By Dr. Gary L. Deel, Ph.D., J.D.
Associate Professor, Dr. Wallace E. Boston School of Business
In this series of articles I’ve written to demystify the law, I have discussed comparative versus punitive damages, decriminalization versus legalization and the dynamics of cause and effect in the legal system. But what are the differences between federal and state court systems, exactly?
The Hierarchy of State and Federal Courts
There are two court systems that exercise jurisdiction over any U.S. state, region or territory. There are state courts, which are designed and individually operated by state governments. Also, there is the United States federal court system, a kind of “national” court system that derives its power from the federal government.
Although these courts are different in many ways, there are some similarities. For example, the federal system and most state systems share a common hierarchy with three different levels.
The first level, where court cases are initially tried, is called the trial level. For the federal system, these courts are known as United States District Courts, and there are 94 of them across the country, organized into 12 regions. For state systems, these trial-level courts are commonly called circuit courts, county courts, or municipal courts – and their numbers can vary widely depending on the state in question.
The second level is the appellate level, as these courts are where litigants go to appeal the outcome of a trial. In the federal system, there are 13 United States Circuit Courts of Appeal – one for each of the 12 district court regions. There is also a 13th Court of Appeal for the federal circuit, which handles specialized cases such as patents and international trade. For the states, there may be a variety of appellate courts to support state court dockets.
Lastly, there is the third level – the Supreme Court. In the federal system, this is the United States Supreme Court, which is the highest court in our country. Generally, each state also has its own state supreme court that sits at the summit of the respective state court system.
Technically, supreme courts are also considered a kind of appellate court. Commonly, cases heard by these supreme courts are on appeal from the second-level appellate courts in each system.
But what determines whether a lawsuit can or should or must go to federal court versus state court for processing? The answer will ultimately depend on the claims being made and the parties involved in the case.
Determining Which Cases Are Tried in Federal Courts
There are two procedural avenues through which a case may be filed and litigated in federal court. The first cause for federal court jurisdiction is commonly referred to as “federal question” jurisdiction. What this means is that, if a claim is predicated on federal law, it can be properly filed and litigated in federal court.
The second cause for federal court jurisdiction is called “diversity” jurisdiction and it requires the case to meet two tests. First, there must be at least $75,000 involved in the controversy; the party who is suing must contend that he or she is owed at least $75,000 in damages in relation to the case. Second, no plaintiff may share a common state of residence with any defendant in the case.
The rationale for diversity jurisdiction is that federal courts may serve as a neutral arena for disputes where there is no convenient or agreeable state forum. For example, imagine that Jack, a resident of Alabama, is suing Jill, who lives in New York.
Jack is alleging at least $75,000 in damages, and there are no other parties to the lawsuit. In this case, neither Alabama state courts nor New York state courts would be neutrally convenient for the claim without putting either Jack or Jill at a “home court” disadvantage. As a result, trying the case in a federal court is an appropriate option.
The $75,000 “amount in controversy” requirement serves to regulate the volume of cases that may be filed in federal court for reasons of feasibility and efficiency. If every small claims case could be filed in federal court, a flood of these lawsuits would cripple the federal court system. So this amount threshold ensures that only sufficiently serious or impactful cases are heard in federal court.
State courts, by contrast, may be a proper forum for almost any claim. If a state court can reach all of the parties involved in the case – either through personal jurisdiction over in-state residents and/or “long arm” statutes that extend to out-of-state residents – then any state law claims may be brought before these courts. However, the type of case and the amount in controversy may further dictate a certain type of state court for filing and processing.
State courts can even hear many federal law claims too. For example, claims regarding Constitutional rights issues can be brought in state court just as they can in federal court.
However, there are some specific federal law claims that state courts cannot hear. State courts cannot preside over “lawsuits against the United States and those involving certain specific federal laws: criminal, antitrust, bankruptcy, patent, copyright, and some maritime cases.”
The Types of Laws in State and Federal Courts
What law is applied when cases are heard in state court versus federal court? To answer this question, it’s necessary to define the three different types of law.
First, there is statutory law, which refers to the laws and codes written and passed by legislatures. These are the laws that are “on the books.”
Second, there is common law, which involves legal precedents, established by decisions in prior court cases. Decisions in these cases help to fill legislative gaps and/or resolve ambiguities in statutory law.
Third, there is procedural law. This type of law deals with how courts – including judges and attorneys – go about litigating claims.
Let’s look at state courts first. For state claims involving the laws of the state in which the court resides, the court would naturally apply its own state law — statutory, common and procedural – when presiding over legal matters brought before them. And for federal claims in state court, the court would utilize federal statutory and common law, but generally it would retain its own state procedural law. There may be rare cases where a state court may apply law from another state, such as when the terms of a contract specifically stipulate that a certain state’s law should control.
Federal court choices of law are equally complex. For federal question cases, federal statutory law and federal rules of civil procedure are applied.
Also, there is a limited body of common law at the federal level that courts will apply for these cases as well. So, for example, if Steve is suing his employer in an Equal Employment Opportunity claim (a federal law cause of action), the court would apply relevant federal (EEOC) statutory law, federal procedural law and federal common law to the case.
But for diversity jurisdiction cases, federal courts must split their allegiance and adhere to their own procedural law while applying state substantive law, including statutory and common law. If Steve is suing his employer on diversity jurisdiction in federal court for discrimination based on a Montana anti-discrimination law, the court must look to Montana statutory and common law – in essence serving as a proxy for a Montana state court. This choice of law principle, which is binding in federal courts, is called the Erie Doctrine.
Based the different types of court jurisdiction and court choice of law, it’s clear that some cases could potentially be litigated in more than one court. For example, suppose Alan sues the Grocery Corporation because he slipped and fell inside a local store, incurring $100,000 worth of medical bills from his injury. Now, if Alan lives in Nevada and Grocery Corporation is incorporated in Delaware (and they are the only two parties), Alan might be able to sue in either state or federal court.
Alan could probably litigate in state court because Nevada’s long-arm statute would likely be able to reach ShopRite given their “minimum contacts” with the state. On the other hand, Alan could probably also sue in federal court under diversity jurisdiction as well. So he has a choice, but what should he do?
Legal Strategy Plays a Role in Whether Cases Are Tried in State or Federal Courts
Usually, legal strategy plays a role in venue decisions. Naturally, wherever options exist, parties will want to look to litigate in courts with the laws and procedures that will be most favorable to their goals and circumstances. This legal tactic is known as “forum shopping.”
Commonly, plaintiffs like Alan will want to sue in state court as opposed to federal court if such an option exists. Why? First, a state court is likely to be more convenient for Alan. And second, a potential jury pool might be more sympathetic to Alan in state court since he is likely to be perceived as a member of the same local community from which the jury hails.
But Alan does not necessarily have the final say on jurisdiction and venue. Even if Alan files in state court, Grocery Corporation’s attorneys may actually be able to “remove” the case to federal court through a legal maneuver, as is their right.
This strategic move is very common among large companies when they get sued. Often, they find that juries in federal courts are less hostile to them than state court systems.
But for every strategic move, there is often a countermove. This type of case is no exception. So a tactic that plaintiff attorneys commonly use from the very beginning in order to prevent removal to federal court is to name another defendant sharing a common state of residence with the plaintiff, so that the issue of diversity no longer exists.
So if Alan’s attorney is clever (and if state court laws permit it), he or she may be able to not only sue the Grocery Corporation, but also the manager who works at the local Grocery Corporation store in Nevada where Alan’s incident occurred. If that manager is also a Nevada resident, then removal to federal court on diversity grounds would be improper since at least one plaintiff and one defendant share a common state of residence.
However, Grocery Corporation may challenge the propriety of the manager being named as a defendant in the case – and sometimes these challenges are successful and reopen the doors to removal. In fact, some states have rules that restrict or prohibit plaintiffs from simply adding defendants to prevent a case’s removal to federal court.
The ultimate outcomes of these legal procedural disputes hinge on how well the attorneys prepare and articulate their arguments. But the end results can have a significant impact – either positive or negative – on the odds of a successful resolution for one party or the other. So it’s extremely important for lawyers to understand the differences between state and federal courts and the implications of those differences for litigation strategy.