Most businesses agree that taking a dispute to court should be avoided whenever possible. Nonetheless, in today’s world, litigation can be a fact of life, or even a desirable course in some circumstances. When litigation becomes necessary, or is thrust upon you, a party may have a choice between having the case heard in state or federal court. This choice should be thoroughly analyzed at the outset because it may have a significant impact on the final outcome of the litigation.
The most common scenario we see in our practice is the choice between the New York State and federal courts. Both have different judges, jury pools, procedures and evidentiary rules. They may also follow different substantive laws. Before deciding where to bring a case, or whether to remove a case from state to federal court, the careful litigator will consider these factors and others within the context of the particular case.
First, thought must be given to what substantive law will apply. Substantive law is composed of the statutes, regulations and common law that create each parties’ rights, duties and remedies. Contract law, the Uniform Commercial Code and the Federal Bankruptcy Code are all examples of substantive law. It would be reasonable to assume that federal courts apply federal substantive law while state courts apply their state’s substantive law, but that is not always the case. Surprisingly, unless Congress provides by statute that a federal claim is exclusively within the jurisdiction of the federal courts, as it has done with Bankruptcy and Patent Law, both state and federal courts may be able to hear and decide the federal substantive law claim.
There are also instances in which a federal court can hear claims arising under a state’s substantive law. This “diversity jurisdiction” arises when: (1) the parties are citizens of different states; and (2) the amount at stake exceeds $75,000. Regardless of which body of substantive law applies, the court will usually apply its own procedural and evidentiary rules. When possible, the careful litigator will use that to his or her advantage.
Procedural laws are the rules of process that a court must follow as a case moves from its beginning to its end. These include the rules for starting a lawsuit, conducting discovery, bringing motions, conducting trials and obtaining and enforcing money judgments. These rules differ, sometimes greatly, between New York’s Civil Practice Law and Rules (CPLR) and the Federal Rules of Civil Procedure (FRCP). Take subpoena power, for example, which allows an attorney to require a witness’ attendance in court. There are indirect ways to use the FRCP that effectively allow for nationwide subpoena power. This means that under the FRCP, an attorney can often require a witness to testify in a case regardless of where in the country that witness lives. In contrast, subpoena power under the CPLR ends at New York’s borders. This means that where key witnesses, outside of the party’s control, live outside of New York, it is advantageous for that party to utilize the FRCP in federal court if possible.
Closely related to a court’s procedural law is evidentiary law. Evidentiary law outlines what types of evidence the judge or jury may consider when deciding the case. In New York, much of the evidentiary law is not codified but instead exists in case law. Unlike New York, federal evidentiary law is codified in the Federal Rules of Evidence (FRE). The evidentiary law in each venue is not identical, and the choice may affect the outcome. For example, in both New York and federal court, a statement made by a high-ranking employee of an organization, who has authority to speak on the organization’s behalf, will be evidence of an admission by the organization. But, what about statements made by lower-level employees who do not have authority to speak on the organization’s behalf? In federal court, even a statement made by a lower-level employee will be deemed an admission by the organization where the statement concerns a matter within the scope of the employment relationship. In New York, however, that same statement may be inadmissible hearsay. Suffice it to say, when choosing between state and federal court, one will give thought as to how the different evidentiary laws may affect the case. Failure to do so could have a profound impact on the litigation’s outcome.
It is also important to consider the pool of potential jurors. A case brought in New York will have a jury pool made up of individuals who live in the county where the case will be venued. A federal case will have a jury pool made up of individuals from all of the counties that comprise the federal district. Regardless of where they are from, the vast majority of jurors work hard to fairly decide the cases presented to them. Experience tells us, however, that different populations have different predominating view points. Think “Blue States” versus “Red States.” These predominating points of view may or may not be advantageous to the particular case at hand.
Similar consideration should be given to the pool of potential judges. The vast majority of judges consistently do their best to be fair and correctly decide the issues. But judges too will have natural inclinations and view points that affect the way they view the relevant issues. Unlike jurors, however, a judge’s past decisions are available, and these decisions can help assess how that judge will likely view the case. Now, it is usually impossible at the outset to predict with certainty which judge will hear the case. But by looking at the judicial options within the available jurisdictions, the careful litigator will get a sense of whether one court provides a better chance of having a judge with a viewpoint favorable to the case’s procedural, evidentiary and substantive legal issues.
The benefits sought by comparing available courts is not always related to just the outcome; considerations of cost must enter into the analysis as well. Germane to our modern, digital age, e-discovery presents a clear example of the importance of considering costs. E-discovery is centered around locating and producing information that has been stored in an electronic format such as relevant e-mails, instant messages or electronically archived documentation. E-discovery can become expensive. Due to this high cost, a litigant may want to be in a federal court where the rules and case law concerning e-discovery are more settled than many other states. Also, cost-shifting of electronic discovery expenses should be compared between state and federal rules and case law. A litigant should, therefore, anticipate how the CPLR and the FRCP will impact the case before deciding, with counsel, which system to use.
This article presents the briefest of introductions to what many times is a complex analytical process for the attorneys handling a case. The few examples above should help illustrate the value created by investing time in analyzing this issue at the outset of any litigation.
This article was co-authored by Kenneth A. Manning, Partner, and John E. Abeel, Associate, in the Phillips Lytle Commercial Litigation practice. If you have a question pertaining to this article, contact John at (716) 504-5774 or firstname.lastname@example.org.