6 Times a Business Dispute Belongs in Federal Court

When your business is faced with litigation, the very first thing we do as your counsel is to determine what court--in what county--in what state does the dispute belong?  And that question is important whether you have already been served with a complaint or whether you are considering suing another party.  

A question of venue specifically addresses the actual best-suited courthouse address.  Before we know the proper courthouse to hear the dispute, we need to focus on the question of jurisdiction which is a set of complicated questions with the answers to those questions determining the right court where the matter should be filed. 

This discussion focuses on the primary question in the decision matrix: should the dispute be filed in the State Court or the Federal Court system?.

Most disputes will have the best or only fit within the wider parameters of the state court system. In California, that would mean the Superior Courts where the parties call home, or if there is a piece of real estate at the core of the dispute a particular county, or that court has been specifically identified in a contract as the mutually agreed-upon county where the dispute will be resolved. 

Some disputes will meet the much narrower requirements for a filing in the FederalCourt system (example: the District Court of the Northern District ofCalifornia). Because of very  narrow requirements for the federal courts to accept a matter, the courtrooms have far fewer cases on their dockets—an advantage because the clerks and judges are not usually overworked like state courts.  The cases tend to be more complex and with much higher dollar values of the dispute.  Cases are generally between parties of different states or even different countries or are cases involving a specific legal issue only addressed under federal law.  

Here are a few of the qualifying factors that may result in a case that is either best determined or may ONLY be determined in federal court:

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1. When the Case Involves Parties from Different States

If your business is inCalifornia and the other party is based in another state, the case may qualify for federal court under “diversity jurisdiction.”  It also must be a case that has more than $75,000 at stake if there is no “federal question” involved.

2. When Federal Law Is at Issue

If the dispute involves a question that falls strictly under federal laws (like intellectual property, securities, antitrust, admiralty, radio or television broadcast licenses, theFederal Energy Commission or federal RICO violations, for some examples—there are lots of other qualifying federal questions), the case usually belongs infederal court.

3. When the Stakes Are Higher

Federal courts often handle cases involving higher dollar amounts or bigger business disputes. The process and rules for handling the case can be much stricter, but it also means the case may move faster and nuisance claims or causes of action are disposed of more quickly.

4. When the Dispute Crosses State Lines

Disputes that occur in multiple states or that start in one state and end in another, for example, are better suited for federal court, which is set up to handle interstate issues under federal law.

5. When One Side Pushes for Federal Court

We mentioned above that a case may be best determined in federal court because there are many cases that can be handled in either the state or the federal courts. Even if a case starts in state court, the opposing side may “remove” it to federal court if all of the jurisdictional requirements are met. That means determination of the dispute under the Federal Rules of Civil Procedure (and other Federal Rules), tighter deadlines, razor-sharp rulings and judges who are well versed with each of the cases on their docket and who are prepared for vigorous argument of the issues by lawyers representing the parties. 

6. Conclusion

We often advise that a case should be originally filed or removed to Federal Court. But because each case and the parties involved create different strategic decisions, if you’re now facing a business dispute and aren’t quite sure whether it belongs in federal or state court, don’t wait.Call us today at (415) 633-6841. We’ll help you understand your options and protect your business.

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal or tax advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction.  Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.

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