Practical Insights for Business Owners
Client Q&A: Should my lawsuit be in state or federal court?
Should my lawsuit be in state or federal court?
New York—like every state—has two parallel court systems, so if you want to file a lawsuit, one of the first questions to consider is whether the case should be brought in state or federal court. Similarly, if you have been sued, you should consider whether the case against you is in the right court, and whether you would get an advantage by moving the case from one system to the other. Each choice has its own advantages and disadvantages. Below, we summarize, at a simplified level, what those advantages and disadvantages are.
The State and Federal Court Systems
In the New York state court system, almost all cases are brought in the Supreme Court, which is the general trial court. Each county has its own Supreme Court—New York (i.e. Manhattan), Queens, Bronx, and so on. Appeals from Supreme Court decisions are brought to the Appellate Division, of which there are two in New York City: the First Department, sitting in Manhattan, which hears appeals from New York and Bronx counties, and the Second Department, sitting in Brooklyn, which hears appeals from Brooklyn, Queens, and Staten Island, as well as the Long Island counties and suburban counties up to Poughkeepsie. Appellate Division rulings can in turn be appealed to the New York Court of Appeals, New York’s highest court, sitting in Albany, although it is usually up to the Court of Appeals to decide whether it wants to hear the appeal or not.
In the federal system, the United States District Courts are the general trial courts, of which there are two in New York City: the United States District Court for the Southern District of New York, which covers New York and Bronx counties, as well as the suburbs up to Poughkeepsie, and the United States District Court for the Eastern District of New York, which covers the rest of New York City and Long Island. Appeals from the District Courts are heard by the United States Court of Appeals for the Second Circuit in Manhattan, and further appeals go to the United States Supreme Court in Washington, D.C., which decides in its discretion whether to take the case.
The New York state and federal courts systems have different judges, rules, and procedures, and often follow different legal precedents and standards.
Jurisdiction of the Federal Courts
A threshold question is whether your case can be brought in federal court at all. The federal courts have limited jurisdiction, and can only hear cases that reach beyond one particular state. This means that any case filed in federal court must either concern federal laws or the constitution (federal question jurisdiction), or involve a dispute between citizens of different states (diversity jurisdiction).
Federal question jurisdiction exists whenever the plaintiff alleges a claim arising under federal law, such as bankruptcy law, securities law, patent and other intellectual property law, federal anti-trust law, federal anti-discrimination law or civil rights law, constitutional law, immigration and citizenship law, or admiralty law. The initial complaint must allege claims under federal law—a defendant subsequently asserting federal counterclaims usually does not create federal question jurisdiction. Federal question jurisdiction also encompasses state law claims asserted along with federal law claims, so a plaintiff asserting both state and federal claims can file in federal court.
Some federal questions, such as bankruptcy, patent, admiralty, and federal securities cases, must be brought in federal court. Others can be heard in state court or in federal court.
Diversity jurisdiction exists when a lawsuit is between citizens of different states. Diversity jurisdiction requires complete diversity, so every defendant must be a citizen of a different state from every plaintiff. Corporations are citizens of both the state where they are incorporated and the state of their principal place of business, and partnerships and LLCs are citizens of every state of which their partners or members are citizens. (There are special rules for U.S. citizens living abroad, foreigners, and non-citizen permanent residents.) Diversity jurisdiction also requires that a minimum amount of money (the amount-in-controversy requirement) be in dispute, which is currently $75,000.
Even if a case is not filed in federal court, but could have been brought in federal court, the defendant can remove the case from state court to federal court (removal jurisdiction). So if the complaint alleges a federal law issue, or if there is complete diversity and the amount-in-controversy is satisfied, a defendant has 30 days from first receipt of the complaint to file papers and remove the case to federal court. All defendants must agree to remove the case, and a diversity jurisdiction case may not be removed if any defendant is a citizen of the state where the action is filed.
Considerations when Deciding Between Courts
If a plaintiff can choose between the state and federal system, or if a defendant can assert removal jurisdiction, many different considerations come into play, of which the following are only a few:
- Status of the parties. Over the years, the federal system has become increasingly pro-defendant, with District Court judges being required to follow precedents set by the conservative majority on the Supreme Court. For this reason, individual plaintiffs should consider staying in state court. For example, someone who wants to bring an employment discrimination claim or a consumer action or a personal injury case in New York City might well be better off in state court. Conversely, federal courts are more efficient at weeding out frivolous lawsuits, so a defendant facing a meritless claim, especially an outlandish one, should consider removing the case to federal court. Similar considerations would apply to an out-of-state business being sued by an individual New Yorker in state court.
- Availability of Commercial Division adjudication. Many of the New York Supreme Courts have set up specialized parts—known as the Commercial Divisions—to hear complex commercial cases. In our area, Commercial Divisions have been set up in Manhattan, Brooklyn, Queens, Westchester, and the Long Island counties. Just like federal court, Commercial Divisions have eligibility requirements; cases must either meet an amount-in-controversy requirement, which varies by county ($500,000 in Manhattan; $200,000 in Nassau County; $150,000 in Brooklyn; and $100,000 in Queens, Suffolk, and Westchester counties), or involve specific subject matters and also seek injunctive relief. Unlike federal judges, who are often former prosecutors rather than civil lawyers, and who hear all kinds of cases, including many criminal cases and other specialized federal-law cases, Commercial Division judges only hear commercial cases. For a large commercial dispute focused on state-law questions, the Commercial Division might be a better option than the federal courts.
- Favorable interpretation of state law questions. Federal courts can hear both federal law and New York state law claims, but federal courts and state courts often apply state law differently. A party considering whether to bring state-law claims in federal court should research whether state or federal courts apply the applicable legal doctrines in the same way, and if they do not, decide which court would be more favorable to that party’s position.
- Procedural efficiency. Many commentators—including many state court judges—complain that the state court system is underfunded compared to the federal system, that state court judges have fewer staff members but more cases, and that the state court system is slower to implement procedural improvements, such as electronic filing of documents. Efforts at reform spearheaded by successive Chief Judges of the Court of Appeals have led to some improvements—such as the creation of the more up-to-date Commercial Division—but many of their other proposed reforms have not been implemented. State court litigants who are not in the Commercial Division may face inefficiencies such as judges without access to email or electronic filing, unnecessary court appearances, and different parts of the same case being supervised by different judges. These problems can increase expenses and frustrate clients, especially those who are litigating on a limited budget.
- Availability of immediate appeals. A big difference between state court procedure and federal procedure is the availability of immediate appeals, known as interlocutory appeals. In federal court, an appeal can generally only be taken from a ruling which disposes of the entire action, but in state court most rulings can be appealed to the Appellate Division immediately. This means that, in federal court, an erroneous ruling denying a motion to dismiss or a motion for summary judgment, or erroneously dismissing some claims but not others, may be unappealable for years, until the rest of the case has been decided. This is a double-edged sword; a state-court party can use interlocutory appeal to fix mistakes quickly, allowing the case to move forward steadily and decreasing the likelihood that an early mistake will force large parts of the case to be re-litigated, but a well-financed party can also delay any final judgment and increase costs by appealing every interim order.
- Change of venue. Because the federal system covers the entire country, it is much easier to move a federal case out of New York to another part of the country. New York state courts cannot transfer a case out of state, they must instead dismiss the case so that the plaintiff can re-file elsewhere, and a defendant seeking such an outcome must meet a far higher burden, as well as facing uncertainty as to where, exactly, the plaintiff will eventually recommence the action. A non-New York defendant who believes that a case would be better heard in another state—if, say, the principal witnesses or documents are located outside New York—should consider removing the case to federal court and then moving for a change of venue.
The decision whether to proceed in state or federal court is a complicated one—in most cases, several of the factors listed above will have to be considered and weighed against one another—and can influence the outcome of the entire case. We have substantial experience in both the New York State courts and in the United States District Courts and can help you decide if you are in the right court—and, if you have a choice, which court is best for you and your case.