Five Important Considerations in Deciding Whether to Bring Your Commercial Case in the Federal District Court versus the Corresponding State Court in Your Location

Most people do not dwell on the difference between the state and federal courts; yet, the distinction can be integral to obtaining a positive result in business litigation. For example, in New Jersey, the federal district court sits in three difference vicinages: Newark, Trenton and Camden. The State Superior Court of New Jersey sits in the county seat of each of the major counties. Although there are 21 counties in New Jersey, some of them are so sparsely populated that the cases of the surrounding counties are clustered in just one of them.

The following are five questions that often come up when a business client is deciding whether to file their case in federal or state court.

QUESTION #1: Is there any limit on the types of cases that can be brought in the New Jersey state or federal courts?

Most state courts have general jurisdiction over cases with a sufficient connection to their state. That means that the amount at issue is irrelevant to whether the court will accept the litigation. On the other hand, the federal district court has limited jurisdiction. This means that only cases that meet certain criteria can be filed. There are generally two ways of qualifying to bring a case in federal court: (a) having a case or controversy between plaintiffs and defendants that are in different states and an amount in controversy exceeding $75,000.00 or (b) having a case or controversy that raises a federal question, such as for example, one that concerns a federal constitutional right or is authorized by a federal statute.

QUESTION #2: Is state or federal court a better place to file a lawsuit?

There is no question that out-of-state attorneys generally prefer to be in federal court for the simple reason that the procedures are more or less uniform throughout the country. On the other hand, every state court system has its own best practices, which can seem rather arcane to attorneys who are not familiar with them. Likewise, the state courts often have more experience in certain areas of law such as divorce and family law, run-of-the-mill auto accidents and slips and fall, and enforcement of state administrative regulatory infractions.

Additionally, the federal courts are generally considered well-suited for filing complex commercial litigation because so many of the civil cases before the federal judiciary involve massive business disputes. However, many state courts have now added a business court specifically created to handle large commercial matters, so that distinction is on the wane.

QUESTION #3: Do state or federal court cases cost more in legal fees?

One of the “unanswerable questions” confronting most trial lawyers is whether a state or federal court litigation will generate more legal fees. Though this is truly unanswerable, there are a few insights that may be relevant.

First, if the matter is being handled on a contingency basis, there should be little difference between state and federal court. Second, if the matter is hourly billable, the fact that there are streamlined discovery procedures in the federal courts and federal magistrates who work on the case in tandem with federal district judges can often reduce the amount of inefficiency and duplication. Third, the fact that the state courts have general jurisdiction often means that they have many more cases on their dockets. The federal courts limit the number of cases by virtue of the limited jurisdiction that they exercise.

QUESTION #4: Is there a difference between the enforceability of judgments obtained in the federal versus the state courts?

Federal judgments obtained in one district can be enforced in other federal districts simply by filing them in that other district. 28 U.S.C. § 1963. The reason this is important is because the assets that may be used to satisfy such a judgment may often be found in various parts of the United States. This used to be a particularly important distinction between the federal and state systems. While the federal Constitution guarantees full faith and credit among the various state court systems, the process to do so in state court was cumbersome. However, there are now more modern procedures for allowing one state to enforce another state’s judgments under the Uniform Enforcement of Foreign Judgments Act.

QUESTION #5: How does one decide whether or not a lawsuit is worth bringing in federal court versus state court?

There is no one answer, principally because each case has its own considerations. However, generally speaking, a good deal of the decision will involve very pedestrian issues, such as in which type of court your attorney has more experience litigating; how far from your attorney’s office the federal courts versus the state courts are located (though with video technology, that is becoming less of an issue); and whether your case involves federal claims or statutes or mostly involves state law.