© niroworld | Dollar Photo Club

So, you’re a sales representative who has been wronged by a manufacturer that has its principal place of business in a neighboring state.
(Most likely not a MANA manufacturer member, in our experience, as that group tends to be respectful of its representatives and representative agreements.) You file a breach of contract action for $100,000 in damages in your home state since that is where all of your sales efforts took place. Shortly after officially serving the manufacturer with a copy of the lawsuit you are informed by your attorney that the case has been “removed” to federal court. Your case is a straightforward breach of contract case and has nothing to do with federal laws, so what happened?

Federal law allows a defendant under certain circumstances to “remove” a case from state court to federal court. In this scenario, the basis for removal would be “diversity jurisdiction.” This means that the plaintiff is from a different state than all of the defendants — called “complete diversity” — and, the plaintiff is seeking to recover more than $75,000.

Complete Diversity

If any of the plaintiffs are from the same state as any of the defendants, then there is not complete diversity and the case cannot be removed to federal court.

For purposes of diversity jurisdiction, a corporation is considered a citizen of both the state in which it is incorporated and the state in which its principal place of business is located. A partnership or Limited Liability Company shares citizenship with all of the states in which its partners/members are domiciled. “Domiciled” is the last state in which an individual resided and had the intent to remain (i.e., leaving Utah for Arizona during the winter months does not mean one is now domiciled in Arizona). If any of the plaintiffs are domiciled in the same state as any of the defendants, then the case cannot be removed to federal court. Removal could also take place if the defendant was based in another country, so long as a minimum of $75,000 was being claimed by the plaintiff.

The Amount in Controversy

Along with complete diversity, there must be a possibility that the plaintiff will recover more than $75,000 for the case to be eligible for removal to federal court. This amount has increased over the years, but has remained at $75,000 since 1996.

The potential for a $75,000 recovery includes punitive damages and attorneys’ fees, as well as any doubling or tripling of damages due to a state’s sales representative protection act. For example, California has a sales representative protection act which provides for triple the actual damages plus attorneys’ fees to the plaintiff under specific circumstances (see California Civil Code sections 1738.10 et seq.). This means a claim for $25,000 in general damages could meet the amount in controversy if a simple breach of contract is alleged along with a violation of the California sales representative protection act ($25,000 tripled, plus attorneys’ fees).

Which Federal Court?

The federal court to which the case will be removed will be that court which encompasses the state court in which the case was initially filed. Once removed to federal court, however, the case could be transferred to another federal court depending on the factual circumstances of the case, despite the intention of the plaintiff to keep the case close to home.

For example, if the plaintiff filed the case in Texas state court against a defendant from Michigan, and the matter was successfully removed to federal court in Texas, the defendant could then attempt to transfer the case to Michigan by convincing the judge that overall convenience and fairness dictated that the matter should be heard in Michigan. The court will consider a long list of factors when deciding whether to transfer a case to a different state. Some of these factors include: the convenience of the parties and witnesses, the location where the subject contract was negotiated and executed, the plaintiff’s choice of forum, the difference in costs of litigation, ease of access to proof, the public policy of the states, and the relative court congestion of the two courts. Depending on the court’s evaluation of these factors, what was once a matter in Texas state court could now be a federal matter in Michigan.

What Law Will Apply?

Usually the substantive law of the state where the case was initially filed is used to decide breach of contract cases. This means if your state has specific laws to protect independent sales representatives, the federal court will apply those laws. Procedurally, however, federal law will be used, which could be very different from the state’s laws of civil procedure where the case was initially filed. Your attorney will need to be familiar with the Federal Rules of Civil Procedure to make sure your case makes it to trial.

Conclusion

It is important to understand the legal doctrine of removal so that if you wind up at the federal courthouse in another state with a different set of procedural rules, you are not scratching your head wondering how you got there.