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In the U.S., where can a company be sued in small claims court for a breach of contract and fraudulent billing, when the plaintiff resides in one U.S. state, the company's headquarters and place of organization is in another U.S. state, and the conduct giving rise to the claim took place in a third U.S. state?

The amount in controversy is less than $75,000 and the claims do not arise under federal law, so the federal courts do not have jurisdiction over the case.

2 Answers 2

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Short Answer

Generally speaking, you can sue in some court in the state where the company has its headquarters or its organized, or in the state where the events giving rise to the lawsuit occurred (or in any other state to which the defendant fails to object in a timely manner). There is an exception to the general rule when the conduct that forms the basis of the lawsuit was targeted at the plaintiff in the state where the plaintiff now resides.

Whether you can sue in a true small claims court particularly varies a lot from state to state. Often true small claims courts are not allowed under state law to consider all cases that other courts in the state could consider (e.g. cases against defendants who are not headquartered in that county).

Even if you can sue in true small claims court in a state where you do not reside, it often makes more sense to sue in a limited jurisdiction court rather than a small claims court in those cases, with or without a lawyer.

Long Answer

Preface On Federal v. State Claims And Removal To Federal Court

In the U.S. claims for a breach of contract and fraudulent billing usually arise solely under state law, although sometimes federal law may apply in specific circumstances.

This answer assumes that no federal law claims are filed. But the states in which federal law claims could be brought in a federal U.S. District Court, would be the same as the states in which state law claims could be brought in state court.

The federal courts do not have a small claims court division or limited jurisdiction court division.

Federal claims can be brought in state court, but the defendant can remove the case to federal court in the same state if this is done, which would make a small claims court forum unavailable.

If the Plaintiff files only state law claims in state court, the defendant cannot remove the case to federal court on the grounds that the defendant has asserted federal law defenses to the claim or has asserted a counterclaim arising under federal law. But, the defendant could remove the case to federal court if the Plaintiff and Defendant reside in different states and the Defendant shows in good faith that the amount in controversy between them exceeds $75,000.

Issues Presented

There are two issues presented.

  1. Do any courts of a particular state have (personal) jurisdiction over the case?

  2. Does a small claims court in a state that does have jurisdiction have jurisdiction over the case?

Do any courts of a particular state have jurisdiction over the case?

General Jurisdiction Where The Defendant Resides

A company can always be sued over its conduct anywhere in the world in some court of the state where a company is organized and has its headquarters. This concept is called "general jurisdiction" and while the U.S. Supreme Court has narrowed the number of states where courts have general jurisdiction over a company, this heartland of the concept remains effective. This is usually the state where it is easiest to collect a money judgment in a lawsuit if the person suing wins the case, because the company usually has assets in the state where it has its headquarters.

Under a case called International Shoe Co. v. Washington, 326 U.S. 310 (1945) until just a few years ago, a state had "general jurisdiction" over a company in every state where it had a regular employee or a brick and mortar place of business.

But this rule was narrowed by the U.S. Supreme Court in the 2014 case Daimler AG v. Bauman, to give a state general jurisdiction over a company only in the state where its headquarters (ignoring any headquarters of any subsidiary of the company) are located or under whose law the company was organized. Before this ruling, this narrow scope of general jurisdiction only applied to national banks, and then, only as a result of a Congressionally enacted statute to that effect.

Just this summer, however, the U.S. Supreme Court created an except to an exception to Daimler AG v. Bauman, in the case of Mallory v. Norfolk Southern Railway Co., ___ U.S. ___ (2023), holding that in states where a company is registered to do business, if the state has a statute (like the one in Pennsylvania) allowing its residents to sue the business on any claim against a company registered there arising anywhere in the world, that the state has jurisdiction over the case.

(There is also another case creating a partial exception to the Daimler AG v. Bauman rule in cases that involve fact patterns very different from those in the question, such as product liability lawsuits against car makers.)

Specific Jurisdiction Where The Claim Arises

A company can also always be sued in the state where all of the important events that provide a basis for the lawsuit took place. This concept is called "specific jurisdiction" which is also known as "long arm jurisdiction". This is usually the state where it is easiest to prove the case because usually witnesses and evidence are more available in this state.

Usually A State Doesn't Have Jurisdiction Because The Plaintiff Resides There

Usually, under U.S. law, unless a specific statute says otherwise, a lawsuit against a company cannot be brought where the person bringing the lawsuit (who is called "the Plaintiff") resides, unless that state has some other connection to the lawsuit. This would be the most convenient state to sue in for the Plaintiff, especially if the Plaintiff is not hiring a lawyer and will have to appear in person as if often the case in small claims court, and the other relevant states are far away.

However, if fraud is "targeted" at someone in a particular state, then the courts of the state state at which the conduct is targeted has jurisdiction over the claims that were targeted at that state.

Tag Jurisdiction Over Natural Persons

Another way that a state can have jurisdiction over a defendant is called "tag jurisdiction" which is obtained by physically handing a summons and complaint to the defendant in person in the state as allowed by the U.S. Supreme Court case of Burnham v. Superior Court. This is allowed for natural persons (i.e. human beings) who are defendants, but it isn't allowed as a way to give a state jurisdiction over a defendant who is a company.

Waiver Of In Personam Jurisdiction Defenses

Also, if a Plaintiff sues in a state where the Defendant has a right to object to state's jurisdiction, but the Defendant does not object to the state's jurisdiction in the first substantive document file in that court (usually either an "answer" or a "motion to dismiss") then any objection to the jurisdiction of that state over the case is automatically waived. So, if the state where the Plaintiff lives doesn't have jurisdiction, but the Plaintiff sues the company there anyway, and that company sued doesn't immediately object, then the court has jurisdiction to proceed because the company's objections to filing the lawsuit in the wrong state are waived.

Another component of jurisdiction called "subject-matter" jurisdiction, which can't be waived, involves whether a particular court can handle a particular kind of case without regard to whether the case was filed in the right state and isn't an issue in this question. Subject-matter jurisdiction can't be waived involves questions like whether a limited jurisdiction court takes on a case in excess of the dollar amount it is allowed to consider, or grants a kind of judgment it doesn't have the authority to grant, or grants relief in a case brought by someone who hasn't suffered any legal injury which is called lacking "standing" to sue.

Some waivers of personal jurisdiction defenses are intentional litigation strategy decisions and others are a result of simple carelessness or malpractice by the lawyer involved.

Does a small claims court in a state that does have jurisdiction have jurisdiction over the case?

What is small claims court?

The term "small claims court" has both a strict and a more general meaning.

In the strict sense of the word, a small claims court is a state court or division of a state court which can adjudicate only claims up to a specific dollar amount that uses a very simplified procedure and is designed to be used by non-lawyers bringing lawsuit (and often only allows non-lawyers to bring lawsuit in this forum). The maximum dollar amount that can be claimed in small claims court varies. In some states it can be as low as $3,000. In some states it can be as much as $10,000 (maybe more, I haven't checked recently and the dollar amounts get adjusted from time to time for inflation). Not every state has a separate small claims court or small claims court division, but most do. In states that have "justices of the peace", the small claims court is the justices of the peace court (often presided over by non-lawyer judges). In the rest of this answer I will call these "true small claims courts" The dollar limit on small claims court jurisdiction is typically lower than the dollar limit on limited jurisdiction court claims discussed below. Usually, small claims court has low filing fees.

Typically in a true small claims court, all proceedings other than the initial summons and complaint (and sometimes a written answer) must be conducted orally, with both the person suing and the person being sued (or a representative of a company) appearing in person in the courtroom. COVID changed this in some states, but probably only a minority of them and in most cases only temporarily.

In the broader sense of the word, "small claims court" means a court of limited jurisdiction that can only handle claims up to a certain dollar amount (typically somewhere in the range of $10,000 to $50,000), that is used by lawyers and non-lawyers alike to bring lawsuits and has a more formal process than the small claims court in the strict sense discussed above, but has a simpler and faster process than courts of general jurisdiction that handle cases of unlimited dollar amounts. In the rest of this answer I will call these "limited jurisdiction courts." More of the court process can be conducted by filing documents in limited jurisdiction courts than in small claims court, lawyers can appear in person at trials instead of parties in most cases in limited jurisdiction courts, and limited jurisdiction courts more often, although not always, will allow parties or other witnesses to testify by telephone or videoconferencing. Usually the filing fees in limited jurisdiction courts is higher than in small claims court but lower than in a general jurisdiction court.

Where Can Lawsuits Be Filed In Limited Jurisdiction Courts?

A lawsuit can be commenced in a limited jurisdiction court in any state over which some courts of the state have either general jurisdiction or specific jurisdiction, as long as the amount in dispute is less than the dollar limit of the jurisdiction of the court.

Where Can Lawsuits Be Filed In True Small Claims Courts?

States vary a great deal over what kind of cases can be commenced in small claims courts.

Some states allow small claims court cases to be brought in any case up to the dollar amount limit for the court that a limited jurisdiction court could handle.

But other states impose one or more of the following additional restrictions on bringing cases in small claims court:

  1. Some states only allow small claims court cases to be brought against defendants (i.e. persons or companies that are being sued) that reside or are headquartered in the county where the small claims court is located.

  2. Some states only allow small claims court cases to be brought in cases where both the person bringing the lawsuit and the person being sued reside or have headquarters in the same county.

  3. Some states only allow small claims court cases to be brought in cases where the events giving rise to the case occurred in the county where the small claims court is located.

Remedies Available

Both small claims courts and limited jurisdiction courts are also typically limited to awarding money judgments for damages, rather than any other kind of remedies - like reforming a contract or entering a declaratory judgment or adjudicating real property title or entering an injunction. Usually only "general jurisdiction courts" are allowed to provide that kind of relief to a party bringing a lawsuit.

If you win a money judgment in small claims court or in a limited jurisdiction court and you get a judgment. Usually the technical legal process for collecting the judgment is the same as the technical legal process for doing that in general jurisdiction courts.

If the company sued doesn't have assets in the state where it is sued, and you win in a lawsuit against that company, the judgment entered in the state where you win has to be "domesticated" to the state where the company's assets are located after the judgment is entered (which can be in a state that didn't have jurisdiction to try the case in the first place). This process is basically automatic (you file a certified copy of the judgment with a court of the state where the assets are located) but filing fee has to be paid in the state where the assets are located in which the money judgment is domesticated, and you may have to send a notice to the defendant/judgment debtor by mail that the judgment has been domesticated to that state. Then you have to use the technical court process to collect the judgment in the state where the assets are located.

Appeals

Limited jurisdiction courts are usually "courts of record" which means that a verbatim record of the testimony in trials is kept either with a court reporter or an audiotape, and appeals from a limited jurisdiction court are usually just like appeals from a general jurisdiction court, except that you normally appeal to a single judge of the general jurisdiction court, instead of to a three judge panel of a court of appeals or to state supreme court in a state that doesn't have an intermediate court of appeals. These appeals are usually a little less expensive (due to smaller filing fees) and a little faster, than appeals from a general jurisdiction court to an appellate court.

A minority of true small claims courts are courts of record and the same appeal process as an appeal from a limited jurisdiction court is used, except that lots of procedural issues like failure to follow the rules of evidence which you are allowed to appeal from in limited jurisdiction courts are not valid grounds for an appeal from a small claims court ruling.

Most true small claims claims courts, however, are courts not of record. In courts not of record, there is no court reporter or tape recording of the proceedings. In these courts, if either party appeals that do the trial over from scratch in the limited jurisdiction court of record (using small claims court procedures and rules) in what is called a trial de novo, rather than considering what happened in the original true small claims court trial. So, this can end up being slower and more expensive and time consuming if the other side is very litigious and is likely to appeal any unfavorable ruling.

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  • Could you expand on this? :)
    – SDH
    Jul 12, 2023 at 22:45
  • @SOH Ha ha! I'll need a table of contents at that point.
    – ohwilleke
    Jul 13, 2023 at 2:07
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Any of the three states plus the Commonwealth potentially have jurisdiction

Federal jurisdiction is engaged whenever a civil case arises under a Commonwealth statute or the claim or defense engages a Commonwealth matter. The Australian Consumer Law is Commonwealth legislation and probably applies to Your circumstances. Both Federal and state courts have jurisdiction over Federal matters.

The most appropriate state court is the one where the event occurred. There are arguments that this is any or all of the three involved states: the registered office of the company, your residence, or where the locus of the contract is.

As the plaintiff, you get to choose where to bring your action. A small claims court is unlikely to be interested in technical jurisdictional arguments if they prima facie have jurisdiction.

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  • I have modified the question to reflect that this is in the United States.
    – SDH
    Jul 2, 2023 at 4:15

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