizens from fraudulent and deceptive practices"). See generally Ohralik v. Ohio State Bar Association, 436 U.S. 447, 462, 56 L. Ed. 2d 444, 98 S. Ct. 1912 (1978) (in a first amendment context, the Supreme Court noted that "the State has a legitimate and indeed 'compelling' interest in preventing those aspects of solicitation that involve fraud, undue influence, intimidation, overreaching, and other forms of 'vexatious conduct'"). As such, it is sufficient to preclude characterizing the state as a nominal party without a real interest in the outcome of this lawsuit. In Eure v. NVF Co., 481 F. Supp. 639 (E.D.N.C. 1979), for example, the court held that the state was a real party in interest in a suit by the North Carolina Secretary of State to compel compliance with the North Carolina Tender Offer Disclosure Act. Rejecting the defendants' argument that the state was merely a representative of the management of the target company, the court noted that the state had an independent interest in, inter alia, ensuring "aboveboard dealings in the purchase of stock." Id. at 642; accord, Illinois ex rel. Scott v. Hunt International Resources Corp., 481 F. Supp. 71 (N.D. Ill. 1979) (State of Illinois held to be a real party in interest in a suit by its Attorney General to enjoin violations of the Illinois Consumer Fraud and Deceptive Practices Act and to obtain damages and restitution for consumers injured by those violations); see also Glenmede Trust Co. v. Dow Chemical Co., 384 F. Supp. 423, 430-32 (E.D. Pa. 1974). But see Louisiana ex rel. Guste v. Fedders Corp., 524 F. Supp. 552 (M.D. La. 1981) (State of Louisiana held to be a nominal party in a suit by the State's Attorney General to enjoin unfair trade practices and to obtain restitution for Louisiana consumers injured by those practices); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Cavicchia, 311 F. Supp. 149 (S.D.N.Y. 1970) (New York held to be a nominal party for purposes of the Eleventh Amendment in a suit under the Martin Act, which "authorizes the Attorney General, when he believes that anyone has engaged in, or is about to engage in, any fraudulent practices involving securities, to 'bring an action in the name and on behalf of the people of the state of New York'" (emphasis omitted)).
This conclusion is not altered by the State's decision to seek restitutionary relief and damages on behalf of those who allegedly have been defrauded by GM. Recovery of damages for aggrieved consumers is but one aspect of the case. The focus is on obtaining wide-ranging injunctive relief designed to vindicate the State's quasi-sovereign interest in securing an honest marketplace for all consumers. That recovery on behalf of an identifiable group is also sought should not require this Court to ignore the primary purpose of the action and to characterize it as one brought solely for the benefit of a few private parties. See Illinois ex rel. Scott v. Hunt International Resources Corp., supra.7
This is, in all respects, the State's action. It is the State's quasi-sovereign interest that is being protected in this action. It is the State, not the purchasers of GM automobiles equipped with the THM 200, that controls this action. See 6 C. Wright & A. Miller, supra, § 1556, at 713 (to be "interested" for purposes of diversity, a party "at least must exercise some control over [the action]" (footnote omitted)). It is the State that will be bound by the results of this action. It is, therefore, logical to conclude that the State is not merely a nominal party. Accordingly, the State's motion to remand this case to the New York Supreme Court, New York County, is granted. The Clerk will enter the appropriate remand order.