Introduction

The vast and complex body of American law is based on several components: case law and legal reasoning that form the common law; statutes enacted at the federal and state levels; federal and state constitutions; codes such as the Uniform Commercial Code and the Uniform Bankruptcy Code; and, administrative law promulgated by agencies, such as the Federal Trade Commission or the IRS. Laws alone, however, would have no significance if it were not for the court system that was created for the purpose of interpreting and applying the law.

Principles of law are imbued in every aspect of the business environment; government regulations actively facilitate and restrict business operations. It is, therefore, essential for managers to have a basic knowledge of the legal system in order to understand how the applications of the rules affect their trade or business. In all likelihood many businesspeople will be involved, at one time or another, in the legal system. Thus, it is important to know the basic structure of the court system and the route a lawsuit takes through that system.

Before examining the federal and state court structures, the chapter will discuss the important concept of jurisdiction. Jurisdiction plays an important part in understanding where and why a suit starts in one court rather than in another.

Jurisdiction of Courts

The word “jurisdiction” is derived from two Latin words, juris meaning “law,” and dictum meaning “to speak.” In order to hear a case, a court must be able “to speak the law,” i.e., it must possess the power to rule on that case. In order to have this power, a court must have jurisdiction over the parties and subject matter of the case. Federal courts have subject matter jurisdiction in two types of cases: federal question cases, where the application of a federal law is necessary to resolve the dispute; and diversity cases, where a suit arises between citizens of two or more different states and the amount in controversy is $75,000 or greater.

Even though a case may be tried in a federal court, diversity cases require that federal courts apply the statutory and case law of the state in which the trial is conducted—not federal law. Federal courts are used to maintain impartiality in deciding this type of dispute.

In Personam Jurisdiction

In addition to subject matter jurisdiction, courts must have jurisdiction over the parties to a law suit. The legal term is in personam jurisdiction. A court may obtain in personam jurisdiction in any of three ways: 1) compulsory process — if a defendant is served with a summons, giving notice of the suit and requiring a response in court; 2) the party is a resident or does business in the state where the court is located; and, 3) consent — the party appears in court without objecting to the court’s jurisdiction.

Under all three methods, a court will always have in personam jurisdiction over a plaintiff who has consented to its jurisdiction by bringing a case. Subject matter jurisdiction, however, cannot be obtained merely by consent. Note: a nonresident defendant may make what is termed a “special appearance” to challenge the court’s jurisdiction without consenting to that jurisdiction.

Long-Arm Statutes

States protect their citizens from unscrupulous non-residents by enacting laws that grant courts in personam jurisdiction over non-residents having at least “minimum contacts” within the state. These so-called “long-arm statutes” allow one party to sue another living in a distant state without bearing the burden and expense of traveling to the defendant’s state—but only under limited and special circumstances.

The following case, International Shoe Co. v. State of Washington, still provides a perfect example of and demonstrates the application of these jurisdictional principles. Note the statement of the legal question found in the citation to Milliken v. Meyers.

 

Case Summary

International Shoe Co. v. State Of Washington

326 U.S. 310 (1945)

The questions for decision are (1) whether, within the limitations of the due process clause of the Fourteenth Amendment, appellant, a Delaware corporation, has by its activities in the State of Washington rendered itself amenable to proceedings in the court of that state to recover unpaid contributions to the state unemployment compensation fund exacted by state statutes, *** and (2) whether the state can exact those contributions consistently with the due process clause of the Fourteenth Amendment.

The statutes in question set up a comprehensive scheme of unemployment compensation, the costs of which are defrayed by contributions required to be made by employers to a state unemployment compensation fund. The contributions are a specified percentage of the wages payable annually by each employer for his employees’ services in the state. The assessment and collection of the contributions and the fund are administered by respondents. Section 14(c) of the Act *** authorizes respondent Commissioner to issue an order and notice of assessment of delinquent contributions upon prescribed personal service of the notice upon the employer if found within the state, or, if not so found, by mailing the notice to the employer by registered mail at his last known address. That section also authorizes the Commissioner to collect the assessment by distraint if it is not paid within ten days after service of the notice*** . 

By §§14(e) and 6(b) the order of assessment may be administratively reviewed by an appeal tribunal within the office of unemployment upon petition of the employer, and this determination is by §6(i) made subject to judicial review on questions of law by the state Superior Court, with further right of appeal in the state Supreme Court as in other civil cases.

In this case notice of assessment for the years in question was personally served upon a sales solicitor employed by appellant in the State of Washington, and a copy of the notice was mailed by registered mail to appellant at its address in St. Louis, Missouri. Appellant appeared specially before the office of unemployment and moved to set aside the order and notice of assessment on the ground that the service upon appellant’s salesman was not proper service upon appellant; that appellant was not a corporation of the State of Washington and was not doing business within the state; that it had no agent within the state upon whom service could be made; and that appellant is not an employer and does not furnish employment within the meaning of the statute.

The motion was heard on evidence and a stipulation of facts by the appeal tribunal which denied the motion and ruled that respondent Commissioner was entitled to recover the unpaid contributions. That action was affirmed by the Commissioner; both the Superior Court and the Supreme Court affirmed***. Appellant in each of these courts assailed the statute as applied, as a violation of the due process clause of the Fourteenth Amendment, and as imposing a constitutionally prohibited burden on interstate commerce***. Appellant is a Delaware corporation, having its principal place of business in St. Louis, Missouri, and is engaged in the manufacture and sale of shoes and other footwear. It maintains places of business in several states, other than Washington, at which its manufacturing is carried on and from which its merchandise is distributed interstate through several sales units or branches located outside the State of Washington.

Appellant has no office in Washington and makes no contracts either for sale or purchase of merchandise there. It maintains no stock of merchandise in that state and makes there no deliveries of goods in intrastate commerce. During the years from 1937 to 1940, now in question, appellant employed eleven to thirteen salesmen under direct supervision and control of sales managers located in St. Louis. These salesmen resided in Washington; their principal activities were confined to that state; and they were compensated by commissions based upon the amount of their sales. The commissions for each year totaled more than $31,000. Appellant supplies its salesmen with a line of samples, each consisting of one shoe of a pair, which they display to prospective purchasers. On occasion they rent permanent sample rooms, for exhibiting samples, in business buildings, or rent rooms in hotels or business buildings temporarily for that purpose. The cost of such rentals is reimbursed by appellant.

The authority of the salesmen is limited to exhibiting their samples and soliciting orders from prospective buyers, at prices and on terms fixed by appellant. The salesmen transmit the orders to appellant’s office in St. Louis for acceptance or rejection, and when accepted the merchandise for filling the orders is shipped f.o.b. from points outside Washington to the purchasers within the state. All the merchandise shipped into Washington is invoiced at the place of shipment from which collections are made. No salesman has authority to enter into contracts or to make collections.

The Supreme Court of Washington was of opinion that the regular and systematic solicitation of orders in the state by appellant’s salesmen, resulting in a continuous flow of appellant’s product into the state, was sufficient to constitute doing business in the state so as to make appellant amenable to suit in its courts. But it was also of opinion that there were sufficient additional activities shown to bring the case within the rule frequently stated, that solicitation within a state by the agents of a foreign corporation plus some additional activities there are sufficient to render the corporation amenable to suit brought in the courts of the state to enforce an obligation arising out of its activities there***. The court found such additional activities in the salesmen’s display of samples sometimes in permanent display rooms, and the salesmen’s residence within the state, continued over a period of years, all resulting in a substantial volume of merchandise regularly shipped by appellant to purchasers within the state*** . 

Appellant *** insists that its activities within the state were not sufficient to manifest its “presence” there and that in its absence the state courts were without jurisdiction, that consequently it was a denial of due process for the state to subject appellant to suit. It refers to those cases in which it was said that the mere solicitation of orders for the purchase of goods within a state, to be accepted without the state and filled by shipment of the purchased goods interstate, does not render the corporation seller amenable to suit within the state***. And appellant further argues that since it was not present within the state, it is a denial of due process to subject it to taxation or other money exaction. It thus denies the power of the state to lay the tax or to subject appellant to a suit for its collection.

Historically the jurisdiction of courts to render judgment in personam is grounded on their de facto power over the defendant’s person. Hence his presence within the territorial jurisdiction of a court was prerequisite to its rendition of a judgment personally binding him. Pennoyer v. Neff, 95 U.S. 714, 733, ***. But now that the capias ad respondendum [a writ commanding the sheriff to take the defendant to answer the plaintiff in an action] has given way to personal service of summons or other form of notice, due process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend “traditional notions of fair play and substantial justice.” 

Since the corporate personality is a fiction, although a fiction intended to be acted upon as though it were a fact, *** it is clear that unlike an individual its “presence” without, as well as within, the state of its origin can be manifested only by activities carried on in its behalf by those who are authorized to act for it. To say that the corporation is so far “present” there as to satisfy due process requirements, for purposes of taxation or the maintenance of suits against it in the courts of the state, is to beg the question to be decided. For the terms “present” or “presence” are used merely to symbolize those activities of the corporation’s agent within the state which courts will deem to be sufficient to satisfy the demands of due process. L. Hand, Jr., in Hutchinson v. Chase & Gilbert, ***. Those demands may be met by such contacts of the corporation with the state of the forum as make it reasonable, in the context of our federal system of government, to require the corporation to defend the particular suit which is brought there. An “estimate of the inconveniences” which would result to the corporation from a trial away from its “home” or principal place of business is relevant in this connection ***. 

“Presence” in the state in this sense has never been doubted when the activities of the corporation there have not only been continuous and systematic, but also give rise to the liabilities sued on, even though no consent to be sued or authorization to an agent to accept service of process has been given ***. Conversely it has been generally recognized that the casual presence of the corporate agent or even his conduct of single or isolated items of activities in a state in the corporation’s behalf are not enough to subject it to suit on causes of action unconnected with the activities there***. To require the corporation in such circumstances to defend the suit away from its home or other jurisdiction where it carries on more substantial activities has been thought to lay too great and unreasonable a burden on the corporation to comport with due process.

While it has been held in cases on which appellant relies that continuous activity of some sorts within a state is not enough to support the demand that the corporation be amenable to suits unrelated to that activity, *** there have been instances in which the continuous corporate operations within a state were thought so substantial and of such a nature as to justify suit against it on causes of action arising from dealings entirely distinct from those activities ***. Finally, although the commission of some single or occasional acts of the corporate agent in a state sufficient to impose an obligation or liability on the corporation has not been thought to confer upon the state authority to enforce it, ***, other such acts, because of their nature and quality and the circumstances of their commission, may be deemed sufficient to render the corporation liable to suit. Cf. Kane v. New Jersey *** True, some of the decisions holding the corporation amenable to suit have been supported by resort to the legal fiction that it has given its consent to service and suit, consent being implied from its presence in the state through the acts of its authorized agents ***. But more realistically, it may be said that those authorized acts were of such a nature as to justify the fiction ***. 

It is evident that the criteria by which we mark the boundary line between those activities which justify the subjection of a corporation to suit, and those which do not, cannot be simply mechanical or quantitative. The test is not merely, as has sometimes been suggested, whether the activity, which the corporation has seen fit to procure through its agents in another state, is a little more or a little less ***. Whether due process is satisfied must depend rather upon the quality and nature of the activity in relation to the fair and orderly administration of the laws which it was the purpose of the due process clause to insure. That clause does not contemplate that a state may make binding a judgment in personam against an individual or corporate defendant with which the state has no contacts, ties, or relations ***. But to the extent that a corporation exercises the privilege of conducting activities within the state, a procedure which requires the corporation to respond to a suit brought to enforce them can, in most instances, hardly be said to be undue ***. 

Applying these standards, the activities carried on in behalf of appellant in the State of Washington were neither irregular nor casual. They were systematic and continuous throughout the years in question. They resulted in a large volume of interstate business, in the course of which appellant received the benefits and protection of the laws of the state, including the right to resort to the courts for the enforcement of its rights. The obligation which is here sued upon arose out of those very activities. It is evident that these operations establish sufficient contacts or ties with the state of the forum to make it reasonable and just according to our traditional conception of fair play and substantial justice to permit the state to enforce the obligations which appellant has incurred there. Hence we cannot say that the maintenance of the present suit in the State of Washington involves an unreasonable or undue procedure.

We are likewise unable to conclude that the service of the process within the state upon an agent whose activities establish appellant’s “presence” there was not sufficient notice of the suit, or that the suit was so unrelated to those activities as to make the agent an inappropriate vehicle for communicating the notice. It is enough that appellant has established such contacts with the state that the particular form of substituted service adopted there gives reasonable assurance that the notice will be actual ***. Appellant having rendered itself amenable to suit upon obligations arising out of the activities of its salesmen in Washington, the state may maintain the present suit in personam to collect the tax laid upon the exercise of the privilege of employing appellant’s salesmen within the state. For Washington has made one of those activities, which taken together establish appellant’s “presence” there for purposes of suit, the taxable event by which the state and to suit to recover the tax ***. 

AFFIRMED.

There are two types of jurisdiction involving “minimum contacts” analysis: (1) specific jurisdiction, where the plaintiff’s claims “arise out of or are related to” the defendant’s contacts; and, (2) general jurisdiction, where the defendant’s contacts are “continuous and systematic” enough that the court can exercise jurisdiction. In the following case, the Court found the defendant did not make the minimum contacts necessary for the forum state to maintain jurisdiction. 

 

Case Study

Goodyear Dunlop Tires Operations, S.A. v. Brown

564 U.S. 915 (2011)

Procedural Posture

Respondent parents sued defendant parent corporation and petitioner foreign subsidiaries, alleging that a tire was defective. The state trial court denied the subsidiaries’ motion to dismiss for want of personal jurisdiction. The Court of Appeals of North Carolina affirmed. Certiorari was granted to decide whether the general jurisdiction asserted over the subsidiaries was consistent with the Due Process Clause of the Fourteenth Amendment.

Overview

Two boys from North Carolina died in a bus accident that occurred in France. Attributing the accident to a tire that failed, their parents alleged negligence in the design, construction, testing, and inspection of the tire, which was manufactured in Turkey. The three subsidiaries were incorporated in Turkey, Luxembourg, and France and manufactured tires primarily for sale in European and Asian markets. A small percentage of their tires were distributed within North Carolina by other affiliates. The state court relied on the subsidiaries’ placement of their tires in the “stream of commerce” to justify the exercise of general jurisdiction over the subsidiaries. The Supreme Court determined that the subsidiaries were not amenable to general jurisdiction in North Carolina courts because their attenuated connections to the State fell far short of the continuous and systematic general business contacts necessary to empower North Carolina to entertain suit against them on claims unrelated to anything that connected them to the State. The sporadic sales of the subsidiaries’ tires in North Carolina through intermediaries were insufficient to warrant the assertion of general jurisdiction.

Opinions in the wake of the pathmarking International Shoe decision have differentiated between general or all-purpose jurisdiction, and specific or case-linked jurisdiction. A court may assert general jurisdiction over foreign (sister-state or foreign-country) corporations to hear any and all claims against them when their affiliations with the State are so “continuous and systematic” as to render them essentially at home in the forum State. Specific jurisdiction, on the other hand, depends on an affiliation between the forum and the underlying controversy, principally, activity or an occurrence that takes place in the forum State and is therefore subject to the State’s regulation. In contrast to general, all-purpose jurisdiction, specific jurisdiction is confined to adjudication of issues deriving from, or connected with, the very controversy that establishes jurisdiction.**** The Due Process Clause of the Fourteenth Amendment sets the outer boundaries of a state tribunal’s authority to proceed against a defendant. The canonical opinion in this area remains International Shoe, in which the Supreme Court held that a State may authorize its courts to exercise personal jurisdiction over an out-of-state defendant if the defendant has certain minimum contacts with the State such that the maintenance of the suit does not offend “traditional notions of fair play and substantial justice.”**** Endeavoring to give specific content to the “fair play and substantial justice” concept, the Supreme Court has classified cases involving out-of-state corporate defendants. First, jurisdiction unquestionably could be asserted where the corporation’s in-state activity is “continuous and systematic” and that activity gave rise to the episode-in-suit. Further, the commission of certain “single or occasional acts” in a State may be sufficient to render a corporation answerable in that State with respect to those acts, though not with respect to matters unrelated to the forum connections. The heading courts today use to encompass these two International Shoe categories is “specific jurisdiction.” Adjudicatory authority is “specific” when the suit arises out of or relates to the defendant’s contacts with the forum.**** International Shoe distinguished from cases that fit within the “specific jurisdiction” categories, instances in which the continuous corporate operations within a state are so substantial and of such a nature as to justify suit against it on causes of action arising from dealings entirely distinct from those activities. Adjudicatory authority so grounded is today called “general jurisdiction.” For an individual, the paradigm forum for the exercise of general jurisdiction is the individual’s domicile; for a corporation, it is an equivalent place, one in which the corporation is fairly regarded as at home. Domicile, place of incorporation, and principal place of business have been identified as “paradigm” bases for the exercise of general jurisdiction.****Since International Shoe, the Supreme Court’s decisions have elaborated primarily on circumstances that warrant the exercise of specific jurisdiction, particularly in cases involving “single or occasional acts” occurring or having their impact within the forum State. As a rule in these cases, the Supreme Court has inquired whether there was some act by which the defendant purposefully availed itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.**** Many States have enacted long-arm statutes authorizing courts to exercise specific jurisdiction over manufacturers when the events in suit, or some of them, occurred within the forum state. For example, the “Local Injury; Foreign Act” subsection of North Carolina’s long-arm statute authorizes North Carolina courts to exercise personal jurisdiction in any action claiming injury to person or property within North Carolina arising out of the defendant’s act or omission outside North Carolina, if, in addition, at or about the time of the injury, products manufactured by the defendant were used or consumed, within North Carolina in the ordinary course of trade.****Flow of a manufacturer’s products into the forum may bolster an affiliation germane to specific jurisdiction. Where the sale of a product is not simply an isolated occurrence, but arises from the efforts of the manufacturer or distributor to serve the market for its product in several States, it is not unreasonable to subject it to suit in one of those States if its allegedly defective merchandise has there been the source of injury to its owner or to others. But ties serving to bolster the exercise of specific jurisdiction do not warrant a determination that, based on those ties, the forum has general jurisdiction over a defendant.**** In the personal jurisdiction context, a corporation’s continuous activity of some sorts within a state is not enough to support the demand that the corporation be amenable to suits unrelated to that activity.

Outcome

The Supreme Court reversed the judgment of the state court.

In Rem Jurisdiction

In rem jurisdiction relates to the court’s power “about or against the thing.” A court will have power over property that is the subject of a legal dispute and is located within a given state. This gives the state courts the power to determine rights in that property even though persons whose rights are affected may be outside the state’s in personam jurisdiction. For example, a New Jersey court would have in rem jurisdiction to hear a dispute involving ownership of real property located in New Jersey, even if one of the parties to the dispute lived outside the state.

A second type of in rem jurisdiction is called quasi in rem jurisdiction. In this case, a plaintiff who obtains a judgment in one state may attach the defendant’s property in another state in an attempt to collect a judgment rendered by a court in a particular case. In the following case, Harrods, the famous British retailer, sued an Argentine company that registered with a Virginia company sixty domain names bearing the “Harrods” name. The Fourth Circuit, relying on Shaffer v. Heitner, 433 U.S. 186 (1977), upheld in rem jurisdiction in the district where the domain names had been registered.

 

Case Study

Harrods Ltd. v. Sixty Internet Domain Names

302 F.3d 214 (4th Cir. 2002) 

Procedural Posture

Appellant London store challenged the judgment of the United States District Court for the Eastern District of Virginia, at Alexandria, which dismissed its trademark infringement and dilution claims against appellee domain names under the Anticybersquatting Consumer Protection Act (ACPA), 15 U.S.C.S. § 1125(d)(1), and granted summary judgment as to six domain names. Fifty-four domain names  challenged the judgment against them.

Overview

A London store sued 60 internet domain names for trademark infringement under the Anitcybersquatting Consumer Protection Act (ACPA). The domain names had been registered by a Buenos Aries store with the same name as the London store, and the domain names all contained some form of the name. Both stores had legitimate rights to use the name in different parts of the world. On appeal of the district court’s judgment, the court determined that 15 U.S.C.S. § 1125(d)(2) was not limited to violations of 15 U.S.C.S. § 1125(d)(1), but rather it also authorized in rem actions for infringement and dilution claims, and therefore the district court erred by dismissing the London store’s infringement and dilution claims. The court held that the district court properly found that domain names  were registered by the Buenos Aries store with a bad faith intent to profit because the evidence indicated that the Buenos Aries store intended to use the  domain names to market its goods and services to non-South American customers in a manner calculated to divert and deceive consumers seeking to do business with the London store. The district court erred by granting summary judgment to six domain names  as almost no discovery had been completed.

The Due Process clause of the Fifth Amendment permits a federal court to exercise personal jurisdiction over a defendant only if that defendant has certain minimum contacts with the forum such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice. The minimum contacts rule applies to actions in rem and quasi in rem, as well as to actions in personam. Accordingly, the court applies the minimum contacts test to the district court’s exercise of in rem jurisdiction over the defendant. Under this test the court asks whether there has been some act by which the defendant purposefully availed itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws. A federal district court can exercise personal and in rem jurisdiction to the same extent as courts in the state where the district court is located. Thus, to determine whether the defendant has sufficient minimum contacts to justify the exercise of in rem jurisdiction by the district court, the court must determine whether the defendant has sufficient contacts with the Commonwealth of Virginia to justify the exercise of in rem jurisdiction by the courts of Virginia. **** In the case of disputes involving property, the presence of the property in the jurisdiction does not always justify the exercise of in rem jurisdiction, but when claims to the property itself are the source of the underlying controversy between the plaintiff and the defendant, it would be unusual for the State where the property is located not to have jurisdiction. **** Specifically, the Supreme Court said in Shaffer that in rem jurisdiction is appropriate in “suits for injury suffered on the land of an absentee owner, where the defendant’s ownership of the property is conceded but the cause of action is otherwise related to rights and duties growing out of that ownership.” Shaffer, 433 U.S. at 208, 97 S.Ct. 2569. The dispute in this case is roughly analogous to such a suit. Harrods UK has allegedly suffered injury by way of property, the Domain Names, owned by Harrods BA, an absentee owner. Harrods BA’s initial ownership of the Names is conceded, but the cause of action is related to Harrods BA’s rights and duties arising out of that ownership. **** Likewise, Virginia’s “interests in assuring the marketability of property within its borders and in providing a procedure for peaceful resolution of disputes about the possession of that property” also support the exercise of in rem jurisdiction in this case. . . . Moreover, Virginia’s interest in not permitting foreign companies to use rights emanating from, and facilities located in, its territory to infringe U.S. trademarks also supports the exercise of in rem jurisdiction. By registering these Domain Names in Virginia, Harrods BA exposed those Names to the jurisdiction of the courts in Virginia (state or federal) at least for the limited purpose of determining who properly owns the Domain Names themselves. This is not a case where “the only role played by the property is to provide the basis for bringing the defendant into court.” . . . Rather, because “claims to the property itself are the source of the underlying controversy,” . . . and because Virginia has important interests in exercising jurisdiction over that property (the Names), we conclude that courts in Virginia, the state where the Domain Names are registered, may constitutionally exercise in rem jurisdiction over them. Thus, the district court’s exercise of in rem jurisdiction over the Domain Names was constitutional.

Outcome

The judgment dismissing the London store’s trademark infringement and dilution claims against the domain names and granted summary judgment as to six domain names was reversed. The judgment against the 54 domain names ordering them to transfer the names to the London store was affirmed.

Venue

Venue determines which particular trial court is the appropriate one in which a case will be heard. Venue should not be confused with subject matter jurisdiction. State statutes prescribe what the proper venue is for a case. Venue is usually a matter of geographic location, based on the defendant’s place of residence, the location of the property if that property is the subject of the dispute, or the place in which the incident occurred that is the subject of the dispute. If multiple defendants reside in various geographical locations, the plaintiff may usually select the venue from any of these locations. Under the doctrine of forum non conveniens, if the location of a trial is inconvenient to a party, he or she may file a request with the court to move the case from that court. The judge then decides whether to move the case to a different location after a hearing on the motion. The famous Bhopal case, dealing with a major accident at the Union Carbide pesticide factory in Bhopal, India, involved the international application of the forum non conveniens principle. In that case, 145 lawsuits were consolidated in one action before the federal district court for the Southern District of New York. The court, however, granted the defendant’s motion and dismissed the suits on the grounds of forum non conveniens. The court ruled the case would be better handled in India. The decision was upheld by the Second Circuit.

The Federal Court System

The federal judicial system was created by the U. S. Constitution in Article III. It is structured in a three-tiered format consisting of trial courts (federal district courts), intermediate courts of appeal (circuit courts of appeal), and the United States Supreme Court. The federal courts have limited jurisdiction, except in diversity cases, meaning they can only hear cases authorized under the federal Constitution and federal statutes. Federal judges are appointed by the President, with the advice and consent of the Senate. Federal judges usually hold their positions for life, unless they retire or resign. They can also be removed if they are impeached by the House of Representatives and convicted at trial in the Senate.

Federal magistrate judges do not have lifetime appointment, as they are selected by district judges to assist them with various procedural matters. Article I courts are also federal courts, but they are created by Congress. Article I courts include the U.S. Bankruptcy Courts, U.S. Court of Appeals for Veterans Claims, U.S. Court of Federal Claims, U.S. Tax Court, Court of Military Commission Review, and United States Court of Appeals for the Armed Forces. Article I judges do not share the same protections as Article III judges. They have term limits and their compensation may be reduced.

U.S. District Courts

The district courts are the trial level in the federal court system and are considered courts of “original jurisdiction.” This means federal cases start in the district court. Each state has at least one federal district court that serves a certain prescribed geographical area, called a district. Currently there are 96 federal district courts. The court has both a “fact-finding” and “law-determining” function. The jury or judge may perform the function of fact-finding; however, the judge always determines the law.

As noted earlier, the jurisdiction of a federal district court is either based on diversity jurisdiction or federal question jurisdiction. Diversity jurisdiction exists when a suit arises between (1) citizens of different states; (2) a citizen of a state and a citizen of a foreign country; or (3) a citizen of a state and a foreign country where the plaintiff is the foreign country. The amount in controversy must exceed $75,000 or the action must be brought in an appropriate state court. Criminal cases are not brought under diversity jurisdiction.

A corporation is considered a citizen of the state of its incorporation and the state in which it has its principal place of business. A partnership (general or limited) is a citizen of every state in which an individual partner is a citizen. 

In a diversity case, the federal district court resolves all issues according to the law of the state in which it sits, however, federal procedural rules apply. This is based on the decision handed down by the Supreme Court in Erie Railroad Co. v. Tompkins (304 U.S. 64 (1938)). 

Federal question jurisdiction applies when a case arises under the U.S. Constitution or a federal law or a treaty. For example, if a federal bank is robbed (thus, violating a federal statute), or if a U.S. treaty with a foreign nation requires interpretation, the case will be heard in a federal district court.

Federal district courts have sole or exclusive jurisdiction over certain matters, such as cases involving federal crimes, antitrust, bankruptcy, patent and copyright cases, suits against the United States, and admiralty cases. State courts are not permitted to hear these cases. In contrast, state courts have jurisdiction over state crimes, state constitutional issues, divorce cases, adoption, wills and estates. Both the federal courts and state courts have concurrent jurisdiction over certain matters. When concurrent jurisdiction arises and the plaintiff chooses to have the case heard in a state court, the defendant may remove the case to a federal district court and have it heard or adjudicated there.

U.S. Courts of Appeals

The U.S. Courts of Appeals are the federal court system’s intermediate appellate courts. There are thirteen circuits in the federal appellate court system. Theses courts perform no fact-finding function; their purpose is to review only the legal conclusions reached by lower federal courts or the procedures used at the trial level. 

The first eleven Courts of Appeals have jurisdiction over cases arising in a particular geographical area, called a circuit. For example, the Court of Appeals for the Third Circuit, located in Philadelphia, hears appeals from the federal district courts located in their circuit, namely, Delaware, New Jersey, Pennsylvania, and the Virgin Islands. The courts at this level also hear appeals from the Tax Court, the Bankruptcy Court, and decisions from several administrative agencies, such as the National Labor Relations Board. 

The twelfth court of appeals is located in Washington, D.C., known as the District of Columbia. The thirteenth court of appeals is called the Court of Appeals for the Federal Circuit, which is also located in Washington, D.C. The Circuit Court of Appeals for the Federal Circuit hears specialized appeals concerning patent and trademark issues and appeals from the Claims Court and the Court of International Trade.

The U.S. Supreme Court

The U.S. Supreme Court is the only court explicitly established by the Constitution. It is the highest court in the land and generally serves as an appellate court. Nine justices make up the Supreme Court. As are all federal judges, Supreme Court judges are nominated by the President, must be confirmed by the United States Senate, and serve a life term.

The Supreme Court generally hears appeals from the federal circuit courts of appeals and the highest state courts. At times, a case may be appealed directly from a federal district court to the Supreme Court. The Supreme Court does not accept evidence nor does it hear testimony. It simply reviews the lower court’s record, hears oral arguments and determines whether there has been an error that warrants a reversal or modification of the decision. The Supreme Court’s decision is final.

Appeals to the Supreme Court are not automatic. A request for review of a lower court decision must be made by filing a petition for certiorari. Four of the nine justices must agree to hear an appeal in order to grant certiorari. This is sometimes referred to as the “Rule of Four.” A writ of certiorari is then issued if the Court decides to hear a case. This is an order issued by the Court requiring that the lower court produce the certified record of a case heard in that court.

The Supreme Court also has original jurisdiction in certain cases, meaning that it acts as a trial court. The Court has original and exclusive jurisdiction over all controversies between two or more states; over cases involving foreign ambassadors and ministers; controversies between a state and the United States; and cases involving a state and a citizen from another state or an alien. 

The State Court Systems

State courts are organized much like the federal court system. They differ in specifics such as number of courts, their names, how individuals become judges, and jurisdiction. At the base of a state’s judicial system are courts of limited jurisdiction. These include municipal courts, justice of the peace courts, landlord-tenant courts, and small claims courts. These courts generally hear minor criminal matters or civil controversies involving small amounts of money. Court proceedings are relatively informal and often no transcript of the testimony and proceedings is kept. The parties to a case frequently represent themselves (called a pro se procedure) and the presiding judicial officer is not required to be an attorney in many states.

State trial courts perform the same functions as courts of limited jurisdiction. However, they handle cases of greater significance and often there is no limit to the dollar amount that may be awarded or the penalties meted out in a criminal case, except those stipulated by state statutes. Also, unlike the inferior courts, a detailed record of the proceedings of a case is kept. A judge or jury may perform the fact-finding duties at this level; however, the judge always determines questions of law.

The state appellate courts review questions of law only. As in the federal court system, no juries are involved in an appeal. Some states have only one level of appellate court, while others have an intermediate level and a supreme court.

Civil Procedure

The judicial system has developed detailed and complex rules on how, when, and where a legal dispute can be brought to court. For a civil suit, the rules of civil procedure apply. A different set of rules pertain to criminal cases. These rules of procedure are necessary to obtain an orderly and impartial determination of a trial that is consistent with prior decisions based on the same facts. The procedural rules are not uniform among the states; however, there are basic similarities.

In the following sections, we will outline the primary steps of a civil lawsuit. Note, not every step is employed in every case because parties often settle out of court or they may not want to raise every issue possible. As a general rule, attorneys will try to settle cases before beginning the process of initiating a trial. A recently issued Federal Executive Order requires attorneys to pursue alternative methods of dispute resolution in attempts to obtain out-of-court settlements prior to instituting a law suit. These procedures will be discussed later in the chapter.

The Pleadings

Pleadings are the papers or documents filed with the court to institute and respond to a lawsuit. To initiate a lawsuit, a litigant files a complaint with the clerk of the appropriate court. This formal document states the litigant’s (the plaintiff) claim against the opposing party (the defendant) and includes sufficient facts to show that some legal remedy is appropriate to right the harm done.

The defendant is served with process, usually in the form of a writ, notice, summons, or the actual complaint. Service puts the defendant on notice that an action is pending against him or her, and that he or she is subject to the particular court’s jurisdiction.

The defendant must respond to the plaintiff’s complaint by filing an answer within a specified period of time. The defendant, through his or her answer, either admits or denies the plaintiff’s allegations or states that the he or she lacks the information needed to evaluate the truth or veracity of the plaintiff’s allegations. This amounts to a denial of the allegations found in the complaint.

The answer may also include affirmative defenses to the claim asserted in the complaint. An affirmative defense is a rule of law enabling the defendant to prevail in the case even though all of the plaintiff’s allegations are true. For example, if a plaintiff sues a defendant after the time within which to bring the action has expired, the defendant may raise this point as an affirmative defense and ask the court to have the case dismissed.

At times, the answer may include a counterclaim. This is a separate claim being asserted by the defendant against the plaintiff that arises from the same facts as stated in the complaint. A counterclaim is the defendant’s means for obtaining legal relief; it is not merely a defense to the plaintiff’s claim.

If the defendant fails to file an answer to the complaint, a default judgment may be entered against him or her. The default judgment establishes the defendant’s liability; however, the plaintiff still must prove damages.

Some jurisdictions allow or require the plaintiff to respond to the defendant’s affirmative defenses or counterclaim by means of a reply. It is a point-by-point response to the elements introduced in the defendant’s affirmative defense or counterclaim. If the particular jurisdiction does not allow a reply to an affirmative defense, the defendant’s new assertions are automatically denied. However, a plaintiff who wishes to contest a counterclaim must file a reply.

Purpose of the Pleadings

Historically, pleadings defined and limited the questions to be decided at the trial stage. Issues raised in the pleadings were considered part of the case; all others were excluded from further consideration. On rare occasions, amendments, changes, or additions to the pleadings were permitted. Once the litigants admitted to allegations they were bound by their admissions. Allegations that were denied would be included in the dispute between the parties. This stage of the case also included several technical pleading rules that, if violated, could jeopardize a party’s chances of winning a suit. 

Some jurisdictions continue in this tradition. Others have used this stage to provide notice to each litigant of the claims being asserted by the other litigant(s). Additionally, these jurisdictions are more inclined to decide cases on the merits rather than on the technical defects of the pleadings. In these jurisdictions, amendments to the pleadings may be allowed at the discretion of the judge. In addition, they may be used to introduce issues to be considered at trial that were not initially raised in the pleadings.

Motions

Once the pleadings have been filed and reviewed, it may be evident that the plaintiff has no case. In such a situation, pursuing the litigation would be a waste of the court’s limited time and resources. The procedure for disposing of the case at this point is a motion to dismiss. It may be made after the plaintiff has filed the complaint. A similar procedure is used to dismiss a case after the pleadings are completed. This is a motion for judgment on the pleadings.

Motions for dismissal may be made in order to attack inadequate service of process or a particular court’s lack of jurisdiction over the parties or subject matter, or both. However, the most important type of motion to dismiss is a demurrer. This motion is used to assert that the plaintiff has “failed to state a claim upon which relief can be granted.” In other words, even if every allegation made in the plaintiff’s complaint were true, the plaintiff could not recover because no rule of law exists entitling him to win on those facts.

Discovery

Discovery is the process used to exchange relevant information between the litigants. Its purpose is to aid the litigants in preparing their arguments and to narrow and clarify the issues to be decided at trial. The costs of obtaining discovery can be substantial and the time period extensive depending on the extent to which the litigants carry out the process. 

Written questions called interrogatories may be directed to each party and the parties are legally bound to answer them. Further, a deposition may be taken whereby the parties in the case and/or witnesses are questioned under oath before a court reporter. Other forms of discovery include requests for documents and other evidence such as the litigants’ files and records; mental and physical examinations; and requests for admissions, which are one litigant’s written demand that the other party agree to admit or deny certain statements of fact or law. Failure to comply with discovery procedures can result in the imposition of sanctions against a litigant or his or her attorney. 

Summary Judgment

Once the discovery process is completed, it is common for one party to make a motion to the court for a summary judgment. If the party making the motion prevails, the case will not go to trial. In order to succeed, the movant must show that there are no genuine issues of material fact, and that he or she is entitled to judgment as a matter of law based upon the information garnered from discovery.

Pre-Trial Conference

The participants in the pre-trial conference include the parties, the judge, and the attorneys. Pre-trial conferences may or may not be mandatory, and are scheduled at the trial judge’s discretion. The parties in attendance discuss the issues that will be tried, the length of the trial, and the possibility of settlement. If the case cannot be settled, the judge enters a pre-trial order including any stipulations and other matters that are the subject of agreement. Typically, the terms of the pre-trial order bind the parties throughout the rest of the case.

The Trial

A trial may be held with or without a jury. Generally, the jury is the trier of fact, meaning that the jury determines the facts alleged in the case and evaluates the veracity or credibility of any witnesses called at trial. The judge on the other hand acts as the trier of law. If neither party requests a trial by jury, the judge will assume both roles as trier of fact and the trier of law. Note, the jury can never make findings of law.

The U.S. Constitution guarantees the right to a jury trial for cases at law in federal courts if the amount in controversy exceeds $20. Most states have similar guarantees in their own state constitutions, but impose a higher minimum dollar amount. In a civil case, however, a party must affirmatively request (demand) a jury trial. If neither party to a lawsuit affirmatively requests a trial by jury, it is presumed to be waived.

In most civil cases, the plaintiff has the burden of proving the case by a preponderance of the evidence. This means that the greater weight of evidence must favor the plaintiff. To sustain that burden of proof, the plaintiff must convince the judge or jury that the facts probably bear out what the plaintiff alleges. In some types of civil cases, a slightly higher quantum of proof, called clear and convincing evidence, may be required. In criminal cases, guilt must be proved by a standard called “beyond a reasonable doubt.” 

Jury Selection

The selection of the jury in a trial is extremely important to the litigants. A panel of possible jurors is selected at random from the citizens residing within the court’s venue. The jury pool may be constituted in a variety of ways depending on the jurisdiction. The selection process of an individual jury is called the “voir dire,” a French term meaning “to speak the truth.” Depending on the state or court procedures, the judge, attorneys, or both, may question potential jurors to find out whether or not they can decide the case without bias or prejudice.

A potential juror may be removed “for cause” if the attorney, after questioning, believes the potential juror could not be unbiased. Attorneys have an unlimited number of challenges for dismissing potential jurors for cause. Attorneys may also eliminate potential jurors without providing any reason for doing so. These peremptory challenges are very limited in number. Peremptory challenges are allowed because the judicial system recognizes that to a limited extent, an attorney’s instinctual feelings play a part in the jury selection process. Today, potential jurors may not be eliminated from participating on juries solely because of race or gender. The jury selection process is an evolving one in the legal system.

Petit Jury

The petit (meaning small) jury is selected to hear the proceedings of the trial. It usually is made up of six to twelve individuals, again depending on the procedures used in an individual jurisdiction. A petit jury may hear either civil or criminal cases.

Grand Jury

A grand jury is so named because it is comprised of more jurors than a petit jury. A federal grand jury must have at least sixteen but not more than 23 persons. A grand jury is used only in criminal cases. Its purpose is to determine, after hearing the state’s evidence, whether probable cause exists for supposing that a crime has been committed and whether a trial should be held. If the grand jury finds probable cause, it returns a bill of indictment. If it does not find probable cause, it returns a “no bill.” 

Trial Proceedings

Each trial begins with the attorney for the plaintiff making an opening statement outlining the facts that he or she expects to prove during the trial. The defendant’s attorney may make his or her opening statement at this point or may reserve the right to make it until after the plaintiff presents his or her case-in-chief.

Presenting the Plaintiff’s Case

After the opening statement(s), the plaintiff calls his or her first witness for examination (questioning). This is the direct examination. The defendant’s attorney is then permitted to cross-examine this witness. If the defense attorney cross-examines the witness, the plaintiff’s attorney has another opportunity of question the same witness. This is redirect examination. The defense attorney may then follow with re-cross-examination. This process continues with each witness.

Directed Verdict

After the plaintiff calls all of his or her witnesses, the defendant’s attorney is permitted to ask the judge to direct a verdict for the defendant on the ground that the plaintiff has presented no evidence that would justify the granting of the plaintiff’s remedy. This is called a motion for a directed verdict. The defendant makes an assertion that, even upon reading the evidence in a light most favorable to the plaintiff, the case must be resolved in favor of the defendant as a matter of law. Motions for a directed verdict are seldom granted at this stage of the trial.

The Defense

If the motion for directed verdict in favor of the defendant is not granted, the defendant’s attorney presents their evidence and witnesses. When the defendant rests, either attorney may again move for a directed verdict. If not granted, the plaintiff is allowed to present a rebuttal. This may include additional evidence to refute the defense’s case. The defendant can rebut this evidence in a rejoinder.

Closing Arguments

Once all the evidence is presented, each party’s attorney delivers a closing argument. The plaintiff goes first. Each attorney urges a verdict in favor of his or her respective client. The judge then instructs the jury (if a jury is hearing the case) in the law that applies to the case. These are often called charges to the jury. In a criminal case, the state may offer a rebuttal argument since the state bears the burden of proof in a criminal case.

Verdicts

The jury then begins its deliberations in an effort to reach a verdict. The jury’s deliberations may result in one of several outcomes. It may issue a general verdict. In this case, the jury declares which party prevailed and the relief or remedy (if any) to be awarded. A general verdict gives the jury the freedom to ignore the judge’s charge or instructions and follow its own inclinations because it does not have to state its factual findings or its application of the law to those findings.

Alternatively, and at the discretion of the trial judge, a special verdict may be rendered. In this situation, the jury makes specific findings of fact; essentially it answers questions submitted to it by the court. Based on its answers, the judge determines which party is entitled to obtain a judgment by applying the law to the jury’s findings.

Once the jury has reached its verdict, on rare occasions, a judgment notwithstanding the verdict (in Latin, non obstante veredicto) may be granted. The party against whom the verdict was rendered moves for a judgment in his or her favor because, based on the weight of evidence, the party receiving the judgment should not have prevailed, again as a matter of law. Unless the jury was clearly lax in the performance of its duties, a court will not grant a Judgment N.O.V. We shall return to this issue in a contracts case, Sellers v. Looper.

Motion for a New Trial

If the losing party does not accept the judgment rendered, it may make a motion for a new trial. Such a motion will be granted if the judge recognizes that an error of law occurred during the trial, if misconduct by the jury or attorney was evident or has come to light, if new evidence was found, or if the plaintiff was awarded excessive damages. A court may also hear motions to increase (additur) or decrease (remittitur) damages. A motion for additur will not be entertained in a federal case due to constitutional grounds.

Appeals

A losing party may decide to appeal the decision of the trial court. The prevailing party at trial also may appeal if the award is not as much as was expected. The party making the appeal is called the appellant. The other party is called the appellee. In some cases, the party appealing is called the petitioner, and the other party called the respondent. 

An appeal is not a second trial. Therefore, no jury is used in appellate procedures. The judges of the appellate court (usually in three-judge panels) read the written record of the lower court’s proceedings. Oral arguments may be scheduled and the parties submit written briefs or arguments to the court. Appellate courts make their determination as a matter of law whether or not there was error made in the trial.

Appealable matters include the trial judge’s decisions on the pleadings or motion to dismiss, on admissibility of evidence, on granting or rejecting a motion for summary judgment, directed verdict, judgment n.o.v., or on a motion for a new trial. Further, a party may make an appeal based on the trial court’s rulings on service of process; its legal findings in a nonjury trial; its instructions to the jury in a jury trial; and, the damages or equitable relief awarded.

The appellate court has several options at its disposal. It may affirm the ruling of the lower court, reverse the lower court’s decision, or affirm one part of the decision and reverse another part of it. If the appellate court does not agree with the application of the law made by the lower court, it may set aside or modify the action of the lower court and enter a judgment that the lower court should have entered. It may set aside the action of the lower court and send the case back (remand) with directions to hold a new trial or enter a new judgment in accordance with the opinion rendered by the appellate court. 

Enforcement of Judgments

It is one thing for a plaintiff to be awarded a favorable judgment and another to collect on that judgment. If the losing party fails to comply with the award of a judgment of monetary damages, the prevailing party has to obtain a writ of execution that enables the sheriff to seize certain property in order to satisfy the judgment. The judgment may be satisfied by garnishment of the losing party’s salary, wages, or other funds held by a third party. If the successful party is awarded an equitable remedy such as an injunction or the award of specific performance and the losing party fails to obey the order, he or she may be held in contempt of court and punished by fine and/or imprisonment.

Alternative Dispute Resolution

Two factors may especially impact negatively on our legal system: delay and cost. The heavy volume of lawsuits and the highly formal and technical procedures involved in all stages of a lawsuit contribute to this problem. The legal system has developed several alternative means, known as alternative dispute resolution (ADR) by which to streamline the process and to settle conflicts.

Mediation

The process of mediation involves seeking an intermediary or outside party to assist parties in resolving their dispute. The intermediary, a mediator, has no legal power to enforce a solution. It is the mediator’s role to assist the parties in understanding each others’ positions, present the strengths and weaknesses of each party’s side, and assess the benefits of settlement versus the cost of proceeding toward a trial..

Arbitration

In this process, the neutral third party, the arbitrator, is empowered to issue a decision that is binding on the parties. The parties may agree to arbitrate a dispute or a statute may be enacted to compel arbitration. Such agreements are usually made before any disputes arise through the inclusion of an arbitration clause in a contract, although arbitration may commence after a dispute arises, through mutual consent of the parties.

Arbitrators need not be attorneys. In many cases they are professionals with expert knowledge of the subject matter in dispute. Arbitration, although a more informal proceeding than a trial, does follow rules of procedure and includes limited discovery.

Mediation/Arbitration

The combination of the above two means for resolving a dispute is called med/arb. This alternative to a lawsuit involves a third party who first acts as a mediator. All issues not resolved through mediation are then subjected to binding arbitration. The mediator and arbitrator may be two different people.

Court-Annexed Arbitration

In this case, arbitration is ordered by a judge after a lawsuit has been filed. Jurisdictions allowing court-annexed arbitration provide that the judge’s decision to order arbitration depends on the subject matter of the dispute and the amount of money at issue. The losing party does not lose his or her right to a conventional trial after the procedure is completed.

Other Means of ADR

Minitrial

The “minitrial” is an ADR procedure used by businesses to resolve legal issues without incurring the expense and delay associated with litigation. A legal dispute is processed through an informal, abbreviated, private “trial” in which the attorneys present their side to a panel of business executives of the disputing companies that have the power to resolve the dispute. Time limits are agreed to in advance. A neutral “advisor” acts as the judge and presides over the hearing, while offering opinions and proposals to the executives.

Summary Jury Trial

A summary jury trial may be ordered by a court to help the parties realize the strengths and weaknesses of their case to facilitate a settlement. A jury is empaneled by the court and is usually not told that their verdict is non-binding and merely advisory. A limited time is given to each side to present its best case to the jury. Each party may meet with the jury to discuss the strong and weak points of its case. The advantage of a summary jury procedure is that it helps influence a settlement by providing the parties with the knowledge of what an actual jury would think about the case. On the other hand, the downside is both parties would be revealing trial strategies at an earlier stage of the litigation, and the “winning” party may be reluctant to settle the case and want to proceed to a real trial.

 

Ethical Considerations

Questions

1. What is jurisdiction? What is the difference between specific and general jurisdiction?
2. What are “long arm statutes”?
3. In International Shoe, how did the Court balance the due process rights of the corporation against the rights of the state of Washington to collect taxes from it?
4. What are “minimum contacts”?
5. Discuss in rem and quasi in rem jurisdiction. How did the Court rule in the Harrods case? How did the Supreme Court rule in Goodyear v. Brown? 
6. What is venue? How does venue differ from jurisdiction? 
7. In the federal district courts civil jurisdiction is based on diversity and federal question jurisdiction. Explain what these terms mean.
8. Describe exclusive and concurrent jurisdiction.
9. Provide an example of a situation in which the U.S. Supreme Court exercises original jurisdiction.
10. What is a writ of certiorari?
11. Explain the process of bringing a civil suit through a typical state court system.
12. Define summary judgment and motion to dismiss.
13. What is the function of the grand jury? The petit jury?
14. Define: general verdict, special verdict, and judgment notwithstanding the verdict.
15. Watch the movie “Twelve Angry Men.” What does it teach you about a jury? 
16. What do appellate courts do? Under what circumstances can a party appeal a case?
17. Explain the various forms of alternative dispute resolution.

 

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