Judge rejects Bangstad effort to federalize privacy lawsuit

A federal judge has rejected Minocqua Brewing Company owner Kirk Bangstad’s attempt to move a state invasion-of-privacy lawsuit against him into federal court, ruling that the dispute is fundamentally a state-law tort case rather than a federal campaign-finance dispute.

In a May 20 decision, U.S. District judge William Conley granted a motion by Lakeland Times publisher Gregg Walker and Times’ general manager Heather Holmes — who filed the lawsuit against Bangstad — to remand the case to Oneida County circuit court.

Bangstad and the Minocqua Brewing Company (MBC) Super PAC had argued that the lawsuit necessarily involved federal election law under the Federal Election Campaign Act (FECA). However, Conley dismissed that assertion and kept Walker’s and Holmes’s underlying allegations intact.

“The party seeking removal has the burden of establishing federal jurisdiction,” Conley wrote, adding that federal courts are required to interpret removal statutes narrowly and resolve doubts in favor of keeping cases in state court. Ultimately, the judge concluded, the defendants failed to establish a substantial federal question requiring federal adjudication.

“As plaintiffs’ [Walker and Holmes] state, their common law claims do not necessarily raise a substantial, disputed federal law or regulation that a federal court must interpret, much less disrupt the federal-state balance approved by Congress, so their claims do not ‘arise under’ federal law, and defendants have failed to establish federal question jurisdiction,” Conley wrote. “Likewise, FECA does not expressly or impliedly preempt resolving plaintiffs’ claim under state law. Thus, a Wisconsin state court may interpret and apply Wisconsin law on invasion of privacy and the alter ego doctrine as applied to defendants, including the MBC Super PAC.”

Privacy allegations and PAC spending claims

Walker and Holmes filed the lawsuit in Oneida County circuit court, alleging that Bangstad and MBC unlawfully used their images and likenesses in their weekly newsletters and social media posts without their consent in violation of Wisconsin privacy law.

The complaint also asserted an alter ego theory, alleging that Bangstad, MBC, and the MBC Super PAC operated in an intertwined financial and operational fashion. According to the original lawsuit, Walker and Holmes alleged that Bangstad used the PAC as a personal and business funding vehicle.

“Since 2021, the MBC Super PAC has paid Bangstad, entities Bangstad controls, friends of Bangstad, Minocqua Brewing, and law firms a total of $1,124,440.19, which represents a staggering 58.3 percent of all expenditures by the MBC Super PAC since its inception,” the lawsuit states. “Based on the expenditure totals, the primary purpose of the MBC Super PAC is to provide a source of income for Bangstad and cover debts he owes to various law firms.”

The lawsuit followed an earlier defamation case in which a jury unanimously found Bangstad liable for defaming Walker and awarded $750,000 in damages, believed to be the largest defamation verdict in Wisconsin history. Ultimately, a settlement was negotiated, with Bangstad paying Walker $50,000 and his insurance companies paying $530,000.

However, unanswered questions raised in that lawsuit about Bangstad’s PAC activities worked their way into this lawsuit, as did statements Bangstad made during the defamation case about his use of his dispute with Walker for business purposes.

In their original complaint, Walker and Holmes asserted both an invasion of privacy under Wisconsin law and a declaration that the MBC Super PAC functioned as the alter ego of Bangstad and MBC. But Bangstad removed the case to federal court, arguing that because the alter-ego allegations involved PAC expenditures and campaign-finance activity, the case necessarily implicated FECA and thus belonged under federal jurisdiction.

Conley said that argument was flawed.

“On the other hand, plaintiffs argue that the amended complaint solely alleges state law claims, as their invasion of privacy claim and assertion of liability is based on Wisconsin state law, and even their original complaint does not allege any violations of FECA or even invoke that statute,” he wrote.

The defense had argued that the lawsuit raised what is known as an “embedded federal question.” Under Supreme Court precedent, a state-law claim can sometimes belong in federal court if resolving it necessarily requires deciding a major disputed federal issue.

But Conley turned away that argument, too, methodically walking through a four-part Supreme Court test for embedded questions created in Gunn v. Minton and finding against Bangstad on every factor. Per the four-part test, a federal issue must be necessarily raised, actually disputed, substantial, and capable of resolution in federal court without disrupting the federal-state balance approved by Congress.

The first criterion involved the concept an alter ego. In lay terms, an alter-ego claim is essentially an effort to “pierce the corporate veil” by arguing that separate entities are not truly independent but instead operate as extensions of one another. Under Wisconsin law, courts examine whether one entity completely dominates another financially and operationally, and whether that control was improperly used to cause harm.

“Starting with the first factor, defendants assert that plaintiffs ‘necessarily raise’ the issue of whether MBC Super PAC’s expenditures violate FECA because plaintiffs’ alter-ego allegations center around that PAC’s alleged spending on behalf of Bangstad and Minocqua Brewing,” Conley wrote. “In particular, defendants argue that a finding that the PAC is acting as Bangstad’s alter ego would require a court to determine whether its expenditures were permissible, ‘independent expenditures’ under FECA.”

In Wisconsin, Conley wrote, an alter ego finding of liability requires proof of three elements: “control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal rights; and the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.”

Misreading the law

But Conley said that standard did not require Walker and Holmes to prove federal statutory violations.

“Applying this standard, alleged liability under the alter-ego doctrine does not necessarily raise the question of whether the PAC’s expenditures violate federal campaign finance laws,” he wrote. “In particular, plaintiffs need not prove that the PAC violated FECA in order to establish that it is an alter ego, because alter ego liability turns on control and intentional misuse under Wisconsin law, not on the legality of the PAC’s expenditures under federal law.”

Certainly, Conley continued, plaintiffs include factual allegations regarding the MBC Super PAC’s spending and business decisions to claim that Bangstad’s personal, political, and business endeavors are so intertwined that they are indistinguishable from each other, such that the PAC may also be held financially liable for the alleged invasion of plaintiffs’ privacy under the Wisconsin alter-ego doctrine.

That said, Conley emphasized that that did not transform the lawsuit into a federal campaign-finance case.

“However, even if a legal conclusion that the PAC acts as Bangstad’s alter ego raises questions about defendants’ compliance with federal campaign finance laws, it is not necessary to resolve specific questions about the propriety of ‘independent expenditures’ under federal campaign regulations in order to determine whether the PAC acts as an alter ego under Wisconsin law,” he wrote. “For similar reasons, under the second factor, the federal issue is also not ‘actually in dispute’ on the face of the complaint because plaintiffs make no allegations that require the application or interpretation of FECA in order to prevail on their state law invasion-of-privacy or alter-ego claims.”

In practical terms, Conley drew a distinction between using PAC activity as evidence of operational overlap and asserting an actual FECA violation.

As for the third factor, Conley determined that any alleged federal issue in the case was not “substantial,” as it was wholly fact-bound and specific to the parties, not one that is important to the federal system as a whole.

“Likewise, the question of federal law is not substantial because it would neither be ‘dispositive of the case’ nor ‘controlling in numerous other cases,’” he wrote, citing Empire Healthchoice Assur., Inc. v. McVeigh. “Again, even if the answer to the question of whether the PAC is legally an alter ego for the other two defendants raises questions about whether the PAC violated federal election laws, an adjudication of that federal question would not be dispositive of the alter ego claim under Wisconsin law or vice versa.”

Indeed, Conley continued, a resolution of the state law claim would not, on its face, apply to any separate FEC enforcement actions.

“In the same vein, the federal question raised by defendants is not ‘substantial’ because no federal agency has a ‘direct interest in the availability of a federal forum to vindicate its own administrative action,’” he wrote. “In fact, no federal administrative action preceded this state law dispute.”

For the same reasons, Conley wrote, a state court’s adjudication of the state law, alter-ego claim would not ‘disrupt the federal-state balance’ designed by Congress — the fourth factor in the test — whether with respect to the FEC or otherwise. 

“Therefore, plaintiffs’ claims lack an embedded federal question,” he wrote.

Judge narrowly interprets FECA preemption

Conley also rejected Bangstad’s separate argument that FECA preempted state-law claims entirely. The defendants argued that FECA’s regulatory structure meant only federal courts could adjudicate disputes touching on PAC expenditures and operations.

Again, Conley disagreed, saying FECA’s preemption provisions are narrow and primarily concern laws directly affecting the responsibility to register with the FEC, to disclose receipts and expenditures, limitations on those receipts and expenditures regarding federal candidates and political committees, and other laws directly related to FECA’s purpose.

“Moreover, FECA’s preemption statute and implementing regulations are to be interpreted narrowly, so FECA typically does not preclude state-law causes of action that do not directly address its purpose of regulating federal campaigns,” he wrote. “Regardless, FECA certainly does not expressly preempt plaintiffs’ Wisconsin law claims for invasion of privacy and alter-ego liability, both of which fall outside the text of FECA’s express preemption provision and implementing regulations, much less ‘implicate the core concerns of FECA.’”

Finally, the judge rejected the defense’s argument for so-called “field preemption,” under which Walker’s and Holmes’s claims are so intertwined and subject to the exclusive enforcement mechanism and administrative procedures of FECA, they can only be resolved federally.

“Generally, defendants’ assertion runs headlong into a strong presumption against preemption in ‘field[s] traditionally occupied by the States,’ such as the common-law torts asserted by plaintiffs,” he wrote. “And as defendants correctly point out, the FEC has exclusive power to initiate proceedings to enforce FECA’s requirements, and FEC enforcement is ‘the exclusive civil remedy for the enforcement’ of FECA. For reasons already explained, plaintiffs are also asserting no violations of FECA, and neither FECA nor the FEC has ‘implicitly occupied [the] legislative field’ regarding any and all claims involving a PAC’s business and financial decisions such that there ‘is no room for state law.’”

Finally, Conley wrote, to assert that only the FEC could hear claims touching on a PAC’s expenditures would preclude all plaintiffs from asserting state common-law claims regarding a PAC’s business operations, which is far from what FECA’s exclusive enforcement provision intended.

“Similarly, allowing plaintiffs’ claims to proceed in state court would in no way undermine the FEC’s exclusive enforcement provision, as plaintiffs are not seeking civil remedies for the violation of federal election laws,” he wrote. “Neither are plaintiffs skirting FECA’s comprehensive regulatory mechanism as defendants assert. Instead, they are alleging facts about the PAC’s activities and operations to assert a state tort claim and pierce the defendants’ corporate veil, both claims ordinarily asserted before state courts and not pre-empted by FECA or the FEC.”

FECA does not expressly or impliedly preempt resolving plaintiffs’ claim under state law, Conley asserted.

“Because defendants cannot establish federal question jurisdiction, the court must grant plaintiffs’ motion to remand and leave the parties’ other, pending motions for leave to amend and to dismiss for the state court to resolve, with the final exception being plaintiffs’ fee request …”

The practical effect of the ruling is that the litigation now returns to Oneida County circuit court. Conley explicitly declined to rule on pending motions to dismiss or on a motion to amend the complaint because once federal jurisdiction failed, the court no longer had authority to decide the merits.  

In other words, Walker’s and Holmes’s claims remain active, and all substantive litigation now resumes in state court.

Walker and Holmes had also sought attorneys’ fees and costs incurred in fighting the removal in federal court. However, Conley denied that request, giving Bangstad a limited procedural victory on that issue.  

Conley wrote that an order remanding a case back to state court could require payment of just costs and any actual expenses, including attorney fees.

“Absent unusual circumstances, however, attorney’s fees should not be awarded when the removing party has an objectively reasonable basis for removal,” Conley wrote. “Here, defendants made a good-faith argument that plaintiffs’ complaint required the resolution of an embedded federal question involving expenditures and contributions under FECA.”

So while the defense lost the jurisdictional battle decisively, the court did not characterize the removal effort as frivolous or abusive. Still, Conley did not characterize Walker’s and Holmes’s factual allegations as implausible or legally defective. The ruling does not determine whether the plaintiffs will ultimately prevail on any of the claims, but it does mean the allegations now return to Oneida County for substantive litigation.

The bottom line is, the court found,  the dispute belongs in Wisconsin state court, not federal court.

Richard Moore is the author of “Dark State” and may be reached at richardd3d.substack.com.