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Civil Procedure Outline

By: Elizabeth Frederick

I. Jurisdiction Over Parties and Property

Traditional Bases of Jurisdiction

Personal Jurisdiction allowed only by statute and it must not violate 14th

Amendment Due

Process. Easiest way to get power jurisdiction over Δ is by serving him within court’s

territory.

Pennoyer v. Neff (1877) pg. 63: Mitchell sued Neff, a non-dom, in Oregon by publication.

Mitchell got default judgment because Neff didn’t appear in court. After the judgment, Mitchell

executed judgment against a plot of land Neff owned by putting it up on auction. Mitchell

bought the land and assigned it to Pennoyer. Neff sued Pennoyer for return of the land. The

Supreme Court held that:

1) Courts have power over Δs in their territory or their property if properly attached at the

beginning of the suit (quasi in rem jurisdiction).

2) The authority of the tribunal is limited to the boundaries of its physical jurisdiction.

3) Mitchell could not execute judgment on Neff’s property because it was not properly

attached at the beginning of the suit in order to get quasi in rem jurisdiction.

Three Types of Power Jurisdiction

In Personam: power over the person by their presence in the state and their citizenship

(even flying over the state in a plane is OK for in personam jurisdiction)

In Rem: power to determine the status of property in its territory and its relationship to

all interested parties

Quasi In Rem: power over the person via their property in the territory, any judgment

may be executed against that property, but is limited to the property only.

Blackmer v. United States: Service of process in France was effective because Blackmer was a

US citizen. The Federal Government has in personam jurisdiction over citizens in foreign nations.

Milliken v. Meyer (1940): Wyoming Π v. Colorado Δ, Π wins by default judgment, Π goes to

Colorado to execute judgment under Full Faith and Credit Clause, Δ claims no full faith and

credit. The Supreme Court held that domicile is enough for a court to have jurisdiction because

one gets the benefits and protections of the state in which they are domiciled. Colorado

court has ability to execute the Wyoming judgment because Δ is domiciled in Colorado.

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Residency v. Domicile

1) One can have multiple residences, but only one domicile

2) Residency may not be enough for personal jurisdiction, but domicile is

3) Quasi in rem jurisdiction can be asserted over a non-dom’s property, even if not related to

the action

Adam v. Saenger: Texas Π v. California Δ, Π serves Δ’s lawyer in California, but drops suit. Δ

pursues counterclaim against Π in California and gets default judgment. The Supreme Court

held jurisdiction was proper because Π availed itself of the benefits and protections of California

courts by suing Δ there. Individuals can consent to personal jurisdiction by not contesting it

and availing themselves to the court.

Every one of these cases requires Due Process analysis under the 14th

Amendment.

Expanding Bases of Personal Jurisdiction

States began making statutes allowing service of process on an agent in the state to file suit

against out-of-state motorists.

Kane v. New Jersey (1916): The Supreme Court held that NJ could require out-of-state motorists

to have agent upon which process would be served prior to using the highways. (States have

since moved beyond express consent to jurisdiction to implied consent by using the roads)

Hess v. Pawloski (1927): Penn. Δ caused accident in Mass and injured Mass. Π, Mass. Stat. says

service can be made upon out-of-state Δ by sending it to an agent in Mass. who will send it to

out-of-state Δ. The Supreme Court held that such service did not violate the Due Process Clause

because Privileges and Immunities Clause allows out of state citizens to freely pass through any

state, which would give the states power to make laws reasonably calculated to promote safe

driving by all motorists, whether citizens of the state or not.

Through a police power states can create statutes that create an implied consent of nonresidents

to be subject to the jurisdiction but are limited to proceedings growing out of specific events.

Long-Arm or Single-Act Statutes: Statutes which seek to provide personal jurisdiction over

nonresidents who cannot be found and served in the forum. They predicate jurisdiction over

nonresidents upon the defendant’s general activity in the state, or the commission of any one of a

series of enumerated acts within the jurisdiction or the commission of a certain act outside ther

jurisdiction causing consequences within it.

A New Theory of Jurisdiction

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Pennoyer bases of presence and citizenship did not work for corporations because they only

existed on paper. Courts first said that corps could not operate in a state without the state’s

consent (Consent theory) (impractical because corps could be forced to make an agent in any

state they did business). Courts then tried to use presence (Presence theory) for basis, but once

a corp. stopped “doing business” in the forum, jurisdiction was extinguished.

The Court then developed the four categories of In Personam Jurisdiction:

FOUR CATEGORIES OF IN PERSONAM JURISDICTION

General Jurisdiction (Categories I and II): Asserting jurisdiction for all matters

Category I: Unlicensed Regular, ongoing and systematic contacts with forum AND claim

arises from contacts (ALWAYS CONFERS JURISDICTION - Shoe)

Category II: Unlicensed Regular, ongoing and systematic contacts with forum BUT claim

does not arise from contacts

Specific Jurisdiction (Categories III and IV): Asserting jurisdiction over it for maters related to

its activities with the forum, without sufficient contacts to warrant general jurisdiction.

Category III: Single contact AND claim arises from that contact (Gray)

Category IV: Single isolated contact BUT claim does not arise from that contact (NEVER

CONFERS JURISDICTION – Hanson)

International Shoe v. Washington (1945) Category I p. 76: Wash. served Δ’s sales agent in

Wash., but Δ is incorporated in Delaware. The Supreme Court held that Δ’s actions were

“systematic and continuous” in Wash. Therefore Δ had minimum contacts with Wash. in

order for Wash. courts to assert jurisdiction.

Minimum Contacts to establish presence:

Contacts were: Systematic and Continuous

Enjoyed the benefits and protection of the laws of the state

Claim arises from the contacts_______________________________________________

State has a high interest in the outcome of the case (State unemployment tax in Shoe)

The activities made sufficient contacts in the forum to satisfy traditional notions of fair

play and substantial justice.

The issue arose out of those activities

Gray v. American Radiator & Standard Sanitary Corp. (Sup. Ct. Ill. 1961) Category III p. 83:

Π was injured by a faulty valve, Δ claims no sufficient contacts with Illinois because valves not

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manufactured there. The Illinois Supreme Court held that the tort takes place where the final

act occurs that imputes liability, in this case the injury occurred in Illinois. In Personam

Jurisdiction does not violate 14th

Amendment Due Process because the single contact meets the

following:

Category III: Single contact and the claim arose out of it:

-The act or transaction has to have a substantial connection with the forum state.

-The claim must arise out of the contact

-Benefits from the laws of the state in that transaction.

-The state has an interest in litigating the matter

-It does not matter that the purchase was made from an independent middleman or

that someone other than the defendant shipped the product.

-Further continuous activity in the state is not necessary.

Due Process and Long-Arm Statutes

McGee v. International Life Insurance Corp. (1957) Category III: Franklin, a Cali resident,

bought insurance from a Texas Δ. Δ had correspondence via mail w/ Franklin until his death. Π

is Franklin’s beneficiary, Π sued Δ in California pursuant to a long-arm statute and won. Π went

to Texas to satisfy judgment, but Texas court said Δ’s Due Process rights were violated by

service of process outside California. The Supreme Court held that:

1) Shoe tells us that if a Δ is not served in the forum state, he must have minimum contacts

with the state and conferring jurisdiction must not offend traditional notions of fair play

and substantial justice.

2) Δ had minimum contacts with Cali. b/c of mail correspondence with Franklin. Cali. has

an interest in pursuing insurance companies who do not pay out to in-state beneficiaries,

and inconvenience to Δ for travel does not violate Due Process.

Hanson v. Denckla (1958) Category IV: Donner, a Penn. resident, made a Delaware bank a

trustee and made her two daughters beneficiaries, but retained the right to change beneficiaries.

Donner moved to Florida, changed her beneficiaries to her third daughter and grandchildren (also

in Florida), and died. Florida court asserted jurisdiction over the Delaware bank in determining

who the trust should go to and gave it to the third daughter and the grandchildren. At the same

time, a Delaware court determined that the trust go to the two daughters. The Supreme Court

held that the Delaware court could ignore the Florida holding because of lack of jurisdiction

(minimum contacts not satisfied because the bank solicited no business in Florida).

No transaction of trust took place in Florida, No Contact test:

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No transaction (act) took place in the state

No attempt to solicit business, No target

Did not act in such away as to avail them any protections or obligation from the laws of

the state.

A unilateral contact with the bank does not constitute the minimum contacts, it must be

shown that the party was protect by the laws of the state.

World-Wide Volkswagen v. Woodson (1980) Category III: Π bought a car from Δ in NY; both

parties are NY citizens. While driving through OK, Π gets in car accident. Π sued Δ in OK, but

Δ claimed that OK jurisdiction would violate Due Process because they do not have minimum

contacts with OK (sales restricted to NY area, even though Audi sells around the country). The

Supreme Court held for Δ because Δ’s connection with OK is too tenuous in order to be subject

to suit there. While the manufacture had minimum contacts for presence jurisdiction because

they anticipated their product to be sold throughout the U.S. the dealer, however, does not meet

minimum contacts for jurisdiction, OK is not a target market and there was no attempt to solicit

business there. Furthermore, they do not receive protections from the state to avail themselves to

jurisdictional power. The question is if the corporation could anticipate being summoned to

court in that state.

The dissent argues that the true standard should be minimum contacts among the parties in

accordance with traditional notions of fair play and substantial justice; such a standard would

show that Δ had minimum contacts with the Π, making Δ subject to suit.

Kulko v. Superior Court (1978) Category IV: The Kulkos separated, and their two children

lived with Dad in NY. Daughter wanted to go live w/ Mom in Cali, so he got her a ticket and

sent her. Pursuant to a Cali. long-arm statute the wife served the husband on an effect test. The

Supreme Court held that Cali jurisdiction violated Due Process because Δ had no minimum

contacts with Cali and an effect test only applies when his conduct outside the state causes harm

in the state. Furthermore, a financial benefit from his daughter being in California does not

constitute purposeful availment to the protections of the laws.

Three Factor Analysis for the effect test: the defendant 1) committed an intentional act;

2) expressly aimed at the forum state; 3) causing harm, the brunt of which is suffered, and the

defendant knows is likely to be suffered in the forum state.

Burger King Corp. v. Rudzewicz (1985) Category III: Π franchisor and Δ franchisee made a K

to open a Burger King in Mich. The K had a forum selection clause saying Δ would be subject

to suit in FL. The only contact Δ has w/ FL was one of the managers went to FL for training. Δ

breached, Π sued in FL fed. ct. The Supreme Court held jurisdiction was proper b/c the K and

business transactions before and after the K Δ had with Π, a FL corp. satisfied the minimum

contacts test through a Substantial Connection by creating a continuing obligation between

himself and residents of the forum. Nothing about the forum-selection clause in the K violated

Due Process. The K made the forum foreseeable to the Π, afforded them protections of the laws

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of the state, and caused the Π to “purposefully” avail himself to the jurisdiction because his

actions were directed at the state.

Asahi Metal Industry Co. v. Superior Court (1987) Category III N. 35 p. 117: Δ, incorporated

in Japan, manufactures tire valves and sends them to Taiwan where they are installed on tires. Π,

a Cali resident, was injured in a motorcycle accident when his tire exploded. Π claims

jurisdiction is proper b/c Δ knew such valves would be used in the US; this placing of

components into the stream of commerce gave Δ the benefit of Cali laws. Δ claims that their

actions were not purposefully directed at Cali and had no PPB in Cali, so no minimum contacts

necessary to be in accord w/ Due Process. The Supreme Court held that because Δ did no

business in Cali, it had no minimum contacts necessary to confer jurisdiction in such a way as to

be consistent with fair play and substantial justice. Δ’s activities were not such that they enjoyed

the benefits and protection of Cali’s laws.

Issue:

Is mere awareness on the part of a foreign defendant that the component it manufactured, sold, and

delivered outside the United States would reach the forum state in the stream of commerce constituted

“minimum contacts” between the defendant and the forum state such that exercise of jurisdiction “does

not offend ‘traditional notions of fair play and substantial justice.’”

Plaintiff’s argument/ Cheng Shin:

Disscussions with Asahi regarding the purchase of valve stem assembles the fact that Cheng Shin sells

tubes throughout the word and specifically the U.S. occurred. It is believed that Asahi was fully aware

that valve stem assembles sold to Cheng would be sold to others and thought the U.S. and in California.

Asahi’s intentional act of placing its components into the stream of commerce knowing that it was

probable that the valves would be used in the U.S. is sufficient for California to assert jurisdiction.

Further the sale of the products in California was an indirect benefit to Asahi. Thus, establishing sufficient

minimum contacts for the Due Process Clause.

Defendant’s argument/ Asahi:

Asahi has never contemplated that its limited sales of tire valves to Cheng Shin in Taiwan would subject

it to lawsuits in California. There is no substantial connection between the defendant and the forum State

necessary for a finding of “minimum contacts.” Asahi did not engage an action purposefully directed

toward the forum State. Asahi did not indicate intent or purpose to serve the market in the forum state, it

did not design the product for the market in the State, it does not advertise, or established any channels for

providing regular advise to customers in the forum, and it does not market the product through a

distributor who has agreed to serve as a sales agent in the forum.

Asahi does not do business in California; it has no officer, agents, employees, or property in California, it

does not advertise or otherwise solicit business in California, it does not create, control or employ the

distribution system that brought its valves to California and it was not designed in the anticipation that it

would be sold in California.

There is an unreasonable burden placed on Asahi in subjecting them to litigate in a foreign nation. With

regards to policy the plaintiff is not a California resident and the transaction took place in Taiwan so the

forum’s interests should be considerably diminished.

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General Jurisdiction and State Long-Arm Laws

Cases w/ corps are usually Category II cases; corp has some contacts w/ forum state, but claim

does not arise from them.

Perkins v. Benguet Consolidated Mining Co. (1952) Category II N. 38: Δ had a mine in the

Phillipines, but closed it due to WWII. Δ maintained an office in Ohio. Π, not an Ohio resident,

sued Δ in Ohio for stock dividends (unrelated to Δ’s activities in Ohio). The Supreme Court held

that Δ’s activity in Ohio satisfied Due Process requirements for amenability to suit in Ohio. The

presidents operation his business is a continuous and systematic contact and nothing in due

process stops Ohio from asserting jurisdiction. While no mining occurred physically in Ohio by

the company many of its wartime activities were directed from Ohio and were being given the

personal attention of its president in that State at the time that he was served with summons.

Fisher Governor Co. v. Superior Court: An explosion in Idaho caused a wrongful death.

Plaintiff served defendant, an Iowa corporation, by serving a California manufacturers’ agent

who sold defendant’s products. The Supreme Court held that the summons should be quashed

because subjecting jurisdiction over a corporation that was served a summons via an independent

dealer outside the state of incorporation does not constitute due process. To allow California to

assert jurisdiction over such a corporation would subject any corporation that promotes the sale

of its products on a nationwide basis to suit anywhere in the United States without regard to the

fair and orderly administration of laws. The contacts here are not isolated so it is a category II

and the question is if the contacts are enough. You need more than minimum contacts.

Frummer v. Hilton Hotels Int’l, Inc.: The Court allowed jurisdiction over Hilton, an English

corporation, for a suit brought in New York by a New York resident who slipped and fell in a

shower in Hilton’s London Hotel. Jurisdiction was seen as proper because Hilton Reservation

Co., which is in New York, was seen as an interlocking corporation that is sufficient to serve as

an agent of process. Parent-Sub agent of law.

Helicopteros Nacionales de Columbia, S.A. v. Hall (1984) Category II N. 41: Δ, a Columbia

corp, made a K with Consorcio, a Peru corp formed by a Texas corp, to provide helicopters for

building an oil pipeline. Δ bought helicopters from Texas and the CEO flew to Texas to sign the

K. A helicopter crashed in Peru, killing Πs, residents of Texas. Π’s reps sued Δ in Texas. The

Supreme Court held that jurisdiction was improper because Δ’s contacts were not systematic and

continuous enough to confer jurisdiction when the claim did not arise from the contacts. The

helicopter purchases in Texas have nothing to do with the suit.

New Bases of Jurisdiction – Technological Contacts

Bellino v. Simon (1999) : Two individual defendants moved to dismiss the complaint as to them

for lack of personal jurisdiction in an action alleging defamation, fraud and deceptive trade

practices primarily by telephone and internet communication, where none of the parties resided

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in the forum state. A witness, a customer of plaintiffs' to whom defendants allegedly made

disparaging remarks, did reside in the forum, and was also a partner in the law firm representing

plaintiffs. The court distinguished between one individual defendant, who had minimal contact

with the forum, and the other, who actively solicited business through his web site and had many

conversations by phone and e-mail with the witness. Only the latter had sufficient specific

contacts with the forum such that plaintiffs could establish prima facie personal jurisdiction in

the forum state under its long arm statute. One defendant's motion to dismiss was granted, as his

activity in the forum state constituted insufficient specific contacts to support jurisdiction; The

other defendant's motion was denied because plaintiffs met their prima facie burden purposeful

activity directed to the forum such that he could reasonably anticipate being haled into court.

Fischbarg v. Doucet (2007) Category III: Π, a NY lawyer, represented Δ, a Cali corp, in a suit

in Oregon without ever actually going to Oregon; rather, Π conducted all matter by phone or

email. There was a dispute over legal fees and Π sued Δ in NY. The NY Court of Appeals held

that the attorney-client relationship was a sufficient contact to confer jurisdiction and the claim

arises from the attorney-client relationship. Jurisdiction is proper even when a defendant never

enters New York, so long as the defendant's activities here were purposeful and there is a

substantial relationship between the transaction and the claim asserted." Defendants' solicitation

of plaintiff in New York and their frequent communications with him in the state forms the basis

of jurisdiction. "So long as a party avails itself of the benefits of the forum, has sufficient

minimum contacts with it, and should reasonably expect to defend its actions there, due process

is not offended if that party is subjected to jurisdiction even if not 'present' in that State.

Jurisdiction Based on Power over Property: IN REM JURISDICTION

Shaffer v. Heitner (1977) Π, a shareholder, filed suit against Δ, a DE corp w/ its PPB in AZ, in

DE court. Π filed w/ his complaint an order to sequester Δ’s property in DE which consisted of

stocks (DE law made the state the site of all DE corp. stocks). The Supreme Court held that the

“minimum contacts” test from Shoe should be applied. As such, the Δ’s did not have sufficient

contact with DE; the mere presence of stocks in a state does not confer jurisdiction that would be

consistent with fair play and substantial justice. THE MINIMUM CONTACTS TEST

APPLIES TO ALL FORMS OF POWER JURISDICTION!

A Refrain: Jurisdiction Based on Physical Presence

Burnham v. Superior Court (1990): Husband and wife wanted to get divorced. Husband filed

for divorce in NJ based on desertion. Wife then initiated a divorce proceeding in Cali. He was

served in hand while in California for a business trip. The husband argued that he was in

California for a business trip when he was served and according to the standard of continuous

and systematic contacts with the forum being required in International Shoe and forced on all

notices because of Shaffer the court does not have in personam jurisdiction. The court held that

California does have in personam jurisdiction over him when he is served in hand while in the

state. International Shoe does not say that in hand notice while in the state does not constitute

proper jurisdictional power. Furthermore, Shaffer was not demanding that all bases for the

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assertion of in personam jurisdiction must be subject to the minimum contacts analysis of

International Shoe, rather it was only requiring it of Quasi In Rem Jurisdiction.

Consent

You consent to a court’s jurisdiction by appearing to litigate on the merits. You can, however,

make a special appearance to contest jurisdiction without consenting to jurisdiction. Forum

Selection Clauses help clear up jurisdictional issues, but they are disfavored

Raising the Jurisdictional Question

Jurisdiction must be contested by motion or answer. If the question is in your answer, you still

must answer on the merits. If you file a 12(b)(6) motion and fail to contest jurisdiction, you lose

the right to do so.

II. Notice

Requirements for Notice

1) There must be a constitutional service statute (must be reasonably calculated to inform

interested parties so they have opportunity to object)

2) You must comply with it exactly (NY has strict compliance)

Mullane v. Central Hanover Bank (1950): . The bank closed a trust and only printed in a local

paper about the closing to beneficiaries, as according the New York Statute. Mullane contested

jurisdictional notice to the known and unknown addressed beneficiaries on the basis that it

violated the Due Process Clause of the 14th

Amendment. The Court held that the standard is not

to make it so everyone has notice because of the known cost to locate everyone would have on

the beneficiaries of the trust, but rather notice must be done in a way that is calculated to notify

as many as possible. Merely printing in a local newspaper notice when the addresses of the

beneficiaries that are known is not proper notice. However, the printing in a newspaper is proper

notice for unknown individuals because of the cost that would be incurred by the other

beneficiaries and the difficulty in locating them.

Property cannot be subject to court’s judgment unless reasonable and appropriate effort have

been made to five the property owners actual notice of the action.

Standard for Statute: Must be reasonably calculated to inform interested parties of the action to

afford them an opportunity to raise objections.

The notice must be balanced between cost and benefit.

Notice that is posted in a neighborhood that has papers ripped off in a complex is insufficient and

postal service is better.

(This is the constitutional minimum, states can require more for notice.)

A person being treated for mental health cannot be served in hand directly because they are

incompetent to what it is.

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Rule 4d provides for waver of formal notice. The defendant can wave formal notice and if they

don’t wave it then the defendant must pay for the service. Rule 4e allows the district court to use

the service under a service statute in the state they are in. In federal court we are less likely to

have service issues. You can still litigate a jurisdictional objection even if you wave service.

Immunity and Etiquette of Service

There is an immunity from service if you voluntarily come in to court.

Etiquette of service, assuming that someone is subject to basis the plaintiff can use trickery but if

there is no basis trickery cannot be used.

III. Jurisdiction Over the Subject Matter of the Action-The Court’s Competency

Notice: Must have a service statute and then there must be strict compliance. If the service

statute is unconstitutional then there is no proper service. If the service does not strictly comply

with the service statute then there is not proper service. (Can be waived if not raised in a timely

Subject-matter jurisdiction (SMJ): the competence of the court to hear a case from article 3 of

the federal Constitution and the legislature and the courts themselves because of the nature of the

dispute (whereas personal jurisdiction is the power to enter a judgment against a particular

defendant). (The lack of subject-matter jurisdiction can never be waved and can always be

brought up.)

In the States: subject-matter jurisdiction (SMJ) comes from the state constitution, statutes, and

judicial decisions.

28 U.S.C. § 1332. Diversity of citizenship; amount in controversy; costs

A federal court may have original jurisdiction when the controversy exceeds $75,000 and

is between citizens of different states, a state citizen and a subject of a foreign state, and

combinations thereof.

A permanent resident alien is to be considered a citizen of the state in which he is

domiciled.

When judgment is less than $75,000, the court may deny costs to plaintiff and charge

plaintiff costs.

Class actions require that the controversy exceeds $5,000,000 for a federal court to

exercise original jurisdiction, and the court may decline jurisdiction based on certain

circumstances outlined in §1332(c)(3)

U.S. Constitution, Art. III § 2

Judicial power of the US extends to controversies between citizens of different states and

between a State, or the citizens thereof, and foreign states, citizens, or subjects.

The current scope of diversity jurisdiction is laid out in § 1332 above.

“Diversity” jurisdiction allows a federal court to hear a case based solely on state law.

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Strawbridge v. Curtis: Complete diversity rule. All parties must be diverse.

The purpose of diversity is to avoid discrimination of out-of state residents in state court.

Determining Citizenship

Mas v. Perry (5th Cir. 1975): Husband (H) is citizen of France, Wife (W) is from Miss., and

both attended school in LA. Δ was peeping on them in their apartment. Πs sued Δ in federal

court in LA; Δ claimed no complete diversity because Δ and W are citizens of LA at time of

incident. The court held that there was complete diversity between the parties because although

the Π were going to school and living in the same state as the Δ there status as students and the

lack of an intent to stay in the state made it so they did not change their domiciles.

To be a citizen of a state under §1332, one must be a citizen of the US and a domiciliary of that

state. Therefore, citizenship is based on domicile, not mere residence.

Domicile can be achieved by fulfilling two requirements: (1) taking up residence in a different

domicile with (b) the intention to stay there.

Based on this test, Judy was a domiciliary of Mississippi because although she resided in

Louisiana at the time, she never intended to stay there permanently

8 U.S.C. §1849 tells us that a woman does not lose her citizenship based solely on marriage to an

alien. Marriage to an alien does not affect domicile in diversity jurisdiction either.

If an alien comes to the state and applies for citizenship but has not been approved of it they are

considered to be domiciled in that state. Π did not apply for citizenship.

Diversity:

The diversity of citizenship should be determined at the time of the filing of summons and

complaint (the action is commenced) because, if it is done later than the person could move and

easier to manufacture subject matter jurisdiction.

The objection can be made by anyone in the case. Once it is raised the plaintiff has the duty of

proving that they have subject matter jurisdiction. For diversity purposes nominal parties don’t

count.

Under rule 8 the plaintiff must plead subject matter jurisdiction properly. Say where the person is

a CITIZEN!

Section: 1359 Parties collusively joined or made: (Federal courts are limited courts of subject

matter jurisdiction and this is why we don’t allow collusive joining)

A district court shall not have jurisdiction of a civil action in which any party, by assignment or

otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such

court.

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Amount in Controversy

AFA Tours, Inc. v. Whitchurch (2d Cir. 1991): Π runs tours and Δ was a tour guide for Π. Δ

left the company, took Π’s exclusive info and intended to use it to start own business. Π sued Δ

in federal court, but the court raised the issue of amount in controversy ($50,000 minimum) sua

sponte and granted Δ summary judgment on the ground that Π’s damages would not exceed the

statutory amount. Π appealed on the ground that they were not given ample opportunity to show

that their damages exceeded the minimum. The court held that the court must allow plaintiff an

opportunity to show good faith in believing that a recovery in an amount exceeding the minimum

is reasonably possible. There must be a legal certainty that the plaintiff’s claim will not produce

the recovery sought. The plaintiff was not afforded this by the court and it was remanded.

Rule for determining if the amount in controversy is met: The sum claimed by the

plaintiff controls if the claim is apparently made in good faith. It must appear to a legal certainty

that the claim is really for less than the jurisdictional amount to justify dismissal “When applying

this test, a court must look at the circumstances at the time the complaint is filed.”

If a Π does not receive a recovery in the amount required for personal jurisdiction that is fine as

long as the representation of the relief was made in good faith.

If a judge raises a motion he must put the parties on notice and give them a chance to argue their

position before making a determinative decision.

Federal Questions

Osborn v. Bank of the United States (1824): Π Bank sought to enjoin Δ auditor from collecting

a tax that is allegedly unconstitutional. Δ forcibly took tax from bank. The court ordered Δ to

return the money, but Δ appealed for lack of subject-matter jurisdiction. It is the plaintiff’s

claim that jurisdiction depends and under the constitutional power to confer jurisdiction over

cases pursuant to the “arising under” language of Art.III Sec. 2 the bank’s claim that the tax

violated the constitution is a federal question.

The District Court has Original Jurisdiction in:

28 U.S.C. § 1331 Federal Question arising under the constitution, laws, or treaties of the U.S.

28 U.S.C. §1337 Commerce and antitrust regulations: arise under any act of congress

regulating commerce or protecting trade and commerce against restraints and monopolies.

28 U.S.C. § 1338: Patents, plant variety protection, copyrights, mask works, trademarks

and unfair competition when joined with another claim under patents...

28 U.S.C. § 1343 Civil Rights and elective franchise

28 U.S.C. § 1345 United States as plaintiff 28 U.S.C. § 1346 U.S. as Defendant pg. 261

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Louisville and Nashville R. Co. v. Mottley (1908): Πs were given lifetime rail passes to settle a

suit w/ Δ. Congress passed a law forbidding free rail passes. Δ revoked the passes. Π sued in

federal court on the ground that the defendant was going to justify the denial of their passes

based on a federal statute and as such the federal statute violates the Π’s 5th

Amendment rights

under due process. The court held that the federal courts do not have subject matter jurisdiction

on claims that are based on the defendant’s defenses that raise a federal question. The claim of

the Π must raise a federal question.

1. Although the plaintiff is generally considered the “master of his complaint” and is free to

choose the forum of his action, the principle is not without limitation. A plaintiff will not

be allowed to conceal the true nature of a complaint through “artful pleading.” If the Π is

truly raising a federal question in their complaint but try concealing it then the Δ or state

court can move it to federal court.

Rule of Counter Claims:

If a counter-claim or defense raises a federal question it cannot be removed to federal

court if the complaint does not ask a federal question.

T.B. Harms v. Eliscu (2d Cir. 1964): Π sued Δs in state court claiming that he had a 1/3 interest

in 4 copyrighted songs. Π’s claim was dismissed for lack of subject-matter jurisdiction because

copyright claims “arise under” the laws of the United States. Π refiled in federal court. Section

1128 federal district courts have original jurisdiction of claims arising out of patent laws.

However, the Federal Court held that when there is a state claim like the breach of the contract

on copyright just because it involves a copyright contract it does not mean that it should be

settled in federal court. Rather the breach of contract claim is the primary issue and there is no

copyright question so it should be litigated in state court.

Removal

28 U.S.C. §1441:

(a)Any action brought in State Court of which the district courts have original jurisdiction, may

be removed by the defendant or the defendants, to the district court for the district and division

embracing the place where such action is pending.

(b)Where the district courts have original jurisdiction founded on a claim or right arising under

the Constitution, treaties or laws of the U.S. Shall be removed without regard to citizenship or

residence of the parties.

© Whenever a separate and independent claim or cause of action within the jurisdiction

conferred by a federal question is joined with one or more otherwise non-removable claims or

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causes of action, the entire case may be removed and the district court may determine all issues

therein, or, in its discretion, may remand all matters in which State law predominates.

(f) Any state civil action that is removed to federal court because of a federal question is not

precluded because it was heard in the state court because the state court did not have proper

jurisdiction.

28 U.S.C. § 1443 Civil Rights Cases:

Any of the following actions may be removed by the defendant to District Court where the action

is pending.

(1) Against any person who is denied or cannot enforce in the courts of such State a right

under any law providing for the equal civil rights of citizens of the U.S. or of all persons within

the jurisdiction.

(2) For any act under color of authority derived from any law providing for equal rights,

or for refusing to do any act on the ground that it would be consistent with such law.

28 U.S.C. § 1446 Procedure for removal pg. 246 Supp.

28 U.S.C. § 1447 Procedure after removal generally pg. 247 Supp.

Removal jurisdiction gives a defendant who has been sued in a state court the right to veto

plaintiff’s forum choice by transferring the action to federal court, but generally “Only if the

federal court would have had jurisdiction to entertain the case if the plaintiff had chosen to go

there originally.”

Ex. A plaintiff from NY sued a NJ resident in the Supreme Court in Bronx County for 100,000

(They award the highest relief.) The defendant then files for a removal to the federal court and it

would be granted because the Federal Court has Diversity Jurisdiction.

Ex. NY plaintiff sues a NJ defendant in the Superior Court in NJ. Can the defendant file for

removal? No they could not because now there is no basis against them. Section 1441 b.

Ex. A NY plaintiff sues a NJ defendant in the Superior Court in NJ but instead of a tort case it is

against the civil rights. Can the defendant file for removal? Yes they can remove to Federal

Court because the case involves a federal question.

Shoamrock Oil and Gas Corp v. Sheets (1941): Π, a non-Texas citizen, sued Δ, a Texas citizen

in Texas state court for alleged indebtedness. Δ set up a cross-claim against Π for breach of K.

Π removed to federal court based on the Δ cross-claim, and that court found for Π on both claims.

The appellate court reversed and ordered the cause remanded to the state court on the ground that

a Π cannot remove a case to federal court based on a Δ cross-claim. The Π must have brought

15

the claim in federal court based on a federal question in their complaint, they cannot rely on the

Δ’s claim, only the Δ can remove based on his federal question in a cross-claim.

Third-party defendant may not remove an action to federal court. (1441(a)) the “defendants”

language is to be interpreted narrowly and refers to defendants in the traditional sense of parties

against whom the plaintiff asserts claims.

A plaintiff may not defeat diversity jurisdiction by fraudulently joining a defendant against

whom the plaintiff has no cause of action. The doctrine of artful pleading prevents a plaintiff

from disguising a federal cause of action that would make the caser removable. A version of

artful pleading mandates that certain cause of action are so exclusively federal in character that

even if the plaintiff does not plead them, they will completely preempt any state cause of action

and make any cause of action the plaintiff attempts to plead federal, and, therefore, removable.

Chapter 6: Ascertaining the Applicable Law: The Erie Doctrine:

ONLY APPLIES TO DIVERSITY SUITS!

Swift v. Tyson (1842) (This is a dead rule): Δ (Tyson), a NY citizen, bought land in Maine from

prospectors with a negotiable instrument, but the prospector’s did not have title of the land sold

(fraudulent conveyance). The prospectors then gave Tyson’s instrument to Π (Swift) to settle a

debt. Π (Swift) sued Δ (Tyson) in NY federal court. NY contract law (Judge Made law from

one Jurisdiction) said the instrument would be void because of the fraudulent actions of the

prospectors, but under emerging English law the instrument would not be voided if Swift had

accepted the instrument and did not know about the fraud. The court held for Π because Section

34 of the Judiciary Act of 1789, also known as the Rules of Decision Act, says that the laws of

the several states apply in decisions of the courts of the United States. The court in Swift took

the phrase “the laws of the several states” to mean only the statutory law and that federal judges

were free to look to the “general law” that is expressed in the majority of states. (Federal Courts

did not have to pay attention to Judge Made common law they could look at the general common

law of the federal courts)

After Swift until 1938, a federal court has procedural rules and substantive law decisions that the

court has to make. Federal Court applied the procedural rules in the state but applied the general

common law and not the common law of the individual state. Contract law and tort law decided

in the Federal court do not recognize what the state hold (they can but they don’t have to).

Modern Statute: 28 U.S.C. Section 1652 State laws as rules of decision

The laws of the several states, except where the Constitution or treaties of the United State or

Acts of Congress otherwise require or provide, shall be regarded as rules of decision in civil

actions in the courts of the Unites States, in cases where they apply.

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Erie R. Co. v. Tompkins (1938)N: 76: Π, a PA citizen, had his arm severed by a passing train

operated by Δ, a NY corporation, while on a parallel footpath. Under PA law, Δ only had a duty

to avoid wanton negligence b/c Π was a trespasser, but NY common law, which represents the

majority rule, says Δ owes Π duty of ordinary care, a higher standard than PA. Π sued Δ in NY

federal court in order to avoid the harsh PA rule. The trial court found for Π under NY law. The

Court reversed the decision. The Court found the Swift rule ineffective and held that federal

judges must apply state stautes AND controlling state court decisions and not look to the

“general common law.” This case was controlled by PA common law (incident occurred there),

so the “duty to avoid wanton negligence” standard should apply.

Erie Rule:

Courts must use the conflicts of law rules of the state in which they sit in. (In NY the applicable

law to be applied is determined by where the incident occurred.)

Then the court must apply both the state statutes and the controlling state court decisions. (The

Federal Court can no longer apply federal common law when there is controlling state common

law.) (Except in matters governed by federal law.)

Because the courts of equity and law have merged together the Erie doctrine applies to all

diversity cases.

Outcome Determination Test for ambiguities between Federal and State

Guaranty Trust Co. v. York (1945): Π sued Δ under diversity jurisdiction in federal court for

fraud and misrepresentation, claims that were governed by equity principles. Δ claimed state law

bars claim because it was past the state’s statute of limitations. The circuit court found for Π on

the ground that the state statute of limitations need not be applied, even though this was a

diversity action. The Supreme Court reversed because federal courts are bound to apply state

law when applying a federal rule would produce a result that would be different in state court

(Under federal law, Π wins; under state law, Δ wins).

The question is not whether a statue to limitation is deemed a matter of “procedure” in some

sense. The question is whether such a statute concerns merely the manner and the means by

which a right to recover, as recognized by the State, is enforced, or whether such statutory

limitation is a matter of substance in the aspect that alone is relevant to the problem, namely,

does it significantly affect the result of a litigation for a federal court to disregard a law of a state

that would be controlling in an action upon the same claim but the same parties in a State Court?

Outcome determination test:

If the application of a federal rule/law would produce a different result then if the court applied

the state law then the state law must be applied.

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The courts will apply the outcome determination test first for an ambiguity between federal

procedure and state procedure but if the application is not clearly determinable then they

will apply the Byrd Balancing Test.

Byrd Balancing Test

Byrd v. Blue Ridge Electric Cooperative, Inc. (1958): Π, an NC citizen, worked for R who

contracted with Δ, an SC corporation, to construct power lines. After being injured on the job Π

sued Δ in SC federal court under diversity jurisdiction. Under SC’s Workmen’s Compensation

Act, Π was barred from suing Δ as a statutory employee of the company. The jury found for Π,

but the appellate court reversed on the ground that Δ’s immunity from suit was a question for the

judge, not the jury under SC law, which they were bound to apply under the Erie doctrine. The

Supreme Court held that when an outcome is not clearly going to be different when the federal

law is applied over the state law the interests of state and the interests of the federal government

must be balanced. In the case at hand an issue being determined by either a judge or a jury is not

clearly going to bring about a different result so the interests of the conflicting laws must be

evaluated. The state did not show that they had a compelling state right or obligation to deny the

issue from being heard by the jury and the federal court is bound by the 7th

Amendment’s right to

a jury being preserved. Therefore, the federal interest trumps the state’s interest.

1) The 7th

Amendment provides the right to a jury trial, but unlike many provisions of the

Bill of Rights, this right is not applied to all states via the 14th

Amendment. States have

the power to eliminate juries in some or even all civil suits without violating the U.S.

Constitution.

Byrd Balancing Test: There must not be a clear contrary holding if federal law is applied above

state law before using the Byrd test.

1. States rights and obligations

Vs.

2. Federal rights and obligations

3. Likelihood of differing result

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ERIE PROGRESSIVE REVIEW:

Erie, 1938 case overruled 100 years of Swift. Prior to the case (1938) federal court in diversity cases

would apply the statutory law of the state that they sat, as well as local law (probate, real property,

matrimonial.) When it came to procedure, federal courts would apply the procedure that applied in the

state that they sat but they were free to apply general federal common law in tort and contract actions.

With the congressional enactment of the Federal Rules of Civil Procedure changed this. Erie did nothing

more than say that the federal court must apply in diversity actions the statutory law in the state that they

sat and the common law in which they sat. There is no more federal general common law according to

Erie. There is still federal common law in cases outside of diversity case. The court also says that, from

now on federal courts in diversity will apply the state statutory and common law but will apply FRCP for

procedural issues.

In the Erie case they apply the substantive law of New York State and NY said to look at the law of the

state where the incident happened. They then went to Pennsylvania and it was held that the plaintiff was a

trespasser and it was dismissed because the company would have had to display wonton negligence.

In the Guaranty case the issue was what substantive law or procedural law was in regards to statutory law.

The court says “who knows, it could be both.” It doesn’t matter. What matters is the outcome

determination test. It is a refinement of the Erie case and it states that what matters is if the difference will

change the outcome of the case. A statute of limitations regardless of it being a substantive law or

procedural.

(The problem is that this is illogical and unworkable because of the Regan case, Woods case and Cohen.

They were a trend leading to the end of the Federal Rules.)

In the Bird case the issue was if a judge or a jury could decide of Byrd was a statutory employee for

workman’s comp. Under federal practice this was a jury question. In South Carolina the highest court of

the state in the Adams decision stated that it should be decided by a judge and not the jury. If we applied

the strict outcome determination test the result would be the application of the South Carolina law. The

Supreme Court in Byrd created a three part analysis for upholding the federal law. 1. Look at the state

interest. The Erie doctrine requires deference to the state interest and 10th amendment power and if the

interest is strong and it goes to the very heart of the rights and obligations of the states then state law

would apply. The court held that the state interest was not that high because the Adams decision did not

explain why it should be a judge, it was just a mode of procedure. 2. Re-examined the determination rule.

They recognized the doctrine but say that we should reformulate it to look at counter veiling interest that

may affect the outcome determination test and in BRYD the counter interest was the 7th Amendment and

that counts for not applying the state procedure. 3. In Guaranty if the outcome would be different if

federal court than in state court then they would apply the state rule. However, in BRYD there now

has to be a strong likelihood of a different result to apply the state law. (This depends on the context

of the facts and the judges. Because others may see a strong state interest and others may not and some

may find that there is a strong likelihood of difference, making the test difficult to apply uniformly.)

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Hanna v. Plumer (1965): Π, an Ohio citizen, was injured in an accident and filed suit against Δ,

the tortfeasor’s executor, in Mass. federal court. Π served Δ’s wife in accordance with FRCP

4(d)(1), but Mass. law required in-hand service on estate executors. The Court held that when

there is a direct collision between state and federal law that is solely procedural in nature and

there is congressional authority to enact the rule then the Federal Rules of Civil Procedure will

apply. The Court says that the outcome-determinative test is not absolute.

Erie is meant to remedy problems arising from big differences between state and federal law, not

tiny, insubstantial ones. The Court suggests that the difference between Massachusetts law and

the Federal Rules of Civil Procedure in this case is not that big. To figure out which law controls,

the Court says that the policy reasons underlying Erie must be considered.

Erie, according to this Court, has two goals:

1. Stop forum-shopping, and

2. Avoid unfair differences in administration of justice between state and federal courts.

The Court says that the competing rules, though outcome-determinative, have little or no

relevance to the choice of a forum. You wouldn’t decide to file in state versus federal court

based solely on the choice between these two laws. The difference between the two laws also

doesn’t raise any equal protection problems.

The Court further argues that Erie has never been used to kill a Federal Rule. The Federal Rules

of Civil Procedure have not been held to be invalid, only not as broad as alleged and thus

trumped in a particular case by a state rule.

The Court says that the tests of Erie and of the Rules Enabling Act are not identical. The nature

of the Rules Enabling Act is that it kills rules that go too far given the constitutional and

Congressional mandate. Nobody is allowed to write unconstitutional rules. But Erie dealt with a

difference in law that was clearly substantive, and didn’t kill the Federal Rules of Civil

Procedure.

The Court claims that Erie wasn’t meant to curtail the power of Congress to say how things

should run at a procedural level in the federal courts.

Two-Step Hanna Analysis

1) Is there a direct collision between state and federal law?

2) Is there congressional authority to enact the rule (Supremacy Clause)?

Rule: If the federal rule is procedural and it directly conflicts the state procedural rule then the

federal rule will apply so long as it is not against the Rules Enabling Act.

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Walker v. Armco Steel Corp. (): Π, an OK citizen, sued Δ, a non-OK citizen, in OK federal court.

Δ moved to dismiss on the ground that OK law required Δ to be served w/ summons w/in 60

days of filing complaint, and Π failed to do so. The Court held that state law controlled because

nothing about FRCP 3 (civil action commenced by filing complaint) is in conflict with the state

statute of limitations.

Stewart Organization, Inc. v. Ricoh Corp. (1988): Π contracted w/ Δ; their K had a forum

selection clause relegating any controversies to a court in Manhattan. Π filed suit in Alabama

federal court. Π alleged Δ breached the dealership agreement, but also included claims for

breach of warranty, fraud and antitrust violations. Δ moved, under federal law, to change venue

to Manhattan or dismiss for improper venue. The court denied the motions on the ground that

the transfer motion was controlled by Alabama law and Alabama looks unfavorably at forum-

selection clauses. The appellate court reversed on the ground that questions of venue in diversity

actions are governed by federal law, and that the parties’ forum-selection clause was enforceable

as a matter of federal law. The Supreme Court affirmed the appellate court’s decision on the

grounds that 1) the law was procedural, 2) the statute under which Δ moved was sufficiently

broad to govern in this case, and 3) Congress had authority to make such a law.

Gasperini v. Center for Humanities (1996): Π gave Δ 300 slides, which were lost. Π sued Δ in

federal court under diversity jurisdiction. Δ conceded liability. Π brought in an expert who said

industry standard value for a lost slide is $1,500. The jury awarded Π $450,000. Δ appealed on

the ground that the verdict was excessive; the 2d Cir. vacated judgment on the grounds that the

NY CPLR gave the Appellate Division the power to review itemized verdicts (such as Π’s) to

determine that an award is excessive or inadequate if it deviates materially from what would be

reasonable compensation; the court determined that NY law does not allow a single industry

standard to suffice for a verdict. Π appealed on the ground that appellate review of the award

violates the 7th

Amendment. The Court held that although §5501(c) contains a procedural

instruction assigning decisionmaking authority to the New York Appellate Division, the State's

objective is manifestly substantive, so the state law should be applied.

Determining Which State’s Law to Apply

In order to promote the desired uniform application of substantive law within a state, federal

court must apply the conflicts-of-law rules of the states in which they sit.

Klaxon Co. v. Stentor Electric MFG. CO., (1941): The court held that in order to promote the

desired uniform application of substantive law within a state, federal court must apply the

conflicts-of-law rules of the states in which they sit. The lack of uniformity this may produce

between federal courts in different states is attributable to our federal system, which leaves to a

state, within the limits permitted by the Constitution, the right to pursue local policies diverging

from those of its neighbors. It is not for the federal courts to thwart such local policies by

enforcing an independent: general law” of conflict laws. The proper function of a federal court is

to ascertain what the state law is, not what it ought to be.

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V. The Binding Effect of Prior Decisions: Claim and Issue Preclusion

Three Necessary Elements for Claim Preclusion

1) Only judgments that are final (a judgment that is rendered and entered and served on all

parties, appeals do not stop the judgment from being rendered generally), valid, and on

the merits (this is not necessarily a day in court, motions can be on the merits) have

preclusive effect.

2) The parties in the second action must be identical to those in the first action (this is not

required for Collateral Estoppel (issue preclusion)). No privity for claim preclusions.

3) The claim in the second suit must involve matters properly considered “included” in the

first action (this turns on what the first action decided or should have decided).

Policy Reasons for Preclusion:

1. Finality

2. Consistency (If there is inconsistency the public cannot rely on judicial decisions.)

3. Fairness

4. Allocation Dispute resource (Judicial resources)

Values of Preclusion:

1. Efficiency

2. Repose: One who commits a civil wrong should not have to worry about another action or

lawsuit.

3. Deterrence against piecemeal litigation

4. Dignity: everyone should be given the right to be heard once.

5. Compensation

Merger and Bar: If the plaintiff wins, the entire claim is merged into the judgment; the plaintiff

cannot bring a second claim for more relief, and the defendant cannot avoid judgment by

offering new defenses. If the plaintiff loses, the entire claim is barred by the judgment, even as

to anything not advanced in the first litigation (evidence, theories, arguments and remedies). If

the second suit involves a new claim or cause of action, the parties may raise assertions or

defenses that were omitted from the first lawsuit even though they were equally relevant to the

first cause of action.

#1 A v. B for contract breach the jury renders verdict for a in the amount of $1 after asking for 1

million dollors.

#2 A v. B. for the same claim.

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This cannot be done. The plaintiff’s claim for breach of contract in action one merges into the

action

An action for the same claim and parties cannot be done because of the action is barred. The

same claim was previously litigated in action 1.

Transactional Analysis Test: Defensive Claim Preclusion

The critical issue is whether the two actions under consideration are based on the same nucleus

of operative facts.

(A has a tort claim and a K claim)

#1 A v. B. A decided to litigate only the contract claim and not the tort

Win or loss on the Contract claim, A cannot litigate the tort claim latter in a separate action.

Because A could have brought the action in claim 1 and did not. Hence the tort claim is part of

the claim in action 1 and is merged into the judgment of action 1 and cannot be re-litigated.

This operates when more than one claim can act as a unit in one action. (Rush: could no litigate

he PD claim alone and then litigate her PI claim. Mathews: false imprisonment could not be

litigated under multiple claims in different suits for the same claim out of the same nexus of

facts.)

A party may waive the benefits of preclusion by failing to raise it as an affirmative defense in the

second suit.

Rush v. City of Maple Heights (Ohio Sup. Ct. 1958): Π was injured in a motorcycle accident on

Δ’s negligently maintained road. Π sued Δ for property damage and won. Π then brought

another suit for personal injuries in a different court. The court held that Π’s subsequent claim is

precluded because it is merged with the prior judgment (tort claims cannot be split). This is

defensive claim preclusion. Whether or not injuries to both person and property resulting from

the same wrongful act are to be treated as injuries to separate rights or as separate items of

damage, a plaintiff may maintain only one action to enforce his rights existing at the time such

action is commenced.

4 Primary reasons for Res Judicata Practice

1. To assure the efficient functioning of the courts.

2. Res Judicata enhances the judicial system in the eyes of the public (finality, consistency,

efficiency). Without public respect law will fail.

3. To protect against further suits for the same civilly wrong act. (Repose)

4. To protect against double recovery.

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Claim: refers to a group of facts limited to a single occurrence or transaction without particular

reference to the resulting legal rights. It is the facts surrounding the occurrence which operate to

make up the claim, not the legal theory upon which a plaintiff relies.

Mathews v. New York Racing Ass’n (1961): (Action One) Π alleged Δ’s agents assaulted him

and made libelous statements about him after being ejected from a NY race track and jailed for

disorderly conduct. Π lost his suit. (Action Two) Π bring new legal theories against Δs,

claiming false arrest, false imprisonment, and kidnapping. The court held that Π was precluded

from bringing the claims in Action Two because they arose from the same nucleus of operative

facts as did the claims from Action One. Courts cannot permit such piecemeal litigation; Π

already had his day in court.

Test: The legal theories may be different but the facts that give rise to the theories only give one

claim to litigate.

Notes:

1. The primary purpose of the claim preclusion doctrine; to prevent the splitting of a single

claim into two separate suits. (If a claim was based not in fact but in legal theory the

second case would not have been precluded.)

2. For a single action the party must raise all desired claims and any that are not are

precluded from the proceeding.

3. Compulsory Counter-Claims under rule 14 that a counter claim that arises out of the same

facts must claim the counter-claim and cannot bring them up in another suit.

4. The court has power to sever litigation if there is just cause, but all the claims must be

brought at the same time.

Federated Department Stores v. Moitie (Sup. Ct.): (Action One) Πs brought an antitrust action

in federal court against Δ. When the 7 Πs lost their case, 5 Πs appealed to the 9th

Circuit, but

(Action Two) 2 Πs refiled their claim in state court. Δs removed the state court case to federal

court and the case was dismissed on res judicata grounds. On appeal, however, the 5 Πs won

and judgment was reversed in light of an overruling Sup. Ct. decision. On appeal, the 9th

Circuit

found that although a strict application of res judicata would preclude the 2 Πs’ second action, an

exception should be made when the dismissal rested on a case that had been effectively

overruled. The Supreme Court held that the doctrine of res judicata serves vital public

interests beyond any individual judge’s ad hoc determination of the equities in a particular

case. Public policy dictates that there should be an end of litigation and that those who have

contested an issue shall be bound by the result of the contest, and that matters once tried shall be

considered forever settled as between the parties. The plaintiff’s claims are dismissed based on

preclusion and the exception made by the district court is not proper.

Important: Moitie cannot be read to mean that parties can move their claims to federal

court on the mere basis of a federal defense.

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Exceptions to Claim Preclusion

-When the prior judgment was obtained by fraud

-When the prior case had a clear and fundamental jurisdictional defect

Jones v. Morris Plan Bank of Portsmouth (Va. Sup. Ct. App. 1937): J made a K with MPB for

a car loan. The K stipulated an acceleration clause: once one payment was late, the entire car

note was due. M missed two payments, and MPB sued him for only the back payments. MPB

won a default judgment and J paid. After more missed installments, MPB filed another suit

which was dismissed on res judicata grounds. MPB then repossessed J’s car and sold it to satisfy

the loan. J sued MPB for conversion, but the court struck J’s evidence down on MPB’s motion

and MPB won. The court held that the acceleration clause in the K required that MPB sue for

the entire value of the car note. When MPB only asked for the defaulting months, they waived

their contractual right to the whole note and are precluded from seeking further judgment on the

grounds of res judicata.

Other Res Judicata Principles

1) An acceleration clause in a lease does not preclude Π from suing for future nonpayments.

2) When a debt is secured by a series of notes, an action on one note does not preclude

action on another. . Each matured coupon is a separable promise, and gives rise to a

separate cause of action. It may be detached from the bond and sold by itself.

3) Rest.2d Judgments § 24 lists some considerations relevant to determining whether a

factual grouping constitutes a single transaction: whether the facts are related in time,

space, origin, or motivation, whether they form a convenient trial unit, and whether their

treatment as a unit conforms to the parties’ expectations or business understanding or

usage.

Other rules of thumb:

if conduct in Action 1 continues after judgment, claim preclusion would not

prevent Action 2

Issue preclusion may apply to Action 2 because of issues resolved in Action 1

When Action 1 seeks to establish rules of legality (such as a declaratory judgment),

Action 2 is precluded if it involves the same conduct

4) If conduct in Action One continues after judgment, Action Two is not precluded.

5) Judgments involving “permanent” nuisance have preclusive effect; “temporary” nuisance

judgments do not.

6) Substantive law will affect the definition of a claim for the purposes of preclusion. Ex: A

commits a material breach of a K. B can either seek damages or end the K. But if B

suffers further damages after ending the K, her claim is not precluded.

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7) A gives B merchandise on credit. If they treat each transaction as separate, collection

suits would not be precluded after the first. However, if the merchandise on credit was

seen as added to one tab, A would have to sue for the total, not just one transaction.

Defensive Claim Preclusion

Example:

Action One: Doctor v. Patient (Non-payment of bill)

Action Two: Patient v. Doctor (Malpractice arising from same transaction as Action One)

Result: Patient’s malpractice claim is precluded because it arises from same nucleus of

operative facts.

Federal courts have compulsory counterclaim rules (must raise it in answer or risk being

precluded in a subsequent suit). NY does not, but does recognize defensive claim

preclusion.

Mitchell v. Federal Intermediate Credit Bank (Sup. Ct. S.C. 1932): M got a $9K loan from F.

F suggested that M give them his potatoes to sell to satisfy the loan. The potatoes fetched

$18,000, but M never received the back proceeds. (Action One) F sued M for nonpayment of the

loan, M noted he never got potato proceeds, but did not file a counter-claim for the value of

them less the cost of the loan. M won. (Action Two) M sued F for the value of the potatoes

less the cost of the loan. M claim is precluded because one cannot use a claim in a prior action

as a shield, then use it as a sword in the subsequent action.

Was Mitchell’s defense in the first action a recoupment (a claim that defendant can assert against

plaintiff only if it arose from the same transaction; only used to defeat plaintiff, not for

affirmative recovery) or a set-off (defendant’s claim unrelated to plaintiff’s; allowed for

affirmative relief only if the claim were for a liquidated amount or arise out of a contract of

judgment)? It was a recoupment.

Cross-claims are not precluded because they do not necessarily arise out of the same nexus of

relevant facts. However, Counter-claims always arise out of the same nexus of relevant facts and

are precluded if not raised in the first action.

Linderman Machine Co. v. Hillenbrand Co. (Ind. App.): (Action One) L sold H a machine,

then sued H for nonpayment. H claimed K was fraudulent b/c machine did not work and H

notified L to remove the machine. Judgment for H. (Action Two) H sued L for damages

resulting from the fraud (great expense to remove machine), and L asserted that H’s claim is

precluded. The court held that H’s fraud damage claim would have been a cross-claim in the

prior suit, and cross-claims are NOT precluded in a subsequent suit. Moreover, the claim arises

26

out of different facts because the first case was about the machine not performing as represented.

The second case arose out of H having to remove the machine and all the expense that occurred

from the L’s fraud.

Defendant’s failure to raise a non-compulsory counterclaim does not preclude subsequent

action. The rule is more complicated when a defendant’s claim would undermine a prior

judgment. “Precedent and policy require that res judicata bar a counterclaim when its

prosecution would nullify rights established by a prior action.”

Rest.2d Judgments § 20(1): Final, Valid Judgments that are not preclusive:

Dismissals for lack of jurisdiction, improper venue, nonjoinder or misjoinder of

parties

Election or direction of a nonsuit

If you are in the wrong court and are dismissed for lack of jurisdiction then you are not precluded

for filing the same action in the proper jurisdictional court. (This is because the holding in the

first case was not heard on the merits.)

Issue Preclusion:

In order to invoke issue preclusion there must be an identity of issue which has necessarily been

decided in the prior action and is decisive of the present action, and there must have been a full

and fair opportunity to contest the decision now said to be controlling:

It is not the same claim it is the same issue. Its impact is far broader than claim preclusion. It can

be used in:

Civil Actions

Criminal actions

Administrative Determination

Arbitral Determination

The critical difference between claim preclusion and issue preclusion: under claim

preclusion a claim may be merged or barred by a party’ failure to raise the claim in a prior action

(Rush, Mathews and Mitchell) and issue preclusion applies only to matters argued and decided in

an earlier lawsuit.

Issue preclusion can occur in an action only against a party who was a party or a privity

with the party in action 1.

Actually Litigated

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Cromwell v. County of Sac (1876): (Action One) Smith v. Sac, Smith sued for payment of

coupons on bonds issued to Cromwell, the court held the bonds did not belong to Smith and

dismissed the case. (Action 2) Cromwell v. Sac, Cromwell himself sued for payment of the

bonds, Sac claimed issue precluded because of prior action. The Court held that one has to look

at the issue actually litigated in the prior action; if the issues are not the same, issue preclusion

can have no effect. (Issue 1: Smith did not own the coupons, Issue 2: Cromwell entitled to

payment) Therefore, the case is not precluded because the first action is not the same as what is

to be litigated by Cromwell.

Necessarily Decided

Rule:

You cannot give issue preclusion effect in alternative finding of fact.

Russell v. Place (1876): (Action One) Π sues Δ for patent infringement of fat liquor use in

tanning and use of bark tanning. Δ answers that the products were used two years before the

patent. Π wins a general verdict (does not specify damages for the individual processes).

(Action Two) Δ sues Π seeking a decree that the products were used two years before the patent,

and Π claims the issue is precluded. The Court held that the record does not show what the

nature of the infringement was for which damages were awarded nor does it show that the Δ used

the fat liquor or the sheep skin tanning method. The verdict may have been for infringement of

one method or the other, or even both. The patent’s validity for either method was not decided

explicitly, so it lacks the certainty of issues decided to estop the Δ from bringing the second suit.

Class Notes

It must appear on the face of the record that the precise question being asked was the same in the

previous case. If there is an ambiguity in what the question being asked and resolved was in the

record then the second action cannot be precluded.

Rios v. Davis (1963): R, P, and D got into a car accident.

#1 (County Court) Popular D G v. D (D adds R): action for damages from a car accident in the

amount of $442. D indemnifies Rios and wants to get 248.00. The Jury found that all three

parties are negligent. (No one recovers.)

#2 (District Court) Rios v. D.: action for damages for the same accident in action 1. D states that

as a matter of law Rios was contributory negligent (absolute bar to recovery) from the finding in

action 1. The district court upheld the res judicata claim. The appellate court reverses this

decision because in the first action the finding of negligence was not necessary but rather

immaterial to the judgment because the sole basis for the judgment was the courts finding of

negligence by Davis and alternatively found Rios contribulatory negligence because of his

indemnification position. The alternative finding was not necessary or material to the first

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finding. Rios in that case could not have appealed his contributory negligence because he won.

This is an example of indemnity of issue.

Notes:

Generally, a judgment does not act as collateral estoppels between co-parties unless they are

adversaries, and they are considered adversaries only if there is a claim for relief by one co-party

against the other. The fact that their interests clash and that they are on opposite sides of every

issue does not make them adversaries for this purpose in the absence of such a claim.

Offensive Issue Preclusion – The Decline of the Mutuality Doctrine in Issue Preclusion

Bernhard v. Bank of America Nat. Trust and Sav. Ass’n (1942): (Action One) C filed an

account of S’s state with the probate court, B objected because the accounting made no mention

of a certain sum given from S to C. The court held it was a gift and need not be part of the

account. (Action Two) B sued the bank for allowing the transfer between C and S, the Bank

claimed issue preclusion. The court held that even though the Bank was not a party or in privity

with a party in the prior suit, the issue can still be precluded.

What should be considered:

(1) Is the issue identical to the previous one?

(2) Was there a final judgment on the merits?

(3) (3)Was the party against whom the plea is asserted a party or in privity with a party in the

prior suit?

Blonder-Tongue Laboratories Inc. v. University of Illinois Foundation (1971)

#1 A v. B: For patent infringement. A wins.

#2 C (no privity) v. B: For patent infringement.

The Federal Courts took a position of abandoning Mutuality of estoppel. The Supreme Court

applied defensive issue preclusion and did so to preserve judicial resources and it was fair

because the Defendant had his day in Court to defend his position and because the second case is

the same issue.

Offensive Use of Issue Preclusion

Offensive nonmutual issue preclusion is the term used to describe a case in which a plaintiff

seeks to preclude a defendant from relitigating an issue which the defendant previously litigated

and lost against a different plaintiff.

Parklane Hosiery v. Shore (1979): S filed suit in federal court against P for a false proxy

statement. Before trial, P lost a suit in equity (no jury) on the same issue against the SEC. S

moved for partial summary judgment on the issue as it was decided in the case against the SEC.

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The court held that the trial court should be given broad discretion in the application of

nonmutual offensive issue preclusion, and should consider whether it would cause unfairness

to the precluded party. In this case, offensive issue preclusion would not cause unfairness (P

had a full and fair chance to litigate against SEC, S could not have joined in the prior

action, no procedural opportunities available to P in this suit that were not available in the

prior suit). Offensive issue preclusion here does not affect P right to a jury trial under the 7th

Amendment because an issue common to both legal and equitable claims can be foreclosed in a

subsequent suit if decided by a judge in a prior suit. Mutuality was required for issue preclusion

in 1790, but such is not consistent with today’s laws and never has the 7th

Amendment been

construed so narrowly.

The Parklane Rule on Right to a Jury: The Seventh Amendment does not guarantee the right

to relitigate an issue before a jury if the issue has already been litigated in an equitable action.

Martin v. Wilks (1989): (Action One) Black firefighters obtained consent decrees from the City

to set goals for hiring black firefighters and promoting them. (Action Two) White firefighter

claimed reverse discrimination, but the City answered they were precluded because of the

consent decrees in the prior action. The Court held that the Whites were not precluded because

there is no duty for a third party to intervene in an action and a consent decree between some of

the parties cannot dispose of the claims of nonconsenting third parties.

Interstate Preclusion

Hart v. American Airlines, Inc. (1969): An AA plane crashed in KY while en route from NYC

to Covington, KY. (Action One) A wins suit against AA in Texas federal court. (Action Two) B

sues AA in NY and moves for partial summary judgment against AA on the grounds that the

issue of liability has already been decided, even though B was not a party to the Texas suit. The

court held for B because the suit involved the same exact issue and AA had a full and fair chance

to litigate in Texas.

State court decisions have preclusive effect in any state and in the federal courts. Federal

decisions have the same effect.

Joinder

Joinder of Claims: FRCP 18

-Allows parties to assert as many claims as they wish (not so under old common law)

-Purposes of the Rule: 1) Conservation of Judicial Resources

2) Avoidance of Piecemeal Litigation

3) Avoidance of Duplication

4) Avoidance of Claim Preclusion Problems

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Problems with this Rule: 1) Prolongs proceedings

2) May confuse judge and jury

Severance of Claims: FRCP 42(b)

The court, in furtherance of convenience or to avoid prejudice, or when separate trial will be

conductive to expedition and economy, may order a separate trial. Parties may also make

motions to sever claims.

Counterclaims: FRCP 13

When a party files the answer they can assert any defenses and counter-claims. A compulsory

counter claim: You cannot bring this claim later in a separate action. [Rule 13(a)]

You have to bring: Claims that arise out of the transaction that is the subject matter of the

opposing party’s claim (the counter claim is compulsory and it must be brought or lost).

If the claim does not arise out of the transaction that is the subject matter of the opposing party

the claim is permissive and it does not have to be pled in the action.

Third Party Practice: FRCP 14

Allows defendant 1 to implead defendant 2 into the first action and will not have to wait until a

judgment is entered. At any time after the commencement of the action the defendant may

summon a third-party to the claim that may be liable to the plaintiff. Defendant 1 could then

become a plaintiff and Defendant 2 could sue and become a plaintiff. They are all against one

another. This is to avoid piecemeal litigation of the claims that arise out of the same operative

facts.

Plaintiff A v. Defendant B who impleads Defendant C. Let’s assume that B fails to raise an

affirmative defense to the claim. Can C pursuant to the Federal rule raise claims that B didn’t?

YES, C can raise the defenses that B didn’t.

Permissive Joinder of Parties: FRCP 20

Under Federal Rules: if both parties have claims that arise out of the same transaction of facts

they can be joined and if there is confusion or delay they can be severed.

The purpose is Finality, Consistency, Piecemeal litigation, Efficiency, Conservation of Judicial

Resources, Fairness.

Intervention: FRCP 24

Intervening assumes a preexisting action. A sues B for quiet title. C is not named a party and

becomes aware of the quiet title action and owns some of the property and if title goes to either

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that could take away his ownership. C wants to intervene, he will file a motion to intervene with

a purpose pleading, memo of law and brief, the court will have to allow it.

Interventional as of right occurs in 2 areas: When a non-party has a right that might be affected if

not present, or when there is a statute that gives them a right (this is mandatory intervention.)

Permissive intervention: When a statute allows

When you intervene, you do it under 24 A and B so you file as of right and permissive

permission so if you lose on one then you can try the other.

Inter-pleader: 28 U.S.C. 1335:

Offensive inter-pleader: which one of the defendants should the claim be paid to.

Defensive inter-pleader:

Class Actions:

1. Class action certification is important.

2. Competent counsel must represent to get certification as a class action.

.

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