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A, a resident of California, wants to sue B, who works in New York, for something that happened in New York, using the federal court system. Would this matter be litigated in California or New York? Would either A or B have a choice of venue? And how would it be decided which state's laws apply?

Suppose they settled the matter with B agreeing to make installment payments to A. The two states have different rules regarding interest rates, default rates, start dates, etc. Which state's rules would apply, or would they negotiate?

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For a federal court to hear a case it must have both 1) subject matter jurisdiction and 2) personal jurisdiction.

Subject Matter Jurisdiction Your first issue, does the federal courts have subject matter jurisdiction. Generally, there is only two ways a case gets subject matter jurisdiction: 1) federal question jurisdiction or 2) diversity jurisdiction.

Federal question jurisdiction arises from 28 USC 1331 which provides that federal courts have jurisdiction to decide a case based on federal law or the constitution. (For example the Federal False Claims Act).

Diversity jurisdiction arises from 28 USC 1332(a) which provides that federal courts have jurisdiction to decide a case if 1) the amount in controversy exceeds $75,000 and 2) no plaintiff shares a state of citizenship with any defendant.

In one of the replies, you mention the amount is less than $75,000. Therefore, federal courts would not have subject matter jurisdiction based on diversity jurisdiction.

You do not mention what the case is based on. You need to determine whether the case is based on federal law in order to determine whether federal question jurisdiction would exist.

If the case is not based on federal law, then most likely the case cannot be heard in federal court and the issue of personal jurisdiction is irrelevant and you would need to go to state court.

Personal Jurisdiction If there is subject matter jurisdiction, the second issue would be whether the federal court in California or New York would have personal jurisdiction. Personal jurisdiction is governed by Federal Rule of Civil Procedure 4(k), with reference to the states long arm statute, and the constitution. Personal jurisdiction is the worst part of the first year of law school for must people, but generally, B (the defendant) must have minimum contacts with jurisdiction for personal jurisdiction to exist. If B does not have sufficient contacts with CA, then California most likely doesn’t have personal jurisdiction over the case.

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Worldwide Volkswagen - If B has never been to CA and has no contacts with CA it will be tough for CA to get jurisdiction over B. The defendant must purposely avail himself of the laws of the forum state to satisfy the minimum contacts test. The point of Worldwide Volkswagen is that defendants should not be inconvenienced by being hailed to court in a state that they have no business in but also to respect state sovereignty.

As the comments indicate, the laws of the state where the court is located are used to decide substantive issues. Federal law determines procedural issues.

Some of that settlement stuff sounds procedural but really, at settlement, the parties will be negotiating.

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First and foremost, for a court to be involved there must be a dispute; that is something the parties cannot resolve between themselves.

Would this matter be litigated in California or New York? Would either A or B have a choice of venue?

In deciding the dispute the plaintiff will initially chose the venue - they would consider the size and complexity of the case and whether they believed New York or Californian law applied (or even US law) (Note a Californian court can decide a matter using New York law and vice versa). It may be more convenient for the plaintiff to use a Californian court but if New York law applied it may be cheaper to use a New York court because the New York judge knows New York law backwards and the Californian judge doesn't (this also applies to the law firms).

The defendant could make a motion to have the case transferred to any other court they could think of (Buenos Aries?). Depending on the merits of the arguments and counter-arguments the court would decide if they want to keep jurisdiction or transfer the case to another jurisdiction.

There is a slight bias towards the defendant on this since the original venue was the plaintiff's choice so they have to onus to demonstrate it was the correct one.

Which state's rules would apply, or would they negotiate?

Up until judgement, everything (legal) is open for negotiation. If they agree this then the court will take that agreement into account and probably give force to it.

Otherwise, the rules would be those of the law that has jurisdiction ; where the matter is decided is irrelevant.

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    "Second, the federal court system is for deciding matters under US law only - it doesn't get involved in deciding matters under Californian or New York law." This is incorrect. Article III of the Constitution says "The judicial Power shall extend...to Controversies...between Citizens of different States;" Lawsuits between citizens of different states can be heard in federal court under diversity jurisdiction if the amount in question is over $75K. These lawsuits are heard under the law of the state where the federal court is located. – cpast Sep 18 '15 at 1:36
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    @cpast Yup. Erie doctrine. For diversity cases, law of the forum state for substantive questions, federal law for procedural questions. – jqning Sep 18 '15 at 1:52
  • @cpast: The amount is less than $75K. Does that change your comment? – Libra Sep 18 '15 at 17:18

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