CHAPTER 3
Courts, Sources of Law,
and Litigation
INTRODUCTION
This chapter explains federal and
state court systems, how
jurisdiction is determined, and
various responses to litigation. It
also examines common law as case
law, and explains how to read case
citations for pertinent information.
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THE COURT SYSTEM
• Federal Courts – courts of limited
subject matter jurisdiction, meaning
they can adjudicate only certain types of
cases.
• State Courts – courts that have general
subject matter jurisdiction and can
therefore hear any type of dispute.
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FEDERAL JURISDICTION
 Federal Question jurisdiction exists when a dispute concerns
federal law, statutes, or administrative regulation or treaties
of the United States.
 Diversity Jurisdiction exists in lawsuits between citizens of
different states and the amount in controversy, exclusive of
interest and all costs, exceeds $75,000. The “Erie Doctrine”
set forth in Erie Railroad v. Tompkins, 304 U.S. 64 (1938).
 Natural person citizenship is legal residence or domicile.
 Corporations may have dual citizenship based on:
 Nerve Center Test;
 Place of Operations Test; or
 Total Activity Test.
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FEDERAL COURTS
 U.S. District Courts are the federal trial courts. Currently there
are 94 districts courts in the federal system.
 U.S. Courts of Appeal.
 Review decisions of trial courts.
 Review decisions of administrative agencies and
commissions.
 Issue orders to lower courts and litigants.
 Specialized Federal Courts: Tax and Bankruptcy Courts.
 U.S. Supreme Court consists of one chief justice and eight
associate justices who hear mainly cases on appeal from U.S.
Courts of Appeal.
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STANDING
Case 3.1 Synopsis. National Credit Union
Administration v. First National Bank &
Trust Company, (1998). Commercial
banks have standing to challenge the
National Credit Union Administration’s
interpretation of the Federal Credit Union
Act under the “zone of interest” doctrine.
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STATE COURTS
 State Trial Courts
 Courts of limited jurisdiction—decide minor criminal
matters, small civil suits up to $5,000, and other
specialized legal disputes.
 Courts of general or unlimited jurisdiction.
 State Appellate Courts - usually consist of a panel
of three judges that reviews trial court rulings for
harmful errors of law and/or procedure.
 State Supreme Court
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PERSONAL JURISDICTION
 Personal jurisdiction - court has legal authority over the parties
to the suit.
 Court can have jurisdiction based on: Defendant’s Residence,
Defendant’s Act(s) or Location of Property in question.
 “Long Arm” Statutes and the “Minimum Contacts” Test for
jurisdiction over non-resident defendant if it purposefully
availed itself of privilege of conducting business in forum
state.
 “View From Cyberspace”: Personal Jurisdiction and the Web.
“Active” vs. “Passive” websites discussed in Zippo Mfg v.
Zippo Dot Com, 952 F.Supp. 1119, 1124 (W.D. Pa. 1997).
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CHOICE OF LAW AND FORUM
Case 3.2 Synopsis--Richards v. Lloyds of
London (1998). Lloyd’s of London required
Plaintiffs to sign a contract that contained a
choice-of-law and choice-of-forum clause
stating that England has jurisdiction over
disputes. HELD: Contract clause is enforceable
and binding on Plaintiff.
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SOURCES OF THE LAW
 Constitutions
 Case 3.3 Synopsis. Powell v. Georgia (Ga.1998).
Powell, convicted of consensual sodomy, appealed,
alleging Georgia’s sodomy statute violated his right to
privacy. HELD: Sodomy statue unconstitutional.
 Statutes - Congress enacts statutes in such areas
as public assistance, food and drugs, patents and
copyrights, labor relations, and civil rights.
 Regulations – Federal regulations and rules are
printed in the multi-volume Code of Federal
Regulations (CFR), which is revised and updated
every year.
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SOURCES OF THE LAW
 Common Law
 Stare decisis - to abide by similarly decided previous
cases.
 Case 3.4 Synopsis. Planned Parenthood v. Casey (U.S.
1992). Pennsylvania law requiring a woman seeking an
abortion to give her informed consent prior to the
abortion procedure, to inform her husband of the
abortion, and to be provided with certain information at
least 24 hours before the abortion unconstitutional
(except for husband notification), based on Roe v. Wade
and the doctrine of stare decisis.
 Restatements
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CIVIL PROCEDURE
Filing a Claim
 Complaint - states the grievances and makes
allegations.
 Summons - official notification of the suit.
 Answer - defendant’s response; may include a counter
claim.
Discovery - collecting evidence to support
allegations in the lawsuit.
Pre-Trial Activity
 Motion to Dismiss.
 Summary Judgment.
 Pre-Trial Conference.
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CIVIL PROCEDURE
 Trial




Selection of Jury.
Presentation of Case - Plaintiff then Defendant.
Motion for a Directed Verdict.
Jury Verdict.
 Post-Trial Motions
 Judgment Notwithstanding the Verdict (JNOV).
 New Trial.
 Appeal
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DISCOVERY
 Prior to trial, parties collect evidence to support
their claims.
 Depositions Case 3.5 Synopsis. In Re Alcatel USA.,
Inc., 11 S.W.2d 173 (Tex. 2000). Trial Court abused
its discretion when it refused to quash the
depositions of CEO when other senior managers
could testify to the same information.
 Interrogatories
 Requests for Production of Documents
 Discovery of Email
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ATTORNEY-CLIENT AND OTHER
PRIVILEGES AND THE ATTORNEY
WORK-PRODUCT DOCTRINE
 Attorney-Client Privilege
 Limitations—criminal activity.
 Corporate Clients. “Subject Matter” test in
Upjohn v. United States, 449 U.S. 383 (1981).
 Attorney Work-Product Doctrine – protects
information that an attorney prepares in
the course of his or her work.
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CLASS ACTIONS
Case 3.7 Synopsis. Amchem Products Inc.
v. Windsor (U.S. 1997). Signaled a new,
less-friendly era for class action suits, the
Supreme Court determined that the
interests of the members were too diverse
to certify as a class and refused to certify
the class.
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LITIGATION STRATEGIES
FOR PLAINTIFFS
 When planning to file a lawsuit, the plaintiff
must decide which legal claim is most likely
to succeed. The plaintiff must also decide in
which court to pursue the lawsuit.
 The Decision to Sue or Settle—careful
planning with corporate counsel.
 Pretrial Preparation—document retention
policies.
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LITIGATION STRATEGIES
FOR PLAINTIFFS
 Whether prior negotiations broke down.
 Whether negotiator was pursuing wrong
tactics or strategy.
 Whether lawsuit resulted from bad
personnel policies that should be
corrected.
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DOCUMENT RETENTION
 Corporate documents, both tangible and intangible
(computer hard drives and email) can be discovered
and used to find the company liable.
 Managers must have document retention policies in
place.
 Necessary Elements of a Document Retention Program:
 Well-planned and systematic.
 No destruction in the face of a potential lawsuit.
 No selective destruction
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REVIEW
1. Given the work load of the Supreme Court, should there be a
new level of appellate court before the Supreme Court in the
appellate process? What would the new court do?
2. Should state courts raise the subject matter jurisdiction
amounts to try to force the use of ADR methods for lesser
dollar amount lawsuits? If so, what should the new amount
in controversy be?
3. Other than for ethical reasons, why should a company not
have a document destruction plan in case of litigation or
investigation by a governmental agency?
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