Co-Authored by Cathy Brennan, Partner, Hudson Cook, LLP

State or Federal Court

Often a plaintiff’s lawyer has a choice about where to file his or her client’s lawsuit. Those choices can involve whether to file the suit in state court in an urban or rural county or whether to file the action in a federal court rather than in a state court.

The decision of where to file can be based on a number of factors. Perhaps a judge in a particular forum has the reputation of favoring plaintiffs against big business, and the plaintiff’s lawyer is hoping to parlay that judge’s proclivities into a judgment for his or her client, a practice sometimes referred to as “forum shopping.” When forum shopping works and the plaintiff’s lawyer gets the hoped-for result, you’ll hear the defense lawyer muttering something about “home cooking.” Hint—he isn’t referring to fried chicken.

In other cases, the plaintiff’s lawyer might conclude that the court’s procedural rules (class action rules in particular) are better for his or her client, or that one court might be bound by favorable earlier decisions that would not bind the other court.

For whatever reason, we often see suits filed in state court and then “removed” by the defendant to federal court, followed by an attempt by the plaintiff to get the case sent back to state court. We also see suits filed in federal court, and because the defendant for whatever reason would prefer to be in state court, we’ll see the defendant arguing that the case doesn’t belong in federal court.

In these fights, the parties often focus on the “amount in controversy.” Because federal courts will not hear certain cases unless the amount in controversy exceeds $50,000, we’ll see the parties joust as to the amount of money at stake in the action. That’s what the fight was about in this recently reported case.

Max Moreno bought a used Hummer from an Arizona dealership in 2007. When the Hummer didn’t hum (sorry, we couldn’t resist), Moreno sued General Motors Company, the Hummer’s manufacturer, and the dealership in federal court, claiming breaches of the implied warranty of merchantability and fitness, as well as the express warranty on the Hummer.

We don’t know why Moreno, or his lawyer, favored federal court. Perhaps Moreno’s lawyer had clerked for one of the judges or simply had more experience in the federal system. In any event, that’s where he wanted to file his client’s case.

GM, evidently not happy with the choice of federal court, moved to dismiss, claiming that the Magnuson-Moss Warranty Act allows lawsuits in federal court only where the amount in controversy exceeds $50,000. Arizona’s lemon law requires the manufacturer to either replace a motor vehicle where it cannot repair it or accept the return of the vehicle and refund the full purchase price to the consumer, including all collateral charges less a reasonable allowance for the consumer’s use of the vehicle.

Here, Moreno sought damages of some $68,000, the total sale price, which included fees, finance charges and taxes. GM claimed that the court should not permit Moreno to factor the fees, finance charges and taxes into the price of the vehicle. The U.S. District Court for the District of Arizona rejected this notion. The court noted that these fees were not “incidental liabilities;” rather, these charges constituted an integral part of the damages Moreno asserted for jurisdictional purposes.

However, the court adopted a formula used in the U.S. Court of Appeals for the Seventh Circuit to determine whether the federal court would hear the case. In that formula, the court calculated the amount in controversy by weighing the price of a replacement vehicle minus both the present value of the allegedly defective car and the value the consumer received from using the defective car. Under this formula, Moreno’s damages potentially amounted to $41,000, less than the $50,000 jurisdictional limitation. The court thus granted GM’s motion to dismiss.

Moreno will now have to press his claim in the state court system, the venue preferred by GM. Will the court in which the case is tried have any bearing on the outcome of the case? Stay tuned.

Vol. 7, Issue 4