“The one that I send counsel back for briefing on over and over again is the one about diversity. People will file with LLCs and partnerships and will not figure out where the members of those partnerships are located.”
Hon. Barbara Crabb
Chief Judge Barbara B. Crabb, from the U.S. District Court for the Western District of Wisconsin warned lawyers of the challenges they can face when determining whether a case should be brought in state or federal court. That warning came during a seminar last Thursday.
Federal lawyers came from east and west as the state’s two federal bar associations joined forces last week to provide a day of legal education. The Eastern District of Wisconsin Bar Association and the Western District of Wisconsin Bar Association held a program in Milwaukee on Successful Strategies for Winning Commercial Cases in Federal Courts.
The program looked at different aspects of handling a civil case in the federal court system from determining jurisdiction through different aspects of the trial or settlement.
Asked about the jurisdictional issues lawyers should consider when deciding whether to file in state or federal court, Crabb noted the importance of determining that the case involves a federal question.
Crabb explained that what might at first glance appear to be a federal issue might end up being an issue for a state court. She offered the example of a contractual dispute over trademarks. At first glance, she said, it would seem obvious that a trademark issue belongs in federal court. However, closer inspection might show that the contractual dispute should be resolved in state court.
Diversity of citizenship is another important issue to consider when looking at state or federal court, Crabb observed. Last year, in Belleville Catering Co., et al. v. Champaign Market Place, LLC, 350 F.3d 691, 692-93 (7th Cir. 2003), the Seventh Circuit in a decision by Judge Frank Easterbrook, took lawyers in the case to task for diversity jurisdiction, she explained.
In that decision Easterbrook wrote, "The costs of a doomed foray into federal court should fall on the lawyers who failed to do their homework, not on the hapless clients. Although we lack jurisdiction to resolve the merits, we have ample authority to govern the practice of counsel in the litigation. The best way for counsel to make the litigants whole is to perform, without additional fees, any further services that are necessary to bring this suit to a conclusion in state court, or via settlement. That way the clients will pay just once for the litigation. This is intended not as a sanction, but simply to ensure that clients need not pay for lawyers’ time that has been wasted for reasons beyond the clients’ control."
"You don’t want anyone to say that about you," Crabb observed.
Lawyers in the Seventh Circuit also need to be aware of a recent decision by Judge Richard Posner in Hoagland ex rel. Midwest Transit, Inc. v. Sandberg, 385 F.3d 737, (7th Cir. 2004), she said.
"Judge Posner made it clear that a limited liability corporation was to be treated like any other corporation, so it’s just principal place of business and where it’s incorporated," Crabb explained. "A limited liability company, however, is treated as a partnership, so you need to know the citizenship of every single member of that limited liability company."
One of the frequent mistakes that Crabb sees counsel make when it comes to jurisdiction involves limited liability companies or partnerships.
"The one that I send counsel back for briefing on over and over again is the one about diversity," Crabb said. "People will file with LLCs and partnerships and will not figure out where the members of those partnerships are located."
When lawyers do have the ability to choose between filing a case in state and federal court, attorney Charles Barnhill Jr. said he sees many benefits to filing in state court. In general, he said, plaintiffs have some procedural benefits in that venue.
"First, in the state court, you have full voir dire, which you don’t often get in federal court," observed Barnhill, of Miner Barnhill and Galland in Madison. "Second, you don’t have to have a unanimous jury, which you do in federal court, and I find that to be a tremendous advantage for the plaintiff both in liability and damage."
Barnhill also pointed to the fact that federal courts follow the Daubert rules with regard to expert witnesses. That allows for challenges and specific hearings to determine the qualifications of expert witnesses. The standards for expert witnesses in Wisconsin’s state courts are less stringent.
Referring to several articles he observed that summary judgment is more often granted in federal than in state courts nationwide. He also noted that jury verdicts are taken away more often in federal courts. Those factors also support his recommendation of filing in state court when possible.
Those same factors lead defendants to pursue removing a state case to federal court when possible.
"My guess is that defendants are just as anxious to get the case into federal court as plaintiffs are to get into state court," Barnhill said.
Tony Anderson can be reached by email.