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IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF ILLINOIS 

EASTERN DIVISION 

State of Illinois ex rel. Schad, ) 

Diamond, & Shedden, P.C., ) 

 ) 

 ) 

 Plaintiff, ) 12 CV 586 

 v. ) 

 ) 

 ) 

hhgregg, Inc., a Delaware ) Judge Leinenweber 

Corporation, ) 

 ) 

 Defendant. ) 

Relator’s Motion to Remand to State Court 

 The State of Illinois by Relator Schad, Diamond, & Shedden, P.C. 

moves to remand this case to state court under 28 U.S.C. § 1447(c). No 

federal question exists. Defendant removed this case solely on diversity 

jurisdiction grounds, but no diversity jurisdiction exists. Therefore, the 

Court should remand the case because “If at any time before final 

judgment it appears that the district court lacks subject matter jurisdiction, 

the case shall be remanded.” 28 U.S.C. § 1447(c). 

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The Court should remand the case for two reasons: (1) the State of 

Illinois is not a citizen subject to diversity jurisdiction under Adden v. 

Middlebrooks, 688 F.2d 1147, 1150 (7th Cir. 1982) and 28 U.S.C. § 1332; and 

(2) the doctrine of comity requires federal courts to decline jurisdiction in 

cases involving state taxation. 

Introduction 

The State of Illinois by Relator Schad, Diamond, & Shedden, P.C. 

(“Relator”) sued Defendant hhgregg, Inc. under the Illinois False Claims 

Act (“IFCA”), 740 ILCS 175/1 et seq. The complaint alleges hhgregg did not 

collect and remit sales tax on shipping and handling charges on Internet 

sales to Illinois residents as required by the Illinois Use Tax Act, 35 ILCS 

105/1 et seq., and the Illinois Retailers’ Occupation Tax Act, 35 ILCS 120/1 

et seq. hhgregg submitted false ST-1s to the State of Illinois. The Circuit 

Court of Cook County entered an order allowing Relator to proceed 

against hhgregg on behalf of the State of Illinois. Exhibit A (12/7/11 

Order). 

To create a false basis for removal, hhgregg omitted naming the State 

of Illinois as a party in its Notice of Removal. No diversity jurisdiction 

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exists because the State of Illinois is not a citizen subject to diversity 

jurisdiction under 28 U.S.C. § 1332. The Court should remand the case on 

this ground alone. The doctrine of comity further supports remand 

because federal courts should not interfere with state tax matters. 

Argument 

I. The State of Illinois Is Not Subject to Diversity 

Jurisdiction Because It Is Not a Citizen Under 28 U.S.C. 

§ 1332. 

hhgregg improperly removed this case because “[s]tates are not 

‘citizens’ within the meaning of section 1332 and, therefore are not within 

the reach of the diversity statute.” Adden v. Middlebrooks, 688 F.2d at 1150. 

“The law is settled that in an action where a state is a party, there can be no 

federal jurisdiction on the basis of diversity of citizenship because a state is 

not a citizen for purposes of diversity jurisdiction.” Texas Dep't of Hous. and 

Cmty. Affairs v. Verex Assurance, Inc., 68 F.3d 922, 926 (5th Cir. 1995). 

The State of Illinois is the real party in interest in this case. The State 

of Illinois is entitled to recovery if the lawsuit is successful and the State of 

Illinois has a substantial interest in the subject matter of the action. Scachitti 

v. UBS Financial Services, et al., 215 Ill. 2d 484, 506 (2005). 

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Relator brought this case on behalf of the State of Illinois under the 

IFCA. The ICFA is an anti-fraud statute, to recover any damages the State 

sustains as a result of fraud. State of Illinois ex rel. Beeler, Schad, & Diamond, 

P.C. v. Burlington Coat Factory, 369 Ill. App. 3d 507, 510 (1st Dist. 2006). 

Relator seeks to enforce the State of Illinois’ sales tax statutes. The 

State of Illinois’ sales tax policy concerns public, not private, rights. The 

State of Illinois designed penalties under the ICFA to enforce and secure 

public, not private rights. The State of Illinois is the real party plaintiff. 

The cause of action belongs to it. Scachitti v. UBS Financial Services et al., 215 

Ill. 2d at 510 (Under the Illinois False Claims Act, “Attorney General retains 

authority to control the litigation at every stage of the proceedings.”) The 

State of Illinois is the real party in interest and is not subject to diversity 

jurisdiction. Adden v. Middlebrook, 688 F.2d at 1150. The Court should 

remand the case to state court on this basis alone. 

II. The Doctrine of Comity Supports Remand Because This 

 Case Involves State Sales Tax Collection. 

 The doctrine of comity further supports remand. The Seventh 

Circuit has held under the doctrine of comity that “federal courts have 

expressed a strong preference that issues of state taxation be litigated in 

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state court.” Alcan Aluminum Ltd. v. Oregon Dep’t of Revenue, 724 F.2d 1294, 

1298 (7th Cir. 1984) (“Federal courts have long been reluctant to interfere 

with a state’s system of raising revenues . . .”) 

The Supreme Court has held that federal courts should not interfere 

with the fiscal operation of state governments. Levin v. Commerce Energy, 

Inc., 130 S. Ct. 2323, 2329 (2010). Comity requires the Court to decline 

jurisdiction in cases involving state tax issues. 

[I]t is upon taxation that the several States chiefly rely to obtain the 

means to carry on their respective governments, and it is of the 

utmost importance to all of them that the modes adopted to enforce 

the taxes levied should be interfered with as little as possible. 

Levin v. Commerce Energy, Inc., 130 S. Ct. at 2329 (emphasis added). 

The Illinois Retailer’s Occupation Tax Act and the Illinois Use Tax 

Act “are complimentary, interlocking statutes that comprise the taxation 

scheme commonly referred to as the Illinois ‘sales tax’.” Kean v. Wal-Mart, 

Inc., 235 Ill. 2d 351, 362 (2009). 

The State of Illinois by Relator seeks to enforce state taxation laws to 

recover damages for the State of Illinois. Relator seeks to recover damages 

and penalties for the State of Illinois resulting from hhgreggs’ false claims 

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to the State under the Illinois FCA. These issues should be litigated in 

Illinois state court. 

The plain language of the Illinois False Claims Act allows a plaintiff 

to bring suit under IFCA based on the Use Tax Act. State of Illinois ex rel. 

Beeler, Schad, and Diamond, P.C. v. Ritz Camera Center, Inc. et al., 377 Ill. App. 

3d 990, 1009 (1st Dist. 2007). The IFCA is a proper vehicle to enforce the 

collection of use tax when evidence of defendant knowingly generating a 

false record or statement to avoid payment exists. Id. at 1006. 

In this case, Defendant prepared false invoices and submitted false 

ST-1s to the State of Illinois to conceal an obligation to collect and remit tax 

on internet shipping and handling charges. The doctrine of comity 

requires the court to remand this case because here, Relator on behalf of the 

State of Illinois seeks compliance with State of Illinois tax laws under the 

IFCA. 

Conclusion 

The Court should remand the case to state court. No federal question 

exists. No diversity jurisdiction exists because states are not citizens under 

28 U.S.C. § 1332 and thus not subject to diversity jurisdiction. 

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The doctrine of comity further supports remand because the State of 

Illinois by Relator seeks to enforce State of Illinois sales taxes under the 

Illinois False Claims Act. The Court should not interfere with state tax 

collection. 

 

/s Tony Kim 

One of the Attorneys for Relator 

Dated: February 17, 2012 

David A. Genelly 

Matthew M. Showel 

Vanasco, Genelly & Miller 

33 North LaSalle Street, Suite 2200 

Chicago, IL 60602 

(312) 786-5100 

Stephen B. Diamond 

Tony Kim 

Matthew S. Burns 

Schad, Diamond and Shedden, P.C. 

332 S. Michigan Avenue 

Suite 1000 

Chicago, Illinois 60604 

(312) 939-6280 

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