Factors to determine whether to bring suit in Federal Court
By Ric Shenkman Esq.
This
article
is
intended as an
outline of some of
the factors that
should be considered
in
determining
whether to bring suit
in the Federal Courts at the trial level;
the article is limited to those factors
involving the Federal Courts created
pursuant to U.S. Const. Art. III.
The vast majority of the law suits in the
United States are filed in the State
Courts. State Courts are courts of
general jurisdiction; unless specifically
prohibited, the State Courts have
jurisdiction over all matters. Federal
Courts are courts of limited jurisdiction.
These limitations are imposed by the
U.S. Constitution and the federal
statutes promulgated pursuant
thereto. Jecker v. Montgomery, 54 U.S.
498, 13 How. 498, 14 L. Ed. 240 (1852)
U.S. Const. Art. III, § 1, in pertinent part,
provides: “The judicial Power of the
United States shall be vested in one
supreme Court, and in such inferior
Courts as the Congress may from time to
time ordain and establish.”
U.S. Const. Art. III, § 2, cl. 1 states: “The
judicial Power shall extend to all Cases,
in Law and Equity, arising under the
Constitution, the Laws of the United
States, and Treaties made, or which
shall be made, under their Authority:to all Cases affecting Ambassadors,
other public Ministers and Consuls;-to
all Cases of admiralty and maritime
Jurisdiction;-to Controversies to which
the United States shall be a Party;-to
Controversies between two or more
States:-between a State and Citizens of
another State;-between Citizens of
different States;-between Citizens of
the same State claiming Lands under
Grants of different States, and
between a State, or the Citizens
thereof, and foreign States, Citizens or
Subjects.”
The above quoted sections of U.S.
Const. Art. III form the basis for the
existence of the U.S. Supreme Court,
the various Courts of Appeal and the
District Courts. There are other
“federal” courts not based on U.S.
Const. Art. III such as the Bankruptcy
Courts and the various military courts;
these other courts and not the subject
of this article.
The District Courts are trial level courts;
the Courts of Appeal are the
intermediary appellate courts and the
Supreme Court is the highest level
appellate court. The Supreme Court
also has original jurisdiction over
certain types of cases.
JURISDICTION:
Federal jurisdiction, the power to hear
a case, has two elements: (1) the
power to hear the subject matter of
the case; and (2) the power to bind the
parties. State Courts have subject
matter jurisdiction over all suits unless
specifically prohibited.
Jurisdiction over subject matter is
original in the Federal Courts if the
issues raised involve federal questions.
28 U.S.C. § 1331. Most commonly,
federal question jurisdiction involves a
federal statute.
However, Federal Courts
have
jurisdiction over what would otherwise
be state claims by means of
supplemental jurisdiction. Since there is
a strong policy of resolving all issues
between parties in one proceeding, if
there are federal and state issues in a
case, a Federal Court can hear all of the
state issues as an ancillary function of its
exercise of subject matter jurisdiction.
However,
28 U.S.C. § 1367.
supplemental jurisdiction can only be
exercised if the non-federal claims are
so related to the federal claims that
they are part of the same factual nexus.
Federal Courts do not always have
exclusive subject matter jurisdiction
over federal statutes. There are certain
federal laws that allow a suit to be
brought in either the Federal or the
State Courts. The primary example of
this is 42 U.S.C. § 1983 which is the
statute promulgated pursuant to U.S.
Const. Amend. XIV.
Another basis for federal subject matter
jurisdiction is diversity. 28 U.S.C. §
1332. Diversity jurisdiction exists if the
matter in controversy exceeds a value
of $75,000.00, involves citizens of
different states or citizens of a state and
citizens or subjects of a foreign state.
Thus, a matter that would otherwise be
within the jurisdiction of the State
Courts can be entertained by a federal
court if diversity exists.
Continued
Power over the parties, more
commonly known as “personal
jurisdiction”, is governed by the
Federal Rules of Civil Procedure
(“FRCP”) 4. Although the Federal
Courts are a unified system, they are
organized along state lines; each state
has one or more federal districts. One
of the ways a Federal Court can obtain
personal jurisdiction is by serving
process on a party within the state
where the court is situate.
To obtain personal jurisdiction when a
party cannot be served in the state
where the court is located, the party to
be served must have “minimum
contacts” with the state; this is
colloquially known as “long arm”
jurisdiction. Minimum contacts would
include items such as doing having a
business located in the state where the
court is situate, advertising in that
state, etc.
VENUE: Venue assumes a court has
subject matter and personal
jurisdiction.
Venue governs the
location of the Federal Court where
the matter will be heard. 28 U.S.C. §
1391 is the general venue statute. The
general venue statute provides that a
suit may be brought in the state where
the defendant resides (since Jan. 6,
2012 a corporate defendant is deemed
a resident only in the jurisdiction
where it has its principal place of
business; see 28 U.S.C. §1391(c)(2)).
Larger states will have more than one
district due to
geographical
considerations. Each district has its
own clerk, U.S. Marshall and judges.
As an example, New York has four
districts: the Southern District (most of
New York City); the Eastern District
(Long Island); the Northern District
(Albany, Watertown, Syracuse); and
the Western District (Buffalo and
Rochester). Thus, New York has four
federal clerks and four U.S. Marshalls.
New Jersey has only one district but
has three “vicinages.” The Federal
Courts in New Jersey are located in
Newark, Trenton and Camden but
there is only one clerk and one U.S.
Marshall. The vicinage to which a case
is assigned in New Jersey depends on
where the parties reside.
28 U.S.C. § 1391(d) provides that in a
state with more than one district,
venue is located where a corporation
has sufficient contacts to establish
personal jurisdiction as if the district
were a state. Put in other words, if a
district has “long arm” jurisdiction,
that is the district where the case will
be heard.
The location where a substantial
portion of the events giving rise to the
claim can also form the basis for venue.
29 U.S.C. §1391(c)(2). The United State
Supreme Court has determined that
the location of the events would
include such factors as the availability
of witnesses, relevant evidence and
the convenience of the defendant.
Leroy v. Great Western United Corp.,
443 U.S. 173 (1979).
Additionally, there are over 200
special venue statues. Anti-trust has a
special venue statute. 15 U.S.C. § 22.
That statute provides that an anti-trust
action against a corporation may be
brought in the district where the
corporation is an inhabitant but also in
a district where it may be found or
transacts business. “Inhabit” for
purposes of the foregoing means
where the defendant corporation is
incorporated or where it has its
principal place of business. “Found”
means a corporation has offices,
solicits business, has local personnel or
agents, etc. “Transacts business” has
no technical definition but is liberally
construed keeping is mind the
congressional purpose of allowing an
injured party to sue in its home
district. Eastland Constr. Co. v.
Keasbey & Mattison Co., 358 F3d 777
(CA9 Calif. 1966)
Venue over anti-trust can be governed
by either the general venue provision,
28 U.S.C. § 1391 or the special venue
statute, 15 U.S.C. § 22. Daniel v. Am.
Bd. Of Emergency Med., 428 F3d 408
(CA2 NY 2005)
FORUM NON CONVENIENS: If a
federal district court has subject
matter and personal jurisdiction, and
venue is proper, there is a further
doctrine that must be analyzed, to wit:
forum non conveniens (“FNC”).
FNC is the concept that if one of more
federal districts courts have
jurisdiction and venue a separate
analysis must be engaged in to
determine which of the districts is
most appropriate to hear the case. 28
U.S.C. § 1404.
The factors that are usually considered
in a FNC analysis are: (1) the availability
of an adequate choice of forum (this
usually comes into play when a foreign
country is involved); (2) the degree of
deference to be accorded to the
Plaintiff’s choice of forum; and (3) the
balancing of private and public interest
factors taking into account the
deference accorded the Plaintiff’s
choice of forum.
The Supreme Court, in another
context, has opined on the details of
the factors to be considered in
analyzing FNC to include: (1) ease of
access to sources of proof; (2)
availability of compulsory process for
the attendance of unwilling witnesses
(there is a recent change in the FRCP
allowing a federal court to issue
subpoenas nationwide); (3) the cost of
obtaining willing or unwilling
witnesses; (4) the possibility of viewing
the evidence if same is not mobile; and
(5) all other practical problems that
make trial of the case easy,
expeditious, and inexpensive. Gulf Oil
Corp. v. Gilbert, 330 U.S. 501 (1947).
Continued
STATE LAW CLAIMS: When a Federal
Court exercises diversity jurisdiction, it
must also analyze what is known as
“conflict of laws” (“COL”). When a
Federal Court exercises jurisdiction
over state claims it must utilize
substantive state law. Where more
than one state’s laws may be
applicable. COL determines which
state’s laws apply. It is not uncommon
for jurisdiction, venue and FNC to allow
a federal court to hear a matter in one
state but use the law of another state.
The factors to be considered in a COL
analysis are: (a) the needs of the court
system; (2) the relative policies of the
courts; (3) the relevant polices of other
interested states and the interests of
those states in the determination of
the issues in question; (4) the
protection of justified interests; (5) the
basic policies underlying the particular
field of law; (6) certainty, predictability
and uniformity of results; and (7) ease
in the determination of the applicable
law to apply.
COL does not lend itself to precise
answers; it is unusually fact sensitive.
In the state claims that are applicable
here, the factors to be taken into
account in addition to the foregoing
are: (1) the place where the harm
occurred; (2) the place where the
conduct causing the harm occurred; (3)
the domicile, residence, place of
incorporation and place of business of
the parties; and (4) the place where
the relationship between the parties is
centered.
The determination of whether to file
suit in the Federal Courts should
include an analysis of jurisdiction,
venue, forum non conveniens and
conflicts of law.
Fredric “Ric” Shenkman joined Cooper Levenson in 1998. He brings to the firm over thirty three years of experience in both
transactional work and commercial litigation.
His transactional experience include the drafting of: asset sales; cross-purchase and redemption agreements; asset based
financing agreements; post-employment restrictive covenants; business separation agreements; PILOT Agreements
(payment in lieu of taxes agreements) and work-outs.
His litigation experience, in both the State and Federal Courts includes: real estate, partnership dissolution; corporate
dissolution; construction defects; oppressed shareholder/minority freeze-outs; condominium governance; corporate
governance; public finance; state and federal taxation; FOIA; OPRA; title defense, environmental, ad valorem taxation, D &
O and E & O defense, and foreclosures.
Ric can be reached at 609.572.7330 or [email protected]