Chp 2- Courts & Alternative Dispute Resolution.
Introduction.
Today in the United States there are fifty-two court systems—one
for each of the fifty states, one for the District of Columbia,
and a federal system. Keep in mind that the federal courts are
not superior to the state courts; they are simply an independent
system of courts, which derives its authority from Article III,
Section 2, of the U.S. Constitution. Congress has extended the
federal court system beyond the boundaries of the United States
to U.S. territories such as Guam, the Virgin Islands, and Puerto
Rico. (In Guam and the Virgin Islands, territorial courts serve
as both federal courts and state courts, whereas in Puerto Rico,
they serve only as federal courts.) Congress has established the
U.S. territorial courts by its authority under Article I of the
U.S. Constitution. As we shall see, the United States Supreme
Court is the final controlling voice over all of these fifty-two
systems, at least when questions of federal law are involved.
Every businessperson will likely face either a potential or an
actual lawsuit at some time in his or her career. It is thus important
for anyone involved in business to have an understanding of the
American court systems as well as the various methods of dispute
resolution that can be pursued outside the courts. In this chapter,
after examining the judiciary’s overall role in the American
governmental scheme, we discuss some basic requirements that must
be met before a party may bring a lawsuit before a particular
court. We then look at the court systems of the United States
in some detail. We conclude with an overview of some alternative
methods of settling disputes.
Application: Law and the Businessperson - To Sue or Not to Sue
Section 1 - The Judiciary's Role in American Government.
As you learned in Chapter 1, the body of American law is vast
and complex. It includes the federal and state constitutions,
statutes passed by legislative bodies, administrative law, and
the case decisions and legal principles that form the common law.
These laws would be meaningless, however, without the courts to
interpret and apply them. This is the essential role of the judiciary—the
courts—in the American governmental system: to interpret
and apply the laws to specific situations.
As the branch of government entrusted with interpreting the laws,
the judiciary can decide, among other things, whether the laws
or actions of the other two branches are constitutional. The process
for making such a determination is known as judicial review. The
power of judicial review enables the judicial branch to act as
a check on the other two branches of government, in line with
the checks and balances system established by the U.S. Constitution.
The power of judicial review is not mentioned in the Constitution,
however. Rather, it was established by the United States Supreme
Court’s decision in Marbury v. Madison.(1) In that case,
which was decided in 1803, the Supreme Court stated, “It
is emphatically the province and duty of the Judicial Department
to say what the law is.… If two laws conflict with each other,
the courts must decide on the operation of each.… So if the
law be in opposition to the Constitution… [t]he Court must
determine which of these conflicting rules governs the case. This
is the very essence of judicial duty.” Since the Marbury
v. Madison decision, the power of judicial review has remained
unchallenged. Today, this power is exercised by both federal and
state courts.
Section 2 - Basic Judicial Requirements.
Before a lawsuit can be brought before a court, certain requirements
must be met. These requirements relate to jurisdiction, venue,
and standing to sue. We examine each of these important concepts
here.
JURISDICTION
In Latin, juris means “law,” and diction means “to
speak.” Thus, “the power to speak the law” is the
literal meaning of the term jurisdiction. Before any court can
hear a case, it must have jurisdiction over the person against
whom the suit is brought—that is, the defendant—or over
the property involved in the suit. The court must also have jurisdiction
over the subject matter.
JURISDICTION OVER PERSONS Generally, a particular court can
exercise in personam jurisdiction (personal jurisdiction) over
residents of a certain geographical area. A state trial court,
for example, normally has jurisdictional authority over residents
of a particular area of the state, such as a county or district.
A state’s highest court (often called the state supreme court)
(2) has jurisdictional authority over all residents within the
state.
In some cases, under the authority of a state long arm statute,
a court can exercise personal jurisdiction over nonresident defendants
as well. Before a court can exercise jurisdiction over a nonresident
under a long arm statute, though, it must be demonstrated that
the nonresident had sufficient contacts, or minimum contacts,
with the state to justify the jurisdiction.(3) For example, if
an individual has committed a wrong within the state, such as
causing an automobile injury or selling defective goods, a court
can usually exercise jurisdiction even if the person causing the
harm is located in another state. Similarly, a state may exercise
personal jurisdiction over a nonresident defendant who is sued
for breaching a contract that was formed within the state.
In regard to corporations,(4) the minimum-contacts requirement
is usually met if the corporation does business within the state,
advertises or sells its products within the state, or places its
goods into the “stream of commerce” with the intent
that the goods be sold in the state. Suppose that a corporation
incorporated under the laws of Maine and headquartered in that
state has a branch office or manufacturing plant in Georgia. Does
this corporation have sufficient contacts with the state of Georgia
to allow a Georgia court to exercise jurisdiction over the corporation?
Yes, it does. If the Maine corporation advertises and sells its
products in Georgia, or places goods within the stream of commerce
with the expectation that the goods will be purchased by Georgia
residents, those activities may also suffice to meet the minimum-contacts
requirement. In the following case, the issue is whether an Italian
corporation had sufficient contacts with the state of Arizona
to permit a suit against the corporation to be brought in an Arizona
state court.
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Case 3.1
A. UBERTI AND CO. v. LEONARDO
Supreme Court of Arizona, 1995.
892 P.2d 1354.
HISTORICAL AND SOCIAL SETTING Colt Industries manufactured the first Peacemaker, a six-shot, single-action revolver, in 1873. The U.S. government adopted it for service that same year, and the gun became known as “the gun that won the West.” In 1892, Colt and other gun manufacturers began making safer, more reliable, and more efficient revolvers. The market for the 1873 model declined until the 1950s, when television Westerns created a new market for replica firearms.
BACKGROUND AND FACTS Aldo Uberti and Company, an Italian corporation, manufactures a replica of the Peacemaker known as the Cattleman. Uberti sells its guns to a U.S. distributor for sale throughout the country. Henry Pacho, a resident of Arizona, bought one of the guns, wrapped it in a towel, and put it under the seat of his car. His two-year-old niece, Corrina, was helping to clean the car when the gun fell out of the towel, hit the pavement, and discharged. The bullet struck Corrina in the head and killed her. Corrina’s parents filed a suit in an Arizona state court against Uberti, alleging that the company was liable for the “design, manufacture, sale, and distribution of a defective and unreasonably dangerous product.” Uberti asked the court to dismiss the suit on the ground that the court did not have personal jurisdiction over Uberti. The court refused, and Uberti appealed. The appellate court reversed. Corrina’s parents then appealed to the Supreme Court of Arizona.
IN THE LANGUAGE OF THE COURT
FELDMAN, Chief Justice.
* * * *
* * * Defendant [Uberti] knew its products, passing through its
American distributor * * * would flow into local markets across
America.
* * * *
* * * Defendant’s catalogs and advertising * * * support
the conclusion that the gun, as a replica of an American frontier
weapon, was originally and primarily designed and made for the
American market. * * *
* * *
Defendant argues that its activities, at best, focused on the
United States in general, not Arizona. Therefore, Arizona exceeds
due process by asserting its jurisdiction here. Were this true,
then no individual state could assert jurisdiction over Defendant
simply because Defendant did not target a particular state or
group of states but instead intended to sell its product to all
of America. The argument turns common sense on its head. Holding
that a defendant intending to sell its products to any and all
citizens in the United States could not be held accountable in
any jurisdiction where its products caused injury defies any sensible
concept of due process. * * *
* * * Thus, we do not believe that Plaintiffs must show Defendant’s
specific intent to sell in Arizona. An intent to sell across America
is enough.
DECISION AND REMEDY The Supreme Court of Arizona held that
Uberti could be sued in an Arizona state court.
Full text of case
¾¾¨¾¾
JURISDICTION OVER PROPERTY A court can also exercise jurisdiction over property that is located within its boundaries. This kind of jurisdiction is known as in rem jurisdiction, or “jurisdiction over the thing.” For example, suppose that a dispute arises over the ownership of a boat in dry dock in Fort Lauderdale, Florida. The boat is owned by an Ohio resident, over whom a Florida court cannot normally exercise personal jurisdiction. The other party to the dispute is a resident of Nebraska. In this situation, a lawsuit concerning the boat could be brought in a Florida state court on the basis of the court’s in rem jurisdiction.
JURISDICTION OVER SUBJECT MATTER Jurisdiction over subject
matter is a limitation on the types of cases a court can hear.
In both the federal and state court systems, there are courts
of general (unlimited) jurisdiction and courts of limited jurisdiction.
A court of general jurisdiction can decide virtually any type
of case. An example of a court of general jurisdiction is a state
or federal trial court. An example of a state court of limited
jurisdiction is a probate court. Probate courts are state courts
that handle only matters relating to the transfer of a person’s
assets and obligations after that person’s death, including
matters relating to the custody and guardianship of children.
An example of a federal court of limited subject-matter jurisdiction
is a bankruptcy court. Bankruptcy courts handle only bankruptcy
proceedings, which are governed by federal bankruptcy law (discussed
in Chapter 32). A court of general jurisdiction can decide virtually
any type of case.
A court’s jurisdiction over subject matter is usually defined
in the statute or constitution creating the court. In both the
federal and state court systems, a court’s subject-matter
jurisdiction can be limited not only by the subject of the lawsuit
but also by how much money is in controversy, by whether the case
is a felony (a more serious type of crime) or a misdemeanor (a
less serious type of crime), or by whether the proceeding is a
trial or an appeal.
ORIGINAL AND APPELLATE JURISDICTION The distinction between
courts of original jurisdiction and courts of appellate jurisdiction
normally lies in whether the case is being heard for the first
time. Courts having original jurisdiction are courts of the first
instance, or trial courts—that is, courts in which lawsuits
begin, trials take place, and evidence is presented. In the federal
court system, the district courts are trial courts. In the various
state court systems, the trial courts are known by various names,
as will be discussed shortly.
The key point here is that normally, any court having original
jurisdiction is known as a trial court. Courts having appellate
jurisdiction act as reviewing courts, or appellate courts. In
general, cases can be brought before appellate courts only on
appeal from an order or a judgment of a trial court or other lower
court.
JURISDICTION OF THE FEDERAL COURTS Because the federal government
is a government of limited powers, the jurisdiction of the federal
courts is limited. Article III of the U.S. Constitution establishes
the boundaries of federal judicial power. Section 2 of Article
III states that “[t]he judicial Power shall extend to all
Cases, in Law and Equity, arising under this Constitution, the
Laws of the United States, and Treaties made, or which shall be
made, under their Authority.”
Whenever a plaintiff’s cause of action is based, at least
in part, on the U.S. Constitution, a treaty, or a federal law,
then a federal question arises, and the case comes under the judicial
power of the federal courts. Any lawsuit involving a federal question
can originate in a federal court. People who claim that their
constitutional rights have been violated can begin their suits
in a federal court.
Federal district courts can also exercise original jurisdiction
over cases involving diversity of citizenship. This term applies
whenever a federal court has jurisdiction over a case that does
not involve a question of federal law. The most common type of
diversity jurisdiction has two requirements:(5) (1) the plaintiff
and defendant must be residents of different states, and (2) the
dollar amount in controversy must exceed $75,000.(6) For purposes
of diversity jurisdiction, a corporation is a citizen of both
the state in which it is incorporated and the state in which its
principal place of business is located. A case involving diversity
of citizenship can be filed in the appropriate federal district
court. If the case starts in a state court, it can sometimes be
transferred, or “removed,” to a federal court. A large
percentage of the cases filed in federal courts each year are
based on diversity of citizenship.
Note that in a case based on a federal question, a federal court
will apply federal law. In a case based on diversity of citizenship,
however, a federal court will apply the relevant state law (which
is often the law of the state in which the court sits).
EXCLUSIVE VERSUS CONCURRENT JURISDICTION When both federal
and state courts have the power to hear a case, as is true in
suits involving diversity of citizenship, concurrent jurisdiction
exists. When cases can be tried only in federal courts or only
in state courts, exclusive jurisdiction exists. Federal courts
have exclusive jurisdiction in cases involving federal crimes,
bankruptcy, patents, and copyrights; in suits against the United
States; and in some areas of admiralty law (law governing transportation
on the seas and ocean waters). States also have exclusive jurisdiction
in certain subject matters—for example, in divorce and adoption.
Exhibit 3–1 illustrates the concepts of concurrent and exclusive
jurisdiction.
Concept Summary 3-1
VENUE
Jurisdiction has to do with whether a court has authority to hear
a case involving specific persons, property, or subject matter.
Venue (7) is concerned with the most appropriate location for
a trial. For example, two state courts (or two federal courts)
may have the authority to exercise jurisdiction over a case, but
it may be more appropriate or convenient to hear the case in one
court than in the other.
Basically, the concept of venue reflects the policy that a court
trying a suit should be in the geographical neighborhood (usually
the county) in which the incident leading to the lawsuit occurred
or in which the parties involved in the lawsuit reside. Pretrial
publicity or other factors, though, may require a change of venue
to another community, especially in criminal cases in which the
defendant’s right to a fair and impartial jury has been impaired.
For example, in 1992, when four Los Angeles police officers accused
of beating Rodney King were brought to trial, the attorneys defending
the police officers requested a change of venue from Los Angeles
to Simi Valley, California. The attorneys argued that to try the
case in a Los Angeles court would prejudice the police officers’
right to a fair trial. The court agreed and granted the request.
For similar reasons, a change of venue from Oklahoma City to Denver,
Colorado, was ordered for the trial of Timothy McVeigh and Terry
Nichols after they had been indicted in connection with the 1995
bombing of the Alfred Murrah Federal Building in Oklahoma City.
Image: Change of Venue
STANDING TO SUE
In order to bring a lawsuit before a court, a party must have
standing to sue, or a sufficient “stake” in a matter
to justify seeking relief through the court system. In other words,
a party must have a legally protected and tangible interest at
stake in the litigation in order to have standing. The party bringing
the lawsuit must have suffered a harm or been threatened with
a harm by the action about which he or she has complained. At
times, a person can have standing to sue on behalf of another
person. For example, suppose that a child suffers serious injuries
as a result of a defectively manufactured toy. Because the child
is a minor, a lawsuit can be brought on his or her behalf by another
person, such as the child’s parent or legal guardian
Standing to sue also requires that the controversy at issue be
a justiciable controversy (8)—a controversy that is real
and substantial, as opposed to hypothetical or academic. For example,
in the above example, the child’s parent could not sue the
toy manufacturer merely on the ground that the toy was defective.
The issue would become justiciable only if the child had actually
been injured due to the defect in the toy as marketed. In other
words, the parent normally could not ask the court to determine,
for example, what damages might be obtained if the child had been
injured, because this would be merely a hypothetical question.
Meeting standing requirements is not always easy. In the following
case, for example, an environmental organization sued a company
for allegedly discharging pollutants into waterways beyond the
amount allowed by the Environmental Protection Agency. At issue
in the case was whether the organization had standing to sue under
federal environmental laws.
¾¾¨¾¾
Case 3.2
FRIENDS OF THE EARTH, INC. V.
CROWN CENTRAL PETROLEUM CORP.
United States Court of Appeals,
Fifth Circuit, 1996.
95 F.3d 358.
BACKGROUND AND FACTS Crown Central Petroleum Corporation does business as La Gloria Oil & Gas Company. Under a permit issued by the Environmental Protection Agency (EPA), La Gloria’s oil refinery discharges storm-water run-off into Black Fork Creek. Black Fork Creek flows into Prairie Creek, which flows into Neches River, which flows into Lake Palestine eighteen miles downstream. Friends of the Earth, Inc. (FOE), is a not-for-profit corporation dedicated to the protection of the environment. FOE filed a suit in a federal district court against La Gloria under the Federal Water Pollution Control Act.(d) FOE claimed that La Gloria had violated its EPA permit and that this conduct had directly affected “the health, economic, recreational, aesthetic and environmental interests of FOE’s members” who used the lake. La Gloria filed a motion for summary judgment, arguing that FOE lacked standing to bring the suit. The court granted the motion, and FOE appealed.
IN THE LANGUAGE OF THE COURT
PATRICK E. HIGGINBOTHAM, Circuit Judge:
* * * *
To demonstrate that FOE’s members have standing, FOE must
show that * * * the injury is “fairly traceable” to
the defendant’s actions * * * .
* * * *
* * * FOE offered no competent evidence that La Gloria’s
discharges have made their way to Lake Palestine or would otherwise
affect Lake Palestine. * * * FOE and its members relied solely
on the truism that water flows downstream and inferred therefrom
that any injury suffered downstream is “fairly traceable”
to unlawful discharges upstream. At some point this common sense
observation becomes little more than surmise. At that point certainly
the requirements [for standing] are not met.
DECISION AND REMEDY The U.S. Court of Appeals for the Fifth
Circuit affirmed the lower court’s decision. FOE lacked standing
to bring a suit against La Gloria.
Emerging Trend - Jurisdictional Issues in Cyberspace.
Jurisdictional Issues in Cyberspace
In the good old days, much of the commerce in the United States
was quite local in nature. After all, transportation and communication
facilities were relatively primitive 150 years ago. By the 1950s,
state long arm statutes existed and were applied (as they certainly
are today), and the “minimum contacts“ requirement for
jurisdiction over an out-of-state defendant had been established.
Nonetheless, jurisdictional issues at that time were still far
less complicated than they are today.
The issue of minimum contacts started to become sticky when commercial
activities did not require physical contact. Specifically, commerce
through the mails and over the telephone, particularly as utilized
by catalog companies, raised new jurisdictional issues.
Enter the Internet
The United States, and indeed the world, is now full of “netizens.”
They are everywhere, and at the same time, nowhere. How can traditional
jurisdictional concepts be applied to the nonphysical landscape
of the Internet? Does an entity subject itself to the jurisdiction
of another state’s court simply by accessing a Web home page
owned by an entity in that other state? In effect, Internet use
has turned traditional jurisdictional jurisprudence on its head.
To date, the courts have been mixed in their responses to the
jurisdictional issues created by Internet contacts. The trend,
though, is toward expanding traditional jurisdictional concepts
to cover new forms of communications. Just as modern technology
has facilitated cross-border transactions, so it has broadened
the permissible scope of jurisdiction. For example, in one case,
because a software designer in Texas had repeatedly sent e-mail
to CompuServe headquarters in Columbus, Ohio, he was subjected
to personal jurisdiction in Ohio. (a)
An even broader decision was handed down by the federal district
court sitting in Los Angeles. That court held that California
had jurisdiction over an out-of-state defendant, even though the
defendant was not doing business in California—he had simply
registered the Internet address (domain name—see Chapter
9) of the Los Angeles plaintiff. The court concluded that California
jurisdiction was justified because the effects of the defendant’s
action were felt in California.(b) In yet another case, a federal
district court held that a New Mexico software company that had
allegedly made libelous statements on its Web site and in a CompuServe
discussion forum could be sued in Arizona, even though the company
had no presence there. The court argued that the defendant “should
not be permitted to take advantage of modern technology through
an Internet Web page and forum and simultaneously escape traditional
notions of jurisdiction.”(c)
The trend in jurisdictional cyberlaw—the emerging body of
law governing cyberspace issues—is to focus less on the method
of communication or contact and more on the type of activity involved.
In other words, the courts tend to look at the type of activity
conducted via a particular electronic service and the effects
of that activity in the state seeking to exercise jurisdiction
over the matter. Indeed, most contracts between online service
providers and their users now state explicitly that the users
agree to be subject to the jurisdiction of the service provider’s
state. The courts have upheld such clauses as valid and enforceable,
as long as the clauses were reasonable and freely negotiated—so
that due process is maintained.
International Implications
The world is becoming more interconnected every day with the increasing
use of the Internet. This has serious jurisdictional implications.
For example, what if a transaction occurs on the Internet between
a U.S. resident and a resident of a foreign country? As another
example, consider a person who logs onto the Web through an Internet
service provider in Montevideo, Uruguay. What state or country
has jurisdictional authority over this person? The server that
the user may be accessing could be in Portugal, without the user
even being aware of it. Do the Portuguese nonetheless have jurisdiction?
What about the other ten countries to which the connection might
have been routed?
There are no easy answers to these questions. There certainly
will be a trend toward international agreements dealing with basic
standards regarding cyberspace. We might also see a United Nations
model code that signatory nations would enforce domestically.
Implications for the Businessperson
1. Any use of the Internet that involves a business transaction
could subject the businessperson to jurisdiction in another state.
Thus, there are benefits as well as potential costs to doing business
over the Internet.
2. A businessperson could find himself or herself subject to a
tort action in another state if he or she chooses to communicate
via the Internet.
For Critical Analysis
1. In choosing to start up a business via the Internet, what potential
cost factors must one take into account?
2. What risks are involved in doing business internationally over
the Internet?
Section 3 - The State and Federal Court Systems.
As mentioned earlier in this chapter, each state has its own court
system. Additionally, there is a system of federal courts. Although
no two state court systems are exactly the same, Exhibit 3–2
illustrates the basic organizational structure characteristic
of the court systems in many states. The exhibit also shows how
the federal court system is structured. We turn now to an examination
of these court systems, beginning with the state courts.
STATE COURT SYSTEMS
Typically a state court system includes several levels, or tiers,
of courts. As indicated in Exhibit 3–2, state courts may
include (1) trial courts of limited jurisdiction, (2) trial courts
of general jurisdiction, (3) appellate courts, and (4) the state’s
highest court (often called the state supreme court). Judges in
the state court system are usually elected by the voters for a
specified term.
Generally, any person who is a party to a lawsuit has the opportunity
to plead the case before a trial court and then, if he or she
loses, before at least one level of appellate court. Finally,
if a federal statute or federal constitutional issue is involved
in the decision of the state supreme court, that decision may
be further appealed to the United States Supreme Court.
TRIAL COURTS Trial courts are exactly what their name implies—courts
in which trials are held and testimony taken. State trial courts
have either general or limited jurisdiction. Trial courts that
have general jurisdiction as to subject matter may be called county,
district, superior, or circuit courts.(9) State trial courts of
general jurisdiction have jurisdiction over a wide variety of
subjects, including both civil disputes and criminal prosecutions.
In some states, trial courts of general jurisdiction may hear
appeals from courts of limited jurisdiction.
Courts of limited jurisdiction as to subject matter are often
called special inferior trial courts or minor judiciary courts.
Small claims courts are inferior trial courts that hear only civil
cases involving claims of less than a certain amount, such as
$2,500 (the amount varies from state to state). Suits brought
in small claims courts are generally conducted informally, and
lawyers are not required. In a minority of states, lawyers are
not even allowed to represent people in small claims courts for
most purposes. Decisions of small claims courts may be appealed
to a state trial court of general jurisdiction.
Other courts of limited jurisdiction include domestic relations
courts, which handle only divorce actions and child custody cases;
local municipal courts, which mainly handle traffic cases; and
probate courts, as mentioned earlier.
COURTS OF APPEALS Every state has at least one court of appeals
(appellate court, or reviewing court). A court of appeals may
be an intermediate appellate court or the state’s highest
court. About half of the states have intermediate appellate courts.
Generally, courts of appeals do not conduct new trials, in which
evidence is submitted to the court and witnesses are examined.
Rather, an appellate court panel of three or more judges reviews
the record of the case on appeal, which includes a transcript
of the trial proceedings, and then determines whether the trial
court committed an error.
Appellate courts look at questions of law and procedure but usually
not at questions of fact. A question of law is a question concerning
the application or interpretation of the law, on which only a
judge, not a jury, can rule. A question of fact is a question
about what really happened in regard to the dispute being tried.
Questions of fact may be decided by a trial judge or jury based
on the evidence presented. Normally, an appellate court will defer
to the trial court’s judgment on questions of fact because
the trial court judge and jury were in a better position to evaluate
testimony. They directly observed witnesses’ gestures, demeanor,
and other nonverbal behavior during the trial. At the appellate
level, the judges review the written transcript of the trial,
which does not include these nonverbal elements.
An appellate court will tamper with a trial court’s finding
of fact when the finding is clearly erroneous (that is, when it
is contrary to the evidence presented at trial) or when there
is no evidence to support the finding. For example, if at trial
a jury concluded that a manufacturer’s product had harmed
the plaintiff but no evidence was submitted to the court to support
that conclusion, the appellate court would hold that the trial
court’s decision was erroneous. The options exercised by
appellate courts will be further discussed in Chapter 4.
STATE SUPREME (HIGHEST) COURTS The highest state courts usually
are called simply supreme courts, but they may be designated by
other names. For example, in both New York and Maryland, the highest
state court is called the court of appeals. In Maine and Massachusetts,
the highest court is labeled the supreme judicial court. In West
Virginia, the highest state court is the supreme court of appeals.
The decisions of each state’s highest court on all questions
of state law are final. Only when issues of federal law are involved
can a decision made by a state’s highest court be overruled
by the United States Supreme Court.
THE FEDERAL COURT SYSTEM
The federal court system is basically a three-tiered model consisting
of (1) U.S. district courts (trial courts of general jurisdiction)
and various courts of limited jurisdiction, (2) U.S. courts of
appeals (intermediate courts of appeals), and (3) the United States
Supreme Court.
Unlike state court judges, who are usually elected, federal court
judges—including the justices of the Supreme Court—are
appointed by the president of the United States, subject to the
approval of the U.S. Senate. All federal judges receive lifetime
appointments (because under Article III they “hold their
offices during Good Behavior”).
U.S. DISTRICT COURTS At the federal level, the equivalent of
a state trial court of general jurisdiction is the district court.
There is at least one federal district court in every state. The
number of judicial districts can vary over time, primarily owing
to population changes and corresponding changes in caseloads.
Currently, there are ninety-four federal judicial districts.
U.S. district courts have original jurisdiction in federal matters,
and federal cases typically originate in district courts. There
are other federal trial courts with original, but special (or
limited), jurisdiction, such as the federal bankruptcy courts
and others shown in Exhibit 3–2.
U.S. COURTS OF APPEALS In the federal court system, there are
thirteen U.S. courts of appeals—also referred to as U.S.
circuit courts of appeals. The federal courts of appeals for twelve
of the circuits hear appeals from the federal district courts
located within their respective judicial circuits. The Court of
Appeals for the Thirteenth Circuit, called the Federal Circuit,
has national appellate jurisdiction over certain types of cases,
such as cases involving patent law and cases in which the U.S.
government is a defendant.
The decisions of the circuit courts of appeals are final in most
cases, but appeal to the United States Supreme Court is possible.
Exhibit 3–3 shows the geographical boundaries of U.S. circuit
courts of appeals and the boundaries of the U.S. district courts
within each circuit.
THE UNITED STATES SUPREME COURT At the highest level in the
three-tiered federal court system is the United States Supreme
Court. According to the language of Article III of the U.S. Constitution,
there is only one national Supreme Court. All other courts in
the federal system are considered “inferior.” Congress
is empowered to create other inferior courts as it deems necessary.
The inferior courts that Congress has created include the second
tier in our model—the U.S. courts of appeals—as well
as the district courts and all other courts of limited, or specialized,
jurisdiction.
The United States Supreme Court consists of nine justices. Although
the Supreme Court has original, or trial, jurisdiction in rare
instances (set forth in Article III, Section 2), most of its work
is as an appeals court. The Supreme Court can review any case
decided by any of the federal courts of appeals, and it also has
appellate authority over some cases decided in the state courts.
The Supreme Court is the final arbiter of the Constitution and
federal law.
Video: Justice O’Connor on the Role of the Law
Profile: Sandra Day O’Connor
HOW CASES REACH THE SUPREME COURT To bring a case before the
Supreme Court, a party requests the Court to issue a writ of certiorari.
A writ of certiorari (10) is an order issued by the Supreme Court
to a lower court requiring the latter to send it the record of
the case for review. The Court will not issue a writ unless at
least four of the nine justices approve of it. This is called
the rule of four. Whether the Court will issue a writ of certiorari
is entirely within its discretion. The Court is not required to
issue one, and most petitions for writs are denied. (Thousands
of cases are filed with the Supreme Court each year, yet it hears,
on average, less than one hundred of these cases.(11)) A denial
is not a decision on the merits of a case, nor does it indicate
agreement with the lower court’s opinion. Furthermore, denial
of the writ has no value as a precedent.
Typically, the petitions granted by the Court involve cases that
raise important constitutional questions or cases that conflict
with other state or federal court decisions. Similarly, if federal
appellate courts are rendering inconsistent opinions on an important
issue, the Supreme Court may review a case involving this issue
to define the law on the matter. If the Court decides it should
rule on an issue, it may wait until a writ of certiorari is requested
in a case in which that issue is narrowly framed and the facts
are clear.
Section 4 - Alternative Dispute Resolution.
Alternative dispute resolution (ADR) refers to the various methods
by which disputes are settled outside the court system. Typically,
to save time and money for all parties involved, attorneys advise
their clients to attempt a settlement before resorting to litigation—the
process of resolving a dispute through the court system. Frequently,
a settlement is achieved after a lawsuit has been initiated and
pretrial investigations undertaken, but before a trial takes place.
At this point, the parties and their attorneys have an opportunity
to assess the evidence and attempt a settlement based on the relative
strengths or weaknesses of their positions. Most civil lawsuits
(about 95 percent) are settled before they go to trial.
ADR offers many advantages to disputing parties. Litigating even
the simplest complaint is costly, and because of the backlog of
cases pending in many courts, it may sometimes be several years
before a case is actually tried. ADR, in contrast, usually entails
fewer costs and allows disputes to be resolved relatively quickly.
ADR also offers the advantage of privacy. Court proceedings are
public, whereas ADR allows the parties to come together privately
and work out an agreement. Another advantage of ADR is its flexibility.
Normally, the parties themselves can control how the dispute will
be settled, what procedures will be used, and whether the decision
reached (either by the parties themselves or by a neutral third
party) will be legally binding or nonbinding. ADR also offers
advantages for the courts. To ease the burden on the courts and
reduce costs, both the state and federal court systems have implemented
programs that encourage or require some form of ADR prior to trial.
Methods of ADR range from neighbors sitting down over a cup of
coffee in an attempt to work out their differences to huge multinational
corporations agreeing to resolve a dispute through a formal hearing
before a panel of experts. Some of the more commonly used methods
of ADR include negotiation, mediation, and arbitration.
NEGOTIATION
One of the simplest forms of ADR is negotiation, a process in
which the parties attempt to settle their dispute informally,
with or without attorneys to represent them. Typically, during
the pretrial stages of litigation, the parties and/or their attorneys
may meet informally one or more times to see if a mutually satisfactory
agreement can be reached. In some courts, pretrial negotiation
is mandatory. In these courts, before parties may proceed to trial,
they must first meet with each other and attempt to negotiate
a settlement. Only if the parties cannot reach an agreement will
the court decide the issue. In other courts, negotiation is one
of a menu of ADR options that the parties may (or must, in some
cases and in some courts) pursue prior to trial.
In working out a mutually satisfactory agreement, disputing parties
often find it helpful to have the input of a neutral (unbiased)
third party. In the traditional negotiation process, however,
attorneys act as advocates for their clients, which means that
they put their clients’ interests first. In recent years,
to facilitate negotiation, various forms of what might be called
“assisted negotiation” have been employed. Forms of
ADR associated with the negotiation process include mini-trials,
early neutral case evaluation, and summary jury trials.
MINI-TRIALS A mini-trial is a private proceeding in which each party’s attorney briefly argues the party’s case before the other party. Typically, a neutral third party, who acts as an adviser and an expert in the area being disputed, is also present. If the parties fail to reach an agreement, the adviser renders an opinion as to how a court would likely decide the issue. The proceeding assists the parties in determining whether they should negotiate a settlement of the dispute or take it to court.
EARLY NEUTRAL CASE EVALUATION In early neutral case evaluation, the parties select a neutral third party (generally an expert in the subject matter of the dispute) to evaluate their respective positions. The parties explain their positions to the case evaluator however they wish. The case evaluator then evaluates the strengths and weaknesses of the parties’ positions, and this evaluation forms the basis for negotiating a settlement.
SUMMARY JURY TRIALS A form of ADR that has been successfully employed in the federal court system is the summary jury trial (SJT). In an SJT, which occurs after a lawsuit has been initiated but before the trial, the litigants present their arguments and evidence to a jury. The jury then renders a verdict. The jury’s verdict, however, is not binding. Rather, it serves as a guide to both sides in reaching an agreement during the mandatory negotiations that immediately follow the trial. Because no witnesses are called, the SJT is much speedier than a regular trial, and frequently the parties are able to settle their dispute without resorting to an actual trial. If no settlement is reached, both sides have the right to a full trial later. Summary jury trials are now held in approximately sixty-five federal district courts.
MEDIATION
One of the oldest forms of ADR is mediation. In the mediation
process, the parties themselves attempt to negotiate an agreement,
but with the assistance of a neutral third party, a mediator.
The mediator need not be a lawyer. The mediator may be one person,
such as a paralegal, an attorney, or a volunteer from the community.
Alternatively, a panel of mediators may be used. Usually, a mediator
charges a fee, which can be split between the parties. Mediation
is essentially a form of “assisted negotiation,” but
one in which the mediator plays a more active role than the neutral
third parties in negotiation-associated forms of ADR.
As with negotiation, some courts may encourage or require the
parties to undertake mediation prior to a trial. Some states offer
mediation as the only ADR method that may (or must) be undertaken
before proceeding to trial. Florida, for example, has a comprehensive
statewide mediation program to facilitate pretrial settlements.
THE MEDIATORS ROLE The mediator’s role basically is to help the parties evaluate their positions and clarify the issues on which they do and do not agree. A mediator will try to discern what the parties’ real interests are, as opposed to the positions that the parties have put forward. This is often done by holding private sessions with each party, in which the mediator learns what information the parties are unwilling to disclose to each other. Through joint and individual sessions with the parties, the mediator is in a position to assess realistically the alternative ways in which the dispute might be resolved. The mediator then proposes a solution, or alternative solutions, including what compromises will be necessary to reach agreement.
THE ADVANTAGES OF MEDIATION Unlike litigation (and, to a certain
extent, negotiation), mediation is not adversarial in nature.
Rather, a mediator tries to find common grounds on which an agreement
can be based. Therefore, the process tends to reduce the antagonism
between the disputants and to allow them to resume their former
relationship. For this reason, mediation is often the preferred
form of ADR for business disputes involving parties who either
must or would like to continue an ongoing relationship. For example,
business partners may be able to work out their differences through
mediation more satisfactorily than through other forms of ADR
or through litigation. Mediation is also beneficial in settling
differences between employers and employees or other parties involved
in a long-term relationship.
For the same reason, mediation is particularly beneficial in divorce
cases, especially when child custody is at issue. A mediator can
help divorcing spouses focus on the best interests of the child
or children at a time when emotions and hostilities may otherwise
cause the parties to lose sight of these interests. Generally,
most disputes involving family matters are dealt with more effectively
through mediation than through other dispute-resolution methods.
ARBITRATION
A more formal method of alternative dispute resolution is arbitration,
in which an arbitrator (a neutral third party or a panel of experts)
hears a dispute and renders a decision. The key difference between
arbitration and the forms of ADR just discussed is that in arbitration,
the third party’s decision normally is legally binding on
the parties.
Many courts, in both the federal and state court systems, require
the pretrial arbitration of disputes. Often, arbitration is required
only in cases in which the dollar amount in controversy is under
a specified threshold amount. For example, courts in several federal
districts require pretrial arbitration in cases involving less
than $100,000. In Hawaii, all disputes involving less than $150,000
must be arbitrated.
THE ARBITRATION PROCESS In some respects, formal arbitration
resembles a trial, although usually the procedural rules are much
less restrictive than those governing litigation. In the typical
hearing format, the parties present opening arguments to the arbitrator
and state what remedies should or should not be granted. Next,
evidence is presented, and witnesses may be called and examined
by both sides. The arbitrator then renders a decision, which is
called an award.
An arbitrator’s award is usually the final word on the matter.
Although the parties may appeal an arbitrator’s decision,
a court’s review of the decision will be much more restricted
in scope than an appellate court’s review of a trial court’s
decision. The general view is that because the parties were free
to frame the issues and set the powers of the arbitrator at the
outset, they cannot complain about the results. The award will
only be set aside if the arbitrator’s conduct or “bad
faith” substantially prejudiced the rights of one of the
parties, if the award violates an established public policy, or
if the arbitrator exceeded his or her powers (by arbitrating issues
that the parties did not agree to submit to arbitration).
ARBITRATION CLAUSES AND STATUTES Virtually any commercial matter
can be submitted to arbitration. Frequently, parties include an
arbitration clause in a contract specifying that any dispute arising
under the contract will be resolved through arbitration rather
than through the court system. Parties can also agree to arbitrate
a dispute after a dispute arises.
Most states have statutes (often based in part on the Uniform
Arbitration Act of 1955) under which arbitration clauses will
be enforced, and some state statutes compel arbitration of certain
types of disputes, such as those involving public employees. At
the federal level, the Federal Arbitration Act (FAA), enacted
in 1925, enforces arbitration clauses in contracts involving maritime
activity and interstate commerce—activities that the federal
government has the authority to regulate through legislation (see
Chapter 5).
ARBITRABILITY When a dispute arises as to whether or not the
parties to a contract with an arbitration clause have agreed to
submit a particular matter to arbitration, one party may file
suit to compel arbitration. The court before which the suit is
brought will not decide the basic controversy but must decide
the issue of arbitrability—that is, whether the matter is
one that must be resolved through arbitration.
Even when a claim involves a violation of a statute passed to
protect a certain class of people, a court may determine that
the parties must nonetheless abide by their agreement to arbitrate
the dispute. Usually, a court will allow the claim to be arbitrated
if the court, in interpreting the statute, can find no legislative
intent to the contrary.
Should claims involving alleged violations of federal statutes
protecting employees from employment discrimination be arbitrable?
The United States Supreme Court answered this question in the
following landmark case.
¾¾¨¾¾
Case 3.3
GILMER v. INTERSTATE/JOHNSON LANE CORP.
Supreme Court of the United States, 1991.
500 U.S. 20,
111 S.Ct. 1647,
114 L.Ed.2d 26.
BACKGROUND AND FACTS Interstate/Johnson Lane Corporation required some of its employees, including Robert Gilmer, to register as securities representatives with the New York Stock Exchange (NYSE). The registration application included an agreement to arbitrate when NYSE rules required it. One of the rules requires the arbitration of any controversy arising out of a registrant’s termination of employment. Interstate terminated Gilmer’s employment at age sixty-two. Gilmer filed a suit in a federal district court, alleging that he had been discharged in violation of the Age Discrimination in Employment Act (ADEA) of 1967. (This act attempts to prevent employers from discriminating against older employees—see Chapter 36.) Interstate asked the court to order the arbitration of Gilmer’s claim, according to the agreement in Gilmer’s registration application with the NYSE. The court denied the employer’s request, but on appeal, the appellate court ordered the arbitration. Gilmer appealed to the United States Supreme Court.
IN THE LANGUAGE OF THE COURT
Justice WHITE delivered the opinion of the Court.
* * * *
* * * [P]rovisions [of the Federal Arbitration Act] manifest a
“liberal federal policy favoring arbitration agreements.”
* * * *
* * * “[H]aving made the bargain to arbitrate, the party
should be held to it unless Congress itself has evinced an intention
to preclude a waiver of judicial remedies for the statutory rights
at issue.” * * * If such an intention exists, it will be
discoverable in the text of the ADEA, its legislative history,
or an “inherent conflict” between arbitration and the
ADEA’s underlying purposes. * * *
* * * *
* * * [T]he ADEA is designed not only to address individual grievances,
but also to further important social policies. We do not perceive
any inherent inconsistency between those policies, however, and
enforcing agreements to arbitrate age discrimination claims. *
* *
* * * An individual ADEA claimant subject to an arbitration agreement
will still be free to file a charge with the EEOC * * * .
* * * Congress * * * did not explicitly preclude arbitration or
other nonjudicial resolution of claims, even in its recent amendments
to the ADEA. * * * In addition,
* * * arbitration agreements, “ * * * serve to advance the
objective of allowing [claimants] a broader right to select the
forum for resolving disputes, whether it be judicial or otherwise.”
DECISION AND REMEDY The United States Supreme Court held that
the arbitration of an age discrimination claim can be compelled.
The Court affirmed the order requiring the parties to arbitrate
the claim.
Previous page of section
PROVIDERS OF ADR SERVICES
ADR services are provided by both government agencies and private
organizations. A major provider of ADR services is the American
Arbitration Association (AAA). Most of the largest law firms in
the nation are members of this nonprofit association. Founded
in 1926, the AAA now settles about sixty thousand disputes a year
in its numerous offices around the country. Cases brought before
the AAA are heard by an expert or a panel of experts in the area
relating to the dispute and are usually settled quickly. Generally,
about half of the panel members are lawyers. To cover its costs,
the AAA charges a fee, paid by the party filing the claim. In
addition, each party to the dispute pays a specified amount for
each hearing day, as well as a special additional fee in cases
involving personal injuries or property loss.
Hundreds of for-profit firms around the country also provide dispute-resolution
services. Typically, these firms hire retired judges to conduct
arbitration hearings or otherwise assist parties in settling their
disputes. The leading firm in this relatively new private system
of justice is JAMS/Endispute, which is based in Santa Ana, California.
Private ADR firms normally allow the parties to decide on the
date of the hearing, the presiding judge, whether the judge’s
decision will be legally binding, and the site of the hearing—which
may be a conference room, a law-school office, or a leased courtroom.
The judges follow procedures similar to those of the federal courts
and use similar rules. Usually, each party to the dispute pays
a filing fee and a designated fee for a hearing session or conference.
Assessing the Internet.
ACCESSING THE INTERNET:
BUSINESS LAW AND LEGAL ENVIRONMENT
The decisions of the United States Supreme Court and of all of the U.S. Courts of Appeals are now published online shortly after the decisions are rendered (often within hours). You can find these decisions and obtain information about the federal court system by accessing the Federal Court Locator at http://www.law.vill.edu/
For information on the justices of the United States Supreme
Court, go to
http://oyez.nwu.edu/oyez.html This
site offers biographies of the justices, links to opinions they
have authored, and, for justices who have served after 1920, video
and audio materials. Oral arguments before the Supreme Court are
also posted on this site. A planned addition to the site is a
video tour of the Court.
To date, the decisions of only one of the federal district
courtsthe U.S. District Court for the Northern District of Mississippiare
published on the Web. These decisions, which are published by
the University of Mississippi School of Law Library in cooperation
with the court, can be found at
http://sunset.backbone.olemiss.edu/~llibcoll/ndms
Some of the other federal district courts offer their opinions
electronically through the federal judiciarys PACER (Public Access
to Court Electronic Records) system. PACER costs 75 cents a minute,
but for many it is well worth it. To access PACER, you have to
register by calling 1-800-676-6856, Monday through Friday, between
8 a.m. and 5 p.m. You will receive a form that you can mail or
fax in. You can sign up with as many federal courts as you wish,
out of a total number of over two hundred courts.
Increasingly, decisions of the state courts are also becoming available online. You can search through the texts of state cases that are on the Internet, as well as federal cases and state and federal laws, by accessing WashLaw at http://lawlib.wuacc.edu/washlaw/searchlaw.html
A preeminent resource on the Internet for information on alternative
dispute resolution (ADR) is the American Arbitration Association
(AAA), which you can locate at
http://www.adr.org
The AAAs site offers information on ADR in a number of areas,
including labor relations, employment, commerce, the construction
industry, and international disputes. The site provides the text
of AAA rules, samples of several AAA forms, and some useful articles
on ADR.
ConflictNet, which describes itself as a network of people dedicated to promoting the constructive resolution of conflict, provides information on ADR as well as links to other ADR resources on the Internet. To reach this site, go to http://www.igc.apc.org/conflictnet
You can find publications pertaining to ADR by accessing the
Federal Judicial Center at
http://www.fjc.gov
A pilot project involving online dispute resolution is the Virtual Magistrate Project, which is sponsored by several ADR organizations, including the American Arbitration Association, the Villanova Center for Information Law and Policy, and the Cyberspace Law Institute. For information on this project, including its docket and decisions, go to http://vmag.vcilp.org
The Global Arbitration Mediation Association (GAMA) was one of the first organizations to offer online arbitration services. GAMA allows for complaints to be filed and served by e-mail, and its hearings consist of affidavits and testimony submitted electronically. GAMAs Web page details the arbitration process and contains a library of related forms and sample arbitration clauses. You can access the GAMAs Web page at http://www.gama.com
You can read a transcript of the first online mediation conducted
by the Online Ombuds Office, a project of the University of Massachusetts
Department of Legal Studies, at
http://www.ombuds.org/narrative1.html
The dispute being mediated was between a Web-site developer and
a newspaper that claimed the developer was violating its copyright.
.