WRITING PROGRAM CIVIL PROCEDURE 33. QUESTION 5 The owner of a rare antique tapestry worth more than $1 million is a citizen of State A. The owner contacted a restorer, a citizen of State B, to restore the tapestry for $100,000. The owner and the restorer met in State A and negotiated a contract, but the final documents, prepared by the parties respective attorneys, were drafted and signed in State B. The contract has a forum selection clause that specifies that any litigation arising out of or relating to the contract must be commenced in State B. The restorer repaired the tapestry in State B and then informed the owner that the restoration was complete. The owner picked up the tapestry and paid the restorer $100,000. Subsequently, the owner discovered that the restorer had done hardly any work on the tapestry. Despite the forum selection clause in the contract, the owner filed suit against the restorer in a state court in State A, claiming breach of contract. The owner s suit sought rescission of the contract and a return of the full contract price $100,000. The laws of State A and State B are different on two relevant points. First, State A courts do not enforce forum selection clauses that would oust the jurisdiction of State A courts, regarding such clauses as against public policy; State B courts always enforce forum selection clauses. Second, State A would allow contract rescission on these facts; State B would not allow rescission but would allow recovery of damages. Under the conflict of laws rules of both State A and State B, a state court would apply its own law to resolve both the forum selection clause issue and the rescission issue. After the owner filed suit in State A court, the restorer removed the case to the United States District Court for the District of State A and then moved for a change of venue to the United States District Court for the District of State B, citing the contractual forum selection clause in support of the motion. (There is only one United States District Court in each state.) The owner moved for remand on the ground that the federal court did not have removal jurisdiction over the action. Alternatively, the owner argued against the motion to transfer on the basis that the forum selection clause was invalid under State A law. 1. Does the federal court in State A have removal jurisdiction over the case? Explain. 2. Should the change of venue motion, seeking transfer of the case to the federal court in State B, be granted? Explain. 3. Would a change of venue affect the law to be applied in resolving the rescission issue? Explain. February 2012
34. WRITING PROGRAM CIVIL PROCEDURE SAMPLE OUTLINE FOR ANSWER TO QUESTION 5 1. Removal Jurisdiction Case removable if original jdx in fed ct (primarily) DoC or FQ jdx; restriction on DoC removal if D citizen of forum Here, claim based on state K law; no FQ Case is between citizen of A and citizen of B, and K was for $100,000 D is citizen of State B, case filed in A DoC jdx exists Ct has removal jurisdiction 2. Change of Venue Ct must determine whether V (venue) is proper and whether any basis for transfer of venue exists. V is procedural and governed by fed V statutes. V was proper; removed case is to fed ct embracing state ct. Forum selection clause does not change this result. Fed law is to enforce forum selection clauses Under V statutes, when V is proper, fed ct may transfer to another V where action might have been brought (based on convenience) or to which ptys consented When the parties have agreed to a valid forum selection clause, a district court should ordinarily transfer the case to the forum specified in that clause. Only under extraordinary circumstances unrelated to the convenience of the parties should a section 1404(a) motion be denied. Rare to transfer only on public interest factors Here, the ptys consented to jdx in State B b/c of forum selection clause in the contract. The choice will be enforced unless public interest factors dictate otherwise. The inconvenience of State B to O, and his choice of State A as a forum, will not be considered because those are private interest factors There are no public interest factors in play under the facts. Although State A (the res of O and place of neg) is as convenient as State B (the res of R and place of perform), the forum selection clause points to a transfer The presence of the forum selection clause points to a transfer of venue to a B, in the interests of justice. 3. Law Applied on Change of Venue Under Erie, fed ct must apply substantive state law in DoC case Fed ct in B will be required to apply state rules Ordinarily, transferee ct must apply law of transferor ct when transfer based solely on convenience, including choice of law rules However, when transfer based on forum selection clause, law of transferee court is applied Transfer here based on forum selection clause Fed ct in B (transferee) will apply B law; law on rescission will change Change of venue affects the law to be applied
WRITING PROGRAM CIVIL PROCEDURE 35. ANSWER TO QUESTION 5 1. Removal jurisdiction: The federal court in State A has removal jurisdiction over the case. Given that a case may be removed only if it could have been originally filed in federal court, the main issue here is whether diversity or federal question subject matter jurisdiction exists. Generally, a defendant in a state court case may remove that case to federal court if it could have been filed originally in federal court (i.e., a federal court would have had subject matter jurisdiction over the case). Removal is accomplished by filing a petition for removal within 30 days of formal receipt of the complaint. However, a case is not removable on the basis of diversity if any defendant is a citizen of the forum state. The main two bases for federal subject matter jurisdiction are federal question jurisdiction and diversity of citizenship jurisdiction. Federal question jurisdiction is available when the plaintiff s well-pleaded complaint sets forth a claim that arises under federal law. Diversity of citizenship jurisdiction requires that complete diversity of citizenship exists. Complete diversity exists if no plaintiff shares state citizenship with any defendant, and the amount in controversy exceeds $75,000, excluding interest and costs, as alleged in good faith in the plaintiff s complaint. In the instant case, the plaintiff ( Owner ) is suing the defendant ( Restorer ) in State A for rescission of a contract and the return of the full contract price ($100,000) for failure to perform under a contract for restoration of a rare tapestry. Given that the cause of action is based on state contract law, no federal question has been presented. The facts also state that Owner is a citizen of State A and that Restorer is a citizen of State B. Thus, complete diversity exists. Furthermore, Owner is seeking the return of the full contract price of $100,000, so the amount in controversy requirement is met. Restorer is not a citizen of the forum state (State A); as a result, he is not prevented from removing the case. Thus, the case could have been originally filed in federal court, and no bar to removal exists (assuming that the petition for removal was timely). 2. Transfer of venue: The motion to transfer venue to the federal court in State B should be granted. To transfer venue, the court must determine whether venue has been properly laid, and, if so, whether any basis for transfer of venue exists. As an initial matter, under the Erie doctrine, a federal court sitting in diversity must apply substantive state law, but it will apply federal procedural law. Generally speaking, if there is a federal directive on point, such a federal rule of procedure or statute, and it is valid, it will be applied. In the instant case, venue is strictly a procedural matter that is exclusively determined by federal venue laws. Federal law determines the enforceability of forum selection clauses, and federal law will generally allow for enforcement of forum selection clauses. Venue here was proper. Under 28 U.S.C. section 1441(a), when a case is removed from state court to federal court, venue is set in the federal district court that embraces the state court in which the action was pending. Thus, the federal district court was a place of proper venue. The
36. WRITING PROGRAM CIVIL PROCEDURE presence of a forum selection clause does not make venue in State A improper under the venue statutes. Ordinarily, under the venue statutes, when venue in the original action is proper, the federal court, in the interests of justice, may (but does not have to) transfer the case for the convenience of the parties and witnesses to another venue in which the action might have been brought (considering the rules for venue, personal jurisdiction, and subject matter jurisdiction) or to which the parties have consented. However, the formula is slightly changed when transfer is based on a forum selection clause. When the parties have agreed to a valid forum selection clause, a district court should ordinarily transfer the case to the forum specified in that clause. Only under extraordinary circumstances unrelated to the convenience of the parties should a section 1404(a) motion be denied. Here, the parties arguably consented to jurisdiction in State B by agreeing to the forum selection clause in the contract. The choice will be enforced unless public interest factors dictate otherwise. In the instant case, the inconvenience of the litigation in State B to owner, and his choice of State A as a forum, will not be considered because those are a private interest factors that play no role in a transfer based on a forum selection clause. There are no public interest factors apparent under the facts. On the whole, although State A (the residence of owner and place of negotiation) seems as convenient a forum as State B (the residence of restorer and place of performance), the presence of the forum selection clause points to a transfer of venue to a federal court in State B, in the interests of justice. 3. Law applicable after transfer: The transfer of venue does affect the law to be applied in resolving the rescission issue. At issue is the effect that transferring venue has on the law to be applied in a case. Under Erie, a federal court sitting in diversity is required to apply the substantive rules of the forum state. Ordinarily, under the venue statutes, a transfer solely on convenience grounds carries to the transferee court the originally applicable law (i.e., the law of the transferor court), including any choice of law rules. However, an exception exists when transfer is based on a forum selection clause. In such cases, the law of the transferee court (i.e., the court selected in the forum selection clause) is applied rather than the law of the transferor court. Here, because the case was transferred based on the forum selection clause, the federal court in State B will apply State B law. As a result, the State B rules on rescission will apply in the federal court, and thus the transfer of venue would affect the choice of law.
1. Removal Jurisdiction WRITING PROGRAM CIVIL PROCEDURE 37. SELF-SCORING CHECKLIST FOR QUESTION 5 The main issue is whether diversity or federal question jurisdiction exists A defendant in a state court case may remove that case to federal court if it could have been filed originally in federal court The petition for removal must be filed within 30 days of formal receipt of the complaint Federal Question Jurisdiction Federal question jurisdiction is available when the plaintiff s well-pleaded complaint sets forth a claim that arises under federal law No federal question has been presented because the claim is one based on state law Diversity Jurisdiction A case is not removable on the basis of diversity if any defendant is a citizen of the forum state Diversity of citizenship jurisdiction requires complete diversity of citizenship, and the amount in controversy must exceed $75,000, excluding interest and costs Complete diversity will exist if no plaintiff shares state citizenship with any defendant The amount in controversy must be alleged in good faith in the plaintiff s complaint Owner is a citizen of State A and Restorer is a citizen of State B Complete diversity exists Owner is seeking the return of the full contract price of $100,000 The amount in controversy has been met The federal court has removal jurisdiction over the case
38. WRITING PROGRAM CIVIL PROCEDURE Restorer is not prevented from removing the case because he is not a citizen of the forum state 2. Transfer of Venue The motion to transfer venue to the federal court in State B should be granted To transfer venue, the court must determine whether venue has been properly laid, and, if so, whether any basis for transfer of venue exists Under the Erie doctrine, a federal court sitting in diversity must apply substantive state law, but it will apply federal procedural law If there is a federal directive on point, such a federal rule of procedure or statute, and it is valid, it will be applied In the instant case, venue is strictly a procedural matter that is exclusively determined by federal venue laws Federal law determines the enforceability of forum selection clauses Federal law will generally allow for enforcement of forum selection clauses. Whether Venue Was Proper Venue here was proper Under 28 U.S.C. section 1441(a), when a case is removed from state court to federal court, venue is set in the federal district court that embraces the state court in which the action was pending Thus, the federal district court was a place of proper venue Forum Selection Clause The presence of a forum selection clause does not make venue in State A improper under the venue statutes. Under the venue statutes, when venue in the original action is proper, the federal court, in the interests of justice, may transfer the case for the convenience of the parties and witnesses to another venue in which the action might have been brought (considering the rules for venue, personal jurisdiction, and subject matter jurisdiction) or to which the parties have consented
WRITING PROGRAM CIVIL PROCEDURE 39. When the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause. Only under extraordinary circumstances unrelated to the convenience of the parties should a 1404(a) motion be denied. Public interest factors will rarely oust the parties choice of forum in a forum selection clause. Here, the parties consented to jurisdiction in State B by agreeing to the forum selection clause in the contract The choice of forum will be enforced unless public interest factors dictate otherwise The inconvenience of the litigation in State B to Owner, and his choice of State A as a forum, will not be considered There are no public interest factors apparent under the facts The presence of the forum selection clause points to a transfer of venue to a federal court in State B, in the interests of justice. 3. Law Applicable After Transfer The transfer of venue affects the law to be applied in resolving the rescission issue. At issue is the effect that transferring venue has on the law to be applied in a case Under Erie, a federal court sitting in diversity is required to apply the substantive rules of the forum state. Ordinarily, under the venue statutes, a transfer solely on convenience grounds carries to the transferee court the originally applicable law (i.e., the law of the transferor court), including any choice of law rules. When transfer is based on a forum selection clause, the law of the transferee court (i.e., the forum selected in the forum selection clause) is applied rather than the law of the transferor court Because the case was transferred based on the forum selection clause, the federal court in State B will apply State B law.
40. WRITING PROGRAM CIVIL PROCEDURE As a result, the State B rules on rescission will apply in the federal court PASSING SCALE 0 14 Significantly below passing 15 18 Below passing 19 24 Slightly below passing 25 31 Passing 32 37 Above passing 38 + Significantly above passing