WARNING!

This answer key does NOT take into account subsequent changes in the law. Some of what is said here may no longer be correct.

This exam is 24 pages total, including two cover sheets. The total number of points for the entire exam is 200.  The exam consists of two Parts.

Part I consists of 16 multiple-choice questions, each of which is worth 5 points. The total number of points for Part I is 80. Use the scantron card for the multiple choice questions.

Part II consists of 5 essay questions. The total number of points for Part II is 120. Write the essays in bluebooks.

You have four hours for this exam. Pace accordingly! Around 1 hour and 36 minutes should be devoted to Part I and around 2 hours and 24 minutes to Part II. Try to answer all the questions.

Commercial outlines, hornbooks, treatises etc. are not permitted in the examination. You may bring into the examination only the following materials:
1)  All materials assigned in this course:
- FIELD, KAPLAN & CLERMONT, CIVIL PROCEDURE (8th ed.)
- GLANNON, CIVIL PROCEDURE: EXAMPLES AND EXPLANATIONS (4th ed.)
- FEDERAL RULES OF CIVIL PROCEDURE (West) (or any other version of the Federal Rules and statutory materials used in the course, provided it contains only material available from the West book)
- Material off the website for the course.
2) Any outline made by you or by a study group within which you participated
3)  Your class notes.

Part I.
16 Multiple Choice Questions. (5 points – 6 minutes – each)

1. P (a citizen of New Jersey) is suing Officer D (a citizen of New Jersey) in the Federal District Court for the Southern District of New York under 42 U.S.C. § 1983 for violations of his constitutional rights. P alleges that D violated his Fourth Amendment rights in connection with a search of his car while he was in New York City. D answers, denying that the search was a violation of P’s Fourth Amendment rights. In his answer, D joins a setoff against P, alleging that P has failed to pay D under a contract the two entered into a year earlier. In the contract, P bought D’s Oldsmobile Cutlass. D is asking for a setoff of $5000.

A setoff is a counterclaim brought by a defendant against a plaintiff, alleging that if the defendant is liable to the plaintiff, this liability is to be reduced by the amount that the plaintiff is liable to the defendant. A setoff asks only that the defendant’s liability be reduced by the amount of the setoff, not that the defendant receive affirmative relief from the plaintiff if the defendant is not found to be liable to the plaintiff.

What is the most plausible argument that there is subject matter jurisdiction for D’s setoff?

a. D’s setoff has supplemental jurisdiction because compulsory counterclaims have supplemental jurisdiction and D’s setoff is a compulsory counterclaim. A defendant is obligated to join against a plaintiff all debts that the plaintiff owes the defendant at the time of the suit.

Wrong. It is true that if D’s setoff were a compulsory counterclaim it would have supplemental jurisdiction. But under the compulsory counterclaim rule (FRCP 13(a)) a defendant is obligated to bring against the plaintiff only all causes of action that he has concerning the same transaction or occurrence that is the subject matter of the plaintiff’s suit against the defendant. The defendant is not obligated to demand debts unrelated to that transaction or occurrence. D’s setoff is unrelated and so is not a compulsory counterclaim. Only one of you chose this as an answer.

b. D’s setoff has supplemental jurisdiction because it is not an action brought by a plaintiff. Section 1367(b) of the supplemental jurisdiction statute excludes from supplemental jurisdiction “claims by plaintiffs against persons made parties under Rule 14, 19, 20, or 24 of the Federal Rules of Civil Procedure, or … claims by persons proposed to be joined as plaintiffs under Rule 19 of such rules, or seeking to intervene as plaintiffs under Rule 24 of such rules.”

Wrong. 1367(b) is irrelevant to whether D’s setoff has supplemental jurisdiction. 1367(b) would apply only if the district court had “original jurisdiction founded solely on section 1332 of this title” (that is, only if P’s suit against D were a diversity case). P’s suit against D is a federal question action, not a diversity action. The reason to think that D’s setoff doesn’t have supplemental jurisdiction is 1367(a), which allows such jurisdiction only for “other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution.” Given that D’s setoff is a permissive counterclaim that concerns an unrelated event, it is hard to see how it is part of the same constitutional case or controversy as P’s action against D. This answer does nothing to address that problem. 13 people chose this.

c. D’s setoff has supplemental jurisdiction, because, although it is a permissive counterclaim, it is part of the same constitutional case or controversy as P’s action against D. A condition for D’s setoff against P is the success of P’s claim against D.

Correct. As noted in above, the problem with supplemental jurisdiction for D’s setoff is that it is that it concerns a completely different event as P’s action against D, which makes it hard to see how it is part of the same constitutional case or controversy as P’s action against D. This answer explains why it can be considered part of the same constitutional case or controversy – a condition for D’s setoff is the success of P’s action against D. D’s setoff is part of the same constitutional case or controversy as P’s action against D in the same sense in which D’s impleader of his insurance company would be part of the same constitutional case or controversy: Although D’s action against his insurer would concern a different event (namely their signing a contract of insurance), the success of D’s action against his insurer would be predicated upon the success of P’s action against D. Some of you may have read in commercial outlines that permissive counterclaims do not have supplemental jurisdiction. That is not always true. D’s setoff is an example of a permissive counterclaim that has supplemental jurisdiction. 57 of you chose this. Those who chose this were much more likely to do well on the rest of the exam than those who chose any other answer.

d. D’s setoff has supplemental jurisdiction because P’s action against D is a federal question action. Section 1367(b) of the supplemental jurisdiction statute excludes from supplemental jurisdiction certain actions joined to a diversity action.

Wrong. It is true that 1367(b) is not a reason that D’s setoff does not have supplemental jurisdiction, but 1367(a) is. As noted in above, the problem with supplemental jurisdiction for D’s setoff is that it concerns a completely different event as P’s action against D, which makes it hard to see how it is part of the same constitutional case or controversy. This answer gives us no reason to believe that the two actions are part of the same constitutional case or controversy, so it is not the most accurate answer. 49 of you chose this.

e. Although the language of the supplemental jurisdiction statute would not provide D’s setoff with supplemental jurisdiction, it would have supplemental jurisdiction if a court took congressional intent into account when interpreting the statute.

Wrong. Whether one looks to congressional intent or the plain language of the statute is solely an issue with respect to interpreting 1367(b), which, as we have seen, is irrelevant to this question. As noted above, the problem with supplemental jurisdiction for D’s setoff is that it is that it concerns a completely different event as P’s action against D, which makes it hard to see how it is part of the same constitutional case or controversy. This worry concerns 1367(a). We never spoke about 1367(a) being improperly drafted – in the sense that it did not capture congressional intent – and in fact there is no evidence that it was improperly drafted. Congress wanted supplemental jurisdiction only for causes of action that concerned the same constitutional case or controversy as the action having original jurisdiction, and that is exactly what 1367(a) says. Indeed, congressional intent is doubly irrelevant. Even if Congress wanted to expand supplemental jurisdiction beyond the language of 1367(a), it could not so – the requirement that the cause of action with supplemental jurisdiction concern that same constitutional case or controversy as the action with original jurisdiction is required by the Constitution. 44 of you chose this.

2. The P Corp. (incorporated in Delaware with its principal place of business in New York) sues the D Corp. (incorporated in Pennsylvania with its principal place of business in Pennsylvania) in the Federal District Court for the Southern District of New York. The P’s Corp.’s suit is for the $100,000 in damages that it suffered when the D Corp. breached a contract to deliver coal to the P Corp.’s factory in New York. An employee of the P Corp. serves the D Corp. through in hand service on the Chief Legal Officer of the D Corp. while the officer is on vacation in California. The D Corp. makes a motion to dismiss for insufficiency of service of process. Which of the following is most accurate?

a. The D Corp.’s motion will succeed. It may be served only in New York.

Wrong. This is just plain false. Just because a suit is being brought in a federal court in New York does not mean that the defendant can be served only in New York. Nothing in the federal rules or in what was said in class or in the reading suggested otherwise.

Confusion between service and personal jurisdiction might incline one to choose this answer, since there is personal jurisdiction in New York. But, first of all, the motion to dismiss is for insufficiency of service of process, not for lack of personal jurisdiction. Furthermore, even if you did confuse service and personal jurisdiction, you still should see that this answer is wrong since there would be personal jurisdiction not only in New York (where the contract was breached) but also in other states such as Pennsylvania (where the D Corp. is centered). 3 of you chose this.

b. The D Corp.’s motion will succeed. It may be served only in New York or Pennsylvania.

Wrong. Once again, this is just plain false. As we have seen, simply because New York is the state where the federal court is located does not mean it is the only state where the D Corp. can be served. Furthermore, just because Pennsylvania is the D Corp.’s principal place of business and place of incorporation does not mean that it is the only other state where the D Corp. can be served. Once again, nothing in the federal rules or in what was said in class or in the reading suggested otherwise. The truth is defendants, including corporate defendants, can be served in any district.

Confusion between service and personal jurisdiction might incline one to choose this answer, since there is personal jurisdiction in New York and Pennsylvania. But, first of all, the motion to dismiss is for insufficiency of service of process, not for lack or personal jurisdiction. Furthermore, even if you did confuse service and personal jurisdiction, you still should have seen that this answer is wrong since there is no reason not to think that there would be personal jurisdiction not only in New York and Pennsylvania but in other states. For example, if the contract were signed in Delaware, there would be specific PJ there and if the D Corp. had a large factory in Michigan, there would probably be general PJ there. 6 of you chose this.

c. The D Corp.’s motion will succeed if the service was contrary to New York law.

Wrong. There are three primary ways that service on a corporation can be correct, according to FRCP 4(h). The first is if it is “pursuant to the law of the state in which the district court is located” (i.e. New York law). But there are two other possibilities: if it is “pursuant to the law of the state … in which service is effected” (i.e. California law) or by “delivering a copy of the summons and of the complaint to an officer, a managing or general agent.” So this answer is wrong. 41 of you chose this.

d. The D Corp.’s motion will succeed if the service was contrary to New York and California law.

Wrong. Once again, there are three primary ways that service on a corporation can be correct, according to FRCP 4(h). The first and second are “pursuant to the law of the state in which the district court is located [New York law], or in which service is effected [California law].” But the third is by “delivering a copy of the summons and of the complaint to an officer, a managing or general agent.” Even if service was contrary to New York and California law, this third method could have been satisfied. Indeed, it appears that it was satisfied, since the Chief Legal Officer of the D Corp. was served in hand. The only reason to think that the third standard was not satisfied is that 4(c)(2) requires that service be “effected by any person who is not a party” and given that an employee of the P Corp. served, one might argue that the P Corp. itself (which is a party) served. This problem is answered below. 69 people chose this.

e. The D Corp.’s motion will not succeed, because service by an employee of a corporation is not service by the corporation.

Correct. This is the best answer because it responds to the only reason to believe that service was ineffective. As we have seen, it looks like service was correct (whether or not it was contrary to California and New York law) because the Chief Legal Officer of the D Corp. was served in hand, which counts as “delivering a copy of the summons and of the complaint to an officer, a managing or general agent.” The only reason to think that service was improper is that 4(c)(2) requires that service be “effected by any person who is not a party” and given that an employee of the P Corp. served, one might argue that the P Corp. itself (which is a party) served. That worry is answered here. Although the law on this matter is sketchy, federal courts, in interpreting 4(c)(2), have held that employees of a party are not the party for the purposes of 4(c)(2). See e.g. De Vos & Co. v. Profilati Italia, 1997 WL 109474 (S.D.N.Y); United States v. Gregor, 1989 WL 6388 (N.D.Ill.). I did not expect you to know this, but you should have known that this answer was the best one, since it alone answered the reason to believe service was ineffective. Only 45 of you chose this. However those who whose this were much more likely to do well on the rest of the exam than those who chose any other answer.

3. P (a citizen of New York) is suing D (a citizen of New Jersey) in the Federal District Court for the District of Connecticut under state battery law concerning a brawl that occurred between the two in Alaska. P requests that the court assert personal jurisdiction over D by attaching the proceeds of D’s account with the Connecticut Savings Bank, which is located in Stamford, Connecticut. D makes a motion to dismiss the action for lack of personal jurisdiction. Which of the following is most accurate?

a. By making his motion, D is making a limited, not a special, appearance before the Federal District Court.

Wrong. A limited appearance is one in which a defendant appears in a quasi-in-rem action and litigates the merits, but, if he loses, is bound only up to the value of the property attached. That is not what is going on here. D is appearing, not to litigate the merits, but to argue that there is no personal jurisdiction over him – not even the personal jurisdiction that exists in a limited appearance. D is making a special, not a limited, appearance. 44 people chose this.

b. D’s motion should succeed. To the extent that quasi-in-rem jurisdiction is available at all anymore after Shaffer v. Heitner, it is available only in state, not federal, courts.

Wrong. Nothing that was said in class or in the reading suggested that quasi-in-rem actions are available only in state court. Shaffer v. Heitner may put such actions in doubt, but to the extent that they are available, they are available in federal as well as state courts. Indeed FRCP 4(k)(1)(A) suggests this, since it says that a federal court has personal jurisdiction if a state court in the state where the federal court is located has personal jurisdiction. If a state court allows quasi-in-rem actions, a federal court located in that state should too. And, in fact, FRCP 4(n) (which you did not read and were not required to know) explicitly allows federal courts to gain personal jurisdiction through the attachment of the defendant’s assets “under the circumstances and in the manner provided by the law of the state in which the district court is located.” The point is not that you should have know about 4(n), but that you should have know that nothing you read or heard suggested that quasi-in-rem actions could be brought only in state court. 40 of you chose this.

c. If Connecticut state courts do not allow limited appearances, if would follow from Fed. R. Civ. P. 4(k)(1)(A) that the federal court should reject D’s motion as well.

Wrong. Assume that Connecticut state courts do not allow limited appearances. What that means is that if a defendant appears in a quasi in rem case in a Connecticut state court and defends on the merits, the defendant’s liability will not be limited to the value of the property attached. Let us also assume (which is an interesting issue) that because of 4(k)(1)(A) a federal court in Connecticut cannot allow limited appearances as well. It does not follow from this fact that D’s motion should fail. D is appearing specially to argue that there is no personal jurisdiction over him at all. The federal court can still agree with D about this.

As an analogy consider Shaffer v. Heitner. In that case Delaware state courts did not allow limited appearances. But the defendants were still able to get the action dismissed for lack of personal jurisdiction. Analogously, D’s motion in federal court in Connecticut could succeed if he could show that the property attached simply is unable to give rise to personal jurisdiction over him concerning the cause of action, whether the scope of personal jurisdiction is or is not limited to the value of the property attached. 37 people chose this.

d. D’s motion will not succeed. D should have defaulted and waited for P to bring a suit on the judgment. D can challenge personal jurisdiction only through a collateral attack.

Wrong. This is just plain false. Challenges concerning a court’s personal jurisdiction over a defendant do not have to occur in a collateral attack. They can be made (in a special appearance) before the very court exercising personal jurisdiction. In federal court, such challenges are made in a motion to dismiss for lack of personal jurisdiction, which is precisely what D is taking advantage of here. 14 people chose this.

e. D will not have waived his right to bring his motion to dismiss the action for lack of personal jurisdiction if he previously brought a motion to disqualify P’s attorney because of a conflict of interest. Although under Fed. R. Civ. P. 12(g) “[i]f a party makes a motion under this rule” and omits the defense of personal jurisdiction the defense is waived, a motion to disqualify an attorney is not a motion under “this rule” (i.e. Fed. R. Civ. P. 12).

Correct. This brought up an issue that we did not discuss in class. Nevertheless, what is said here is plausible and the other answers are not. Therefore it is the most accurate.

As the argument spelled out in answer e shows, it is not exactly true that one has waived a defense of personal jurisdiction if it is not in one’s “first response.” There is no waiver if one’s first response is a motion not under FRCP 12, such as a motion to disqualify an attorney (or a motion for more time to answer). Waiver would, however, occur if one’s first response were a Rule 12 motion (such as a motion to dismiss for lack of subject matter jurisdiction, inadequate service, or failure to state a claim). Only 30 of you chose this. However those who whose this were much more likely to do well on the rest of the exam than those who chose any other answer.

4. P (a citizen of New York) is suing D (a citizen of California) in the Federal District Court for Southern District of New York concerning a brawl that occurred between P, D, and X in Greenwich, Connecticut, fewer than 100 miles away from the Federal District Court for Southern District of New York. D joins a contribution action against X (a citizen of California). Which of the following is most accurate?

a. If D subsequently tried to bring an action against X for the damages in the brawl that X caused D, D would be claim precluded from doing so.

Correct. If D is bringing a contribution action, that means he is claiming that if P’s suit against D succeeds, D and X must be understood as joint tortfeasors, entitling D to payment from X for the portion of harm suffered by P for which X was responsible. Clearly any claim that D might have against X for damages that X caused D in the brawl would concern the same transaction as D's contribution claim against X. Therefore, under the transaction standard for claim preclusion, D would be claim precluded from suing X subsequently for such damages. We also know that whether federal or New York state claim preclusion law applies in this diversity case, the transactional standard will be used, since both the feds and New York (see O’Brien v. City of Syracuse) embrace the transactional standard. 99 of you chose this. Those who chose this were much more likely to do well on the rest of the exam than those who chose any other answer.

b. The federal court has personal jurisdiction over D. By virtue of getting in a brawl in Greenwich, Connecticut, D has International Shoe contacts with the 100-mile bulge.

Wrong. FRCP 4(k)(1)(B) allows personal jurisdiction over “a party joined under Rule 14 or Rule 19” if that party is “served at a place within a judicial district of the United States and not more than 100 miles from the place from which the summons issues.” Furthermore, federal courts have generally also required International Shoe contacts with the bulge. Here we may have joinder under Rule 14 and International Shoe contacts but there is nothing said about X being served within 100 miles of the S.D.N.Y. 35 of you chose this.

c. X is improperly joined. D may join a contribution action against X only after D has been found liable to P.

Wrong. This is not true and nothing said in class or in the reading suggested it was true. Indeed, FRCP 14(a) explicitly says that an impleader may be joined “[a]t any time after commencement of the action.” 5 of you chose this.

d. If X made a motion to dismiss D’s contribution action for lack of subject matter jurisdiction, the motion should be granted.

Wrong. True D’s contribution action against X is an action by a Californian against a Californian. For this reason it is not a diversity case. But it has supplemental jurisdiction. This contribution action is part of the same constitutional case or controversy as P’s action against D, because they share a core of operative fact. Furthermore, although 1367(b) is implicated since P’s action against D is solely a diversity case, none of the exceptions to supplemental jurisdiction spelled out in 1367(b) apply. The exception is solely for “claims by plaintiffs against persons made parties under Rule 14, 19, 20, or 24 of the Federal Rules of Civil Procedure, or over claims by persons proposed to be joined as plaintiffs under Rule 19 of such rules, or seeking to intervene as plaintiffs under Rule 24 of such rules, when exercising supplemental jurisdiction over such claims would be inconsistent with the jurisdictional requirements of section 1332.” This is a claim by a defendant. 19 people chose this.

e. Although there is no subject matter jurisdiction for D’s contribution action against X, X may not make a motion to dismiss the action for lack of subject matter jurisdiction, because 12(b)(1) motions may not be brought by third party defendants against third party plaintiffs.

Wrong. This is just plain false. Impleaded parties may bring Rule 12 motions, including motions to dismiss for lack of subject matter jurisdiction. If the impleader lack subject matter jurisdiction, the impleaded party can get it dismissed on those grounds. 6 of you chose this.

5. P (a citizen of New York) sues D (a resident and citizen of California and CEO of the X Corp., a credit card company) in the Federal District Court for the Northern District of Georgia for $85,000. P’s suit is for violations of the Securities Exchange Act. P alleges that at a press conference in Atlanta, Georgia (in the Northern District of Georgia), D knowingly made material misrepresentations concerning the probable default rate of X Corp. card holders and that P, in reasonable reliance on these misrepresentations, bought 1000 shares of X Corp. stock at $100 per share. The value of P’s shares subsequently dropped 85% after a high number of X Corp. card holders defaulted. D answers, alleging that her prediction of the default rate was warranted by the evidence available at the time it was made and that P’s reliance upon D’s representations was not reasonable, since it was a matter of common knowledge that the default rate was going to be higher than what D had predicted. Which of the following is most accurate?

a. D’s answer was improper, because her defenses were inconsistent. If her prediction was warranted by the evidence available at the time it could not be common knowledge that her prediction was false.

Wrong. We cannot know that D’s answer is improper simply because it has inconsistent affirmative defenses. Indeed, FRCP 8(e)(2) allows a party to “state as many separate claims or defenses as the party has regardless of consistency.” That the defenses are inconsistent suggests that FRCP 11 may have been violated, but that is not a foregone conclusion. One can have evidentiary support for inconsistent defenses. 18 of you chose this.

b. The two defenses in D’s answer are affirmative defenses.

Wrong. D is challenging that P’s claim that the two elements of a cause of action for fraud (namely the falsehood of the representation and the reasonableness of the plaintiff’s reliance) are met. These challenges are negative, not affirmative, defenses. Statute of limitations and claim preclusion are examples of affirmative defenses. 34 of you chose this.

c. In his complaint, P must state with particularity facts giving rise to a strong inference of scienter.

Correct. This is a federal securities fraud action. Therefore the Private Securities Litigation Reform Act applies, which puts this pleading requirement upon plaintiffs. See Field & Kaplan 1096-96. 89 of you chose this. Those who chose this were much more likely to do well on the rest of the exam than those who chose any other answer.

d. D is a resident of California, therefore there is no venue for P’s action against D in the Northern District of Georgia.

Wrong. There is venue, because the misrepresentation occurred at a press conference in Atlanta, Georgia (in the Northern District of Georgia). The N.D. Ga. is “a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred.” See 28 USC 1391(b)(2). 4 of you chose this.

e. P’s allegations in his complaint need only be a short and plain statement of the claim showing that he is entitled to relief.

Wrong. This is the standard for 8(a). A higher pleading standard applies under 9(b), because this is a fraud action – and, because this is a federal securities fraud action, an even higher standard applies under the Private Securities Litigation Reform Act. 19 of you chose this.

6. Begin with the facts as stated in Question 5 above. In addition assume the following: D impleads the X Corp. on the ground that under her employment contract the X Corp. must indemnify her for judgments against her concerning violations of federal securities law. The X Corp. is incorporated in New York and has its principal place of business in California. After the X Corp. is impleaded, P joins an action against the X Corp. for violations of state common law fraud that resulted from D’s misrepresentation. Which of the following is most accurate?

a. P’s action against the X Corp. is not properly joined under Fed. R. Civ. P. 14(a).

Wrong. This is a proper 7th sentence of FRCP 14(a) action, which states that a “plaintiff may assert any claim against the third-party defendant arising out of the transaction or occurrence that is the subject matter of the plaintiff's claim against the third-party plaintiff.” P’s action against the X Corp. concerns the same transaction or occurrence (the misrepresentation) as Ps action against D. 7 of you chose this.

b. Neither P’s action against the X Corp. nor D’s action against the X Corp. has subject matter jurisdiction.

Wrong. See d. 13 of you chose this.

c. There is subject matter jurisdiction for D’s action against the X Corp. but not for P’s action against the X Corp.

Wrong. See d. 55 of you chose this.

d. There is subject matter jurisdiction for both D’s action against the X Corp. and for P’s action against the X Corp.

Correct. This is easy to see if you remembered that the action providing original jurisdiction for the federal court (P v. D) was an action under federal law (the Securities Exchange Act). Given this, it is clear that D’s action against the X Corp. and P’s action against the X Corp. both have supplemental jurisdiction. Since P v. D is a federal question action, supplemental jurisdiction for the other actions can be determined solely through 28 USC 1367(a). 1367(b) is irrelevant. 1367(a) gives district courts “supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution.” P’s action against the X Corp. has a common core of operative fact with P v. D, since they concern the same misrepresentation. So they are part of the same case or controversy. D’s action against the X Corp., although not concerning the misrepresentation, is animated by the success of P’s action against D, so these two actions are also part of the same case or controversy. 88 of you chose this. Those who chose this were much more likely to do well on the rest of the exam than those who chose any other answer.

e. The federal court in Georgia cannot assert personal jurisdiction over D.

Wrong. Clearly there would be PJ over D, since D allegedly engaged in the misrepresentation in Georgia. A Georgia state court would have PJ over D, so under 4(k)(1)(A) the federal court in Georgia will. Only one of you chose this.

7. Begin with the facts as stated in Questions 5 and 6 above. In addition assume the following: The X Corp. successfully makes a motion to dismiss P’s claim against it for failure to state a claim. The rest of the case continues and after trial a jury enters a verdict for (and the federal judge issues a judgment for) P in his suit against D. D does not appeal. D and the X Corp. settle D’s claim against the X Corp. for indemnification. Subsequently R (a citizen of New York) sues the X Corp. for common law fraud in the Federal District Court for the Northern District of Ohio in connection with the same misrepresentation by D as in P’s suit. The X Corp. alleges in its answer that D’s prediction of the default rate was warranted by the evidence available at the time it was made. Which of the following is most accurate?

a. Assuming that the rule in Halpern v. Schwartz applies, R cannot issue preclude the X Corp. from relitigating whether D’s prediction of the default rate was warranted by the evidence available at the time it was made, because this is a case of alternative determinations: neither of the two issues introduced in D’s answer in the previous litigation was essential to the court’s judgment in that case, although each was sufficient for that judgment.

Wrong. This is not a case of alternative determinations. D introduced two defenses: that her prediction of the default rate was warranted by the evidence available at the time it was made and that P’s reliance upon D’s representations was not reasonable. The judgment in the earlier case was for P. Therefore the jury must have found against D concerning BOTH defenses. Each was essential. 40 of you chose this.

b. Ohio state law does not allow non-mutual issue preclusion. Therefore, assuming that the rule in Semtek Intern. Inc. v. Lockheed Martin Corp. applies to issue preclusion, R may not issue preclude the X Corp.

Wrong. The relevant issue preclusion law is that of the earlier court (the court in which the determination of the issue was made) not the later court (the court in which issue preclusion is being asserted). Therefore, even if the rule in Semtek applies to issue preclusion (such that the issue preclusion law of a federal court sitting in diversity is that of the state where the court is located), Ohio law cannot possibly be relevant. 26 of you chose this.

c. Georgia state law does not allow non-mutual issue preclusion. Therefore, assuming that the rule in Semtek Intern. Inc. v. Lockheed Martin Corp. applies to issue preclusion, R may not issue preclude the X Corp.

Wrong. True, if the rule in Semtek applies to issue preclusion (such that the issue preclusion law of a federal court sitting in diversity is that of the state where the court is located), Georgia law on issue preclusion would be relevant if P’s suit against D were a diversity case. But P was suing D for violations of the Securities Exchange Act and thus it was a federal question case. There is no Erie question about whether federal or Georgia issue preclusion law applies. Clearly federal law applies. And federal law allows non-mutual issue preclusion. 50 of you chose this.

d. R was a necessary party in the earlier litigation. Therefore R is claim precluded from suing either D or the X Corp.

Wrong. First of all, R is not a necessary party. Under FRCP 19(a), R would be a necessary party if one of the following were true:

1) In R’s absence complete relief cannot be accorded among those already parties.

This is not true – P can get monetary relief from D or the X Corp. without R being made a party.)

2)  R claims an interest relating to the subject of the action and is so situated that the disposition of the action in R’s absence may as a practical matter impair or impede R’s ability to protect that interest.

Although R has an interest relating to P’s action against D – because it concerns the same misrepresentations for which R will be suing the X Corp. – R does not need to be made a party to protect that interest. R is free to sue in a subsequent action and he will not be issue precluded by any determination in that earlier action, because he is not a party.)

3) R claims an interest relating to the subject of the action and is so situated that the disposition of the action in R’s absence may as a practical matter leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.

This is not true. Assume P’s suit against D turns out differently from R’s suit against the X Corp. – say D is found not to have made a material misrepresentation in P’s suit but is found to have made such misrepresentations in R’s suit. That simply means that D does not pay P and the X Corp. pays R. There is no practical inconsistency of obligation of the sort addressed by FRCP 19(a).

Second, this answer is wrong because even if R had been a necessary party, that would not mean that he was claim precluded. R could have been claim precluded only if he was actually a party in the suit (and he was not made a party) or if he was in privity with someone who was a party. 4 of you chose this.

e. R may issue preclude the X Corp. from relitigating whether D’s prediction of the default rate was warranted by the evidence available at the time it was made.

Correct. This is the most accurate answer. It is true that this is a case of non-mutual issue preclusion (the party asserting issue preclusion – R – was not a party in the earlier litigation). Furthermore it is offensive – the party asserting issue preclusion is a plaintiff. Therefore the requirements for non-mutual offensive issue preclusion spelled out in Parklane Hosiery would have to be satisfied. But there is nothing in the question that indicates that they would not be. There is, for example, no indication that R could have easily intervened in the earlier action. This case is also unusual because the issue was litigated between P and D and yet the X Corp. is the one that is precluded. But the X Corp., as an impleaded party, had the right to assert D’s defenses. This is because a predicate for the X Corp.’s liability to D is D’s liability to P. The X Corp. can therefore be bound by the litigation between P and D. Only 43 of you chose this. However those who whose this were much more likely to do well on the rest of the exam than those who chose any other answer.

8. P is suing his former employer, the D Corp., in the Federal District Court for the Southern District of New York, for disability benefits allegedly due to him under federal law. Before filing P’s suit, P’s lawyer had a cameraman take videos of P attempting to perform various activities on his front lawn. The videos were to be used to assess the level of disability that would be alleged in P’s complaint. P was feeling particularly good that day and showed less disability than either of them had anticipated. As a result, P’s lawyer assessed P’s disability for the complaint, not on the basis of the tape, but of the basis of a subsequent interview of P. In an interrogatory, the D Corp. asks P whether a tape showing him engaging in activities after the alleged onset of his disability exist. When P acknowledges the existence of the tape in his response to the interrogatory, D asks for the tape in a Rule 34 request for the production of documents or tangible things. Which of the following is most accurate?

a. The tape is protected by the work product privilege.

Correct. The tape is a document or tangible things prepared in anticipation of litigation or for trial by or for another party or by or for that other party's representative. See FRCP 26(b)(3). 121 of you chose this. Those who chose this were much more likely to do well on the rest of the exam than those who chose any other answer.

b. Although the tape might have been work product privileged, the privilege was waived because the tape was created in public – on P’s front yard.

Wrong. It is true that the work product privilege can be waived through public disclosure of the privileged material. But the material does not have to be made in confidence or in private for the work product privilege to apply (this is one way that the work product privilege is different from the attorney-client privilege). How would you know this, since I never said anything one way or another about it is class? Think of Rackers v. Siegfried: the insurance claim adjuster’s measurements of the skid marks on the road were work product and yet they were obviously taken in public. 11 of you chose this.

c. P was not obligated to reveal the existence of the tape in response to the interrogatory, because that information was itself work product privileged.

Wrong. In fact the existence of work product is not itself protected by the work product privilege. 7 of you chose this.

d. P may not legitimately claim that the tape is work product privileged because it may be used by P for impeachment purposes.

Wrong. It is true that the work product privilege is a qualified privilege and so can be overcome through a showing of substantial need and the inability without undue hardship to obtain the substantial equivalent by other means. Furthermore, it is true that often the “substantial need” is the usefulness of the work product for impeachment. But that is a case of the material being discoverable despite being work product. It is not a case of the material not being work product at all. 21 of you chose this.

e. The D Corp. should have made its request for the tape through a subpoena duces tecum.

Wrong. A subpoena duces tecum is necessary only when requesting documents or tangible things of a non-party. P is a party. 4 of you chose this.

9. P (a citizen of New York) sues D (a citizen of New York) in the Federal District Court for the Southern District of New York under the Securities Exchange Act for fraud in connection with the purchase of certain derivatives. D brings a pre-answer motion to dismiss for failure to state a claim on the grounds that the derivatives in question are not “securities” within the meaning of the Act. The court grants D’s motion and P’s action is dismissed, without a designation of the dismissal as with or without prejudice. D does not appeal. Which of the following is most accurate?

a. P will be claim precluded from suing D for state-law fraud in connection with the derivatives in another jurisdiction.

Correct. Under the federal procedural common law of claim preclusion a dismissal for failure to state a claim is a dismissal on the merits (unless the court designates it as without prejudice). Furthermore, P’s state-law fraud action would concern the same transaction as P’s Securities Exchange Act action. Therefore, P would be claim precluded. It is true that courts generally designate that dismissals for failure to state a claim are without prejudice, but the court did not in this case. P should have challenged the court’s failure to so designate it – either before that court or on appeal. 75 of you chose this. Those who chose this were much more likely to do well on the rest of the exam than those who chose any other answer.

b. P will not be claim precluded from suing D for state-law fraud in connection with the derivatives in another jurisdiction, because there would have been no federal subject matter for the state-law action in the earlier case.

Wrong. There would have been supplemental jurisdiction for the state-law fraud action. See 28 USC 1367. 19 of you chose this.

c. Assume P refused to pay for the derivatives. D is precluded from suing P for payment in a subsequent suit, because it was a compulsory counterclaim to P’s claim against D.

Wrong. This is what FRCP 13(a) says: “A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim.” D brought, and was granted, a pre-answer motion to dismiss, not a pleading. (D would have had such an obligation had he answered, since an answer is a pleading.)

This result also makes a good deal of sense. Why obligate D to litigate P’s refusal to pay for the derivatives in the S.D.N.Y. when P hasn’t even brought an action against D there that states a claim? We discussed this in class. 22 of you chose this answer.

d. Assume P refused to pay for the derivatives. D is not precluded from suing P for payment in a subsequent suit, although it is a compulsory counterclaim to P’s claim against D, because there would have been no federal subject matter for such a state-law breach of contract action in the earlier case.

Wrong. There would have been supplemental jurisdiction for the state-law breach of contract action. See 28 USC 1367. 17 of you chose this.

e. P will not be claim precluded from suing D for state-law fraud in another jurisdiction, because the dismissal of the Securities Exchange Act action should be understood as a dismissal for lack of subject matter jurisdiction.

Wrong. It is true that at a certain point the plaintiff’s assertion of a federal cause of action might be so implausible and so obviously motivated by the desire to generate federal subject matter jurisdiction that the action should be dismissed for lack of subject matter jurisdiction rather than failure to state a claim. An example would be if I sued you under the Securities Exchange Act for fraud in connection with the sale of a computer and used this federal question as the hook to join related state-law breach of contract and fraud actions under supplemental jurisdiction. In such a case a court would probably want to dismiss the SEA action for lack of subject matter jurisdiction. If the action were dismissed solely for failure to state a claim, there would still be the possibility of continuing the state-law actions in federal court under supplemental jurisdiction (although the factors in 1367(c) would likely recommend dismissal of them as well).

But whether a derivative is a security is arguable and furthermore P is not trying to use his bogus federal action as a supplemental jurisdictional hook for state-law actions. So this is not a good candidate for arguing that P’s action should be dismissed for lack of subject matter jurisdiction. If it had been so dismissed however, P would have not been claim precluded in his subsequent suit, since dismissals for lack of subject matter jurisdiction are not on the merits. 32 of you chose this.

10. On March 1, 2005, P (a citizen of New York) filed a complaint against D (a citizen of Germany) for medical malpractice under Pennsylvania law in the Federal District Court for the Southern District of New York. P’s complaint asks for $500,000 for the loss of a finger allegedly caused by the improper closure of an artery during an operation that D performed on P’s forearm in Philadelphia, Pennsylvania on February 12, 2000. D answered, denying negligence and arguing that P’s action is outside the statute of limitations. Under New York law, the statute of limitations for medical malpractice is 2 years from the time that the harm appears. The harm to P’s finger, D alleges in his answer, appeared no later than January of 2003, more than two years after P’s suit. A few days after serving P with the answer, D makes a motion for summary judgment, offering in support of his motion an affidavit signed by him stating that he examined P in January of 2003 and informed P of the restricted blood flow to P’s finger. Which of the following is most accurate?

a. D’s affidavit cannot be used by him in support of his motion for summary judgment.

Wrong. A party may submit his own affidavit in support of or in opposition to summary judgment, provided that it is on personal knowledge and sets forth such facts as would be admissible in evidence. Both of those are true with respect to D’s affidavit. 8 of you chose this.

b. Assume that Pennsylvania’s statute of limitations is three years from the time that the harm appears. If so, D’s motion must fail. The relevant statute of limitations is Pennsylvania’s.

Wrong. Even though the New York federal court is using Pennsylvania law (and it is doing so because New York choice-of-law rules recommend Pennsylvania law), it would use New York’s statute of limitations, because that is what a New York state court would do. I said this many times in class but apparently many of you forgot it anyway. 57 of you chose this.

c. P’s action should be dismissed for lack of subject matter jurisdiction.

Wrong. A New Yorker may sue a German in federal court in diversity under 1332(a)(2), provided the jurisdictional minimum is met, which it is here. 9 of you chose this.

d. D has not satisfied his burden of production as a movant for summary judgment, because D has not “affirmatively show[n] the absence of evidence [supporting P’s allegations] in the record.” Celotex Corp. v. Catrett (Brennan, J. dissenting).

Wrong. The quoted language from Brennan’s dissent concerns one of the two ways that a movant for summary judgment can satisfy his burden of production when the non-movant has the burden of production and persuasion at trial. But aside from the fact that this is only one of the ways that the movant’s burden of production may be satisfied in such a case, this is a case where the burden of production and persuasion at trial is on the movant for summary judgment. D’s argument is that he should get summary judgment because an affirmative defense – statute of limitations – applies. The defendant has the burden of production and persuasion concerning this affirmative defense.

According to Brennan, “[i]f the moving party will bear the burden of persuasion at trial, that party [to satisfy his burden of production for summary judgment] must support its motion with credible evidence - using any of the materials specified in Rule 56(c) - that would entitle it to a directed verdict if not controverted at trial.” And in fact D has met his burden of production. D has offered his own affidavit stating that he examined P in January of 2003 and informed P of the restricted blood flow to P’s finger. If P offers nothing in response, that would entitle D to a directed verdict that the action is barred by the statute of limitations. 37 of you chose this.

e. Assume that the only evidence that P offers in opposition to D’s motion is an affidavit from another doctor who examined P in June 2003 and informed him of the restricted blood flow to his finger. If so, D’s motion for summary judgment should be granted.

Correct. Remember summary judgment for D is appropriate if, on the basis of the evidence provided in support and opposition to the motion, no reasonable jury could find that the harm appeared after March 1, 2003. What we have is two affidavits. One, from D states that he examined P in January of 2003 and informed P of the harm. P does not offer anything to show that D was wrong in his examination or is lying. All P does is offer an affidavit from another doctor who examined P in June 2003 and informed him of the harm. This second affidavit does nothing to show that the harm did not start until after March 1, 2003. All it shows is that the harm existed in June 2003. No reasonable jury could find for P simply on the basis of this. 53 of you chose this. Those who chose this were much more likely to do well on the rest of the exam than those who chose any other answer.

11. Which of the following is most accurate?

a. If a corporation resides in a district for the purposes of the federal venue statute (28 U.S.C. § 1391), it will be subject to general personal jurisdiction in the state that encompasses the district.

Wrong. Under 28 USC 1391(c), “a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced.” It is not required that the corporation be subject to general personal jurisdiction. Specific personal jurisdiction could be enough.

Assume that the D Corp, as in McGee, sends a contract of insurance to P in the Southern District of New York and P sues the D Corp in that district for breach of that contract. Assume further that the D Corp has no other contacts with the state of New York. There is clearly no general personal jurisdiction over the D Corp in New York. The D Corp does not have the sort of substantial contacts with that state that would allow it to be sued on any cause of action under Int’l Shoe. But it does reside within the SDNY for the suit of P v D Corp, since it would be subject to specific personal jurisdiction for that action in the SDNY if the SDNY were a state. 29 of you chose this.

b. If a corporation is a citizen of a state for diversity purposes, it will be subject to general personal jurisdiction within that state.

Correct. A corporation is a citizen of a state for diversity purposes if one of two things is true: it is incorporated within that state or that state is its principal place of business. Corporations can always be sued in their state of incorporation and furthermore if a corporation has its principal place of business in a state, it is hard to see how it would not have the sort of substantial contacts with that state to allow it to be sued on any cause of action under Int’l Shoe. 70 of you chose this. Those who chose this were much more likely to do well on the rest of the exam than those who chose any other answer.

c. If a corporation is a citizen of a state for diversity purposes, it will reside within each district of that state for the purposes of the federal venue statute (28 U.S.C. § 1391).

Wrong. A corporation is a citizen of a state for diversity purposes if one of two things is true: it is incorporated within that state or that state is its principal place of business. Assume that a corporation is a citizen of a multi-district state (like New York) by virtue of having its principal place of business in New York. That does not mean that it resides within every district in New York. For example, all of its contacts with the state of New York could in Manhattan (in the SDNY), which would mean that it did not reside in the EDNY, NDNY or WDNY (because it would not have contacts that would submit it to personal jurisdiction in those districts if those districts were states).

Assume instead that a corporation is a citizen of a multi-district state (like New York) by virtue of being incorporated in New York. As we discussed in class, that does not mean it is taken to reside in every district in New York for the purposes of the venue statute. Once again, the corporation resides only in those districts with which it has contacts that would be sufficient to subject it to personal jurisdiction if the district were a state. Furthermore, if there is no such district, then “the corporation shall be deemed to reside in the district within which it has the most significant contacts.” 9 of you chose this.

d. If a corporation is subject to general personal jurisdiction in a state’s courts, it will be a citizen of that state for diversity purposes.

Wrong. Assume that General Motors has many massive factories in Michigan and Ohio. Assume further that its headquarters is in Michigan and that it is incorporated in Delaware. There is no question that the number of massive factories GM has in Ohio would mean that it has the type of substantial contacts that would allow it to be sued on any cause of action in that state according to Int’l Shoe. But it would not be a citizen of Ohio for diversity purposes. GM has two states of citizenship – Delaware (its state of incorporation) and Michigan (its principal place of business). 22 of you chose this.

e. If a substantial part of the events or omissions giving rise to a claim occurred within a federal district (such that venue exists within that district under the federal venue statute, 28 U.S.C. § 1391), then there will be sufficient International Shoe contacts between the defendants and the state encompassing that district such that the state will be able to assert personal jurisdiction over the defendants under the 14th Amendment.

Wrong. I mentioned a number of times that the example of World Wide Volkswagen would show that this is wrong (assuming that the case had been brought in federal court such that the federal venue statute would be applicable). There is no question that there would be venue in the Oklahoma federal district where the accident occurred. After all, a “substantial part of the events or omissions giving rise to the claim occurred” in that district – because the car explosion occurred there. But, as you know, the fact that this explosion occurred in the district was not enough to submit Seaway and World-Wide Volkswagen (the New York defendants) to personal jurisdiction in Oklahoma. 34 of you chose this.

12.  P is suing D in the Federal District Court for the Southern District of New York for federal antitrust violations.  P believes that D conspired with X to fix the price of citric acid.  But P makes the decision to sue only D.  Which one of the following is most accurate?

a. Because P cannot get adequate relief without X’s testimony, X is a necessary party.

Wrong. X does not have to be made a party for him to be subpoenaed to testify in the case. 15 of you chose this.

b.  In discovery, P may request documentary evidence from D that is hearsay and so would be inadmissible at trial.

Correct. Material that is inadmissible at trial is still discoverable “if the discovery appears reasonably calculated to lead to the discovery of admissible evidence.” FRCP 26(b)(1). 123 of you chose this. Those who chose this were much more likely to do well on the rest of the exam than those who chose any other answer.

c. P may not join against D actions for violation of state antitrust law, because P’s federal antitrust action has exclusive federal subject matter jurisdiction.

Wrong. It is true that P’s federal antitrust action has exclusive federal subject matter jurisdiction. But that simply means that the action must be brought in federal court. It does not mean that P cannot join related state-law causes of action to it in federal court. The state-law antitrust action would, in fact, have supplemental jurisdiction. See 28 USC 1367. 8 of you chose this.

d. D may compel X to answer questions about the alleged antitrust conspiracy through an interrogatory.

Wrong. Interrogatories may be served only on parties. 3 of you chose this.

e. D may compel X to turn over documents related to the alleged antitrust conspiracy through a document request under Fed. R. Civ. P. 34.

Wrong. Document requests under FRCP 34 may be served only on parties. D needs to use a subpoena duces tecum. 15 of you chose this.

13. Assume the same facts as in Question 12 above. Assume further that P amends his complaint before D has served him with an answer. In his amended complaint P joins an action against X for violation of federal antitrust law. Although P’s action against D was filed within the statute of limitations stated in the federal antitrust law, P’s amended complaint was filed outside that statute of limitations. In his answer to P’s complaint, X introduces the defense of statute of limitations. X also joins a counterclaim to P’s action against him, concerning the breach of an unrelated contract. Which one of the following is most accurate?

a. P’s action against X is not barred on statute of limitations grounds because it was added through an amendment of right.

Wrong. Whether an amendment is of right or by leave of the court is not relevant to the question of whether the new allegations are barred on statute of limitations grounds. That is answered by the provision on relation back in FRCP 15(c). Whether an amendment is of right or by leave of the court is instead relevant to the very different question of whether disfavored defenses (such as personal jurisdiction) have been waived or not. See FRCP 12(h). 5 of you chose this.

b. P’s action against X is not barred on statute of limitations grounds, because it relates back to the original complaint.

Wrong, although spelling out why is quite complicated. This answer starts out right by looking to whether the amended complaint relates back to the original. This is answered by FRCP 15(c):

(c) Relation Back of Amendments.
An amendment of a pleading relates back to the date of the original pleading when
(1) relation back is permitted by the law that provides the statute of limitations applicable to the action, or
(2) the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, or
(3) the amendment changes the party or the naming of the party against whom a claim is asserted if the foregoing provision (2) is satisfied and, within the period provided by Rule 4(m) for service of the summons and complaint, the party to be brought in by amendment (A) has received such notice of the institution of the action that the party will not be prejudiced in maintaining a defense on the merits, and (B) knew or should have known that, but for a mistake concerning the identity of the proper party, the action would have been brought against the party.

Because this amendment “changes the party or the naming of the party against whom a claim is asserted” (it adds X), 15(c)(3) applies. Notice that 15(c)(1) can’t apply because a federal statute of limitations is being used.

Answering this question is much easier if one understands the purpose of 15(c)(3). Prima facie, it would appear that relation back should never be allowed when a new party is added. Relation back is allowed when there is no prejudice to the party to whom the amended allegations apply. When new allegations are asserted against the same party and they concern the same conduct, transaction and occurrence, relation back is allowed (per 15(c)(2)) because that party should not be prejudiced. After all, she already knew before the statute of limitations ran out that she was defending concerning that conduct, transaction or occurrence.

But if a new party is added through amendment, it is hard to see how that party could not be prejudiced. After all, the new party usually had no idea until the time he was served with the amended complaint (which is outside the statute of limitations) that he was defending against anything. But there are rare cases where there is no prejudice even though amendment brings in a new party. The clearest example is when P files a suit against D, whom he thinks is the sole proprietor of the Malibu Dude Ranch and discovers that in fact the owner of the Ranch is the Malibu Dude Ranch Inc., a corporation solely owned and managed by D. When P amends the complaint to bring the suit against the Malibu Dude Ranch Inc., the corporation is not disadvantaged, because it knew, through its sole shareholder D, that it was the real object of the suit from the very beginning. The language of 15(c)(3) is intended to capture this situation.

Now it should be clear that the amendment at issue in this question is not like the Malibu Dude Ranch situation. X has no idea that it is being sued until the amended complaint is served to him. Furthermore, this is not a case of a mistake concerning names. P has simply decided to add a second party into the suit. So relation back should probably not be allowed. I expected people to notice this and to be able to exclude this answer quickly for this reason, without delving into the language of 15(c)(3).

But to truly show that relation back is not allowed, we must delve into this language. The first question in 15(c)(3) is whether 15(c)(2) is satisfied, that is, whether “the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading” (namely the collusion to fix prices engaged in by D and X). It should be clear that this requirement is satisfied.

But 15(c)(3) also requires that within the period provided by Rule 4(m) for service of the summons and complaint [that is 120 days after filing the original complaint], the party to be brought in by amendment has received such notice of the institution of the action that the party will not be prejudiced in maintaining a defense on the merits, and knew or should have known that, but for a mistake concerning the identity of the proper party, the action would have been brought against the party.

One issue that might bother you is why 15(c)(3)(A)-(B) requires notice of the suit to the post-amendment party and that party’s recognition that, but for a mistake concerning identity, he is the real object of the suit within 120 days after filing the original complaint, rather than simply requiring it within the statute of limitations. The reason (which I mentioned in class) is that under federal law a statute of limitations tolls upon filing, not service. Thus it is perfectly possible, even without amendment, for a suit to be not barred by the statute of limitations even though the defendant gets notice after the statute of limitations has passed. However, since the defendant must be served within 120 days of filing, 120 days after the running of the statute of limitations is the latest that notice could occur for a normal defendant, so it is the latest that notice should occur for a defendant brought in through an amendment. The provision in 15(c)(3)(A)-(B) is intended to capture this.

Now it is possible that X was served with the amended complaint within 120 days after the filing of the original complaint. After all, I suggested that service of the amended occurred fairly quickly, since I said that the complaint was amended before D submitted an answer. But even if X was served with the amended complaint within 120 of the filing of the original complaint against D, relation back still cannot occur, because X never “knew or should have known that, but for a mistake concerning the identity of the proper party, the action would have been brought against the party.” X was not added because P made a mistake about the proper object of the suit, replacing D’s name with X’s. P simply decided to add X, the other conspirator, as a co-defendant. Thus, relation back cannot occur.

Notice that I discussed in class the situation (which actually occurred in Ford v. Hill, 874 F. Supp. 149 (ED Ky. 1995), where the plaintiff did not know the name of a defendant, sued him as an “unknown officer” (with service on the officer’s department) and then amended the complaint outside the statute of limitations to put in the officer’s name. Even though the officer was aware that he was the real defendant in the suit when the original complaint was filed (which was within the statute of limitations), relation back was not allowed because this defendant did not think there was a “mistake concerning the identity of the proper party” – instead he thought there was ignorance concerning the proper identity of the party. I argued that this was wrongly decided, since the plaintiff could have gotten relation back if he had simply put “Michael Green” in the original complaint instead of “unknown officer.” But this situation is not like Ford v. Hill, for P was not even in ignorance of X’s identity. Instead, he simply refrained from suing X and then decided to add X when the statute of limitations had run.

69 of you chose this answer.

c. Under Guaranty Trust v. York (and subsequent Erie cases), New York’s statute of limitations, not the federal statutes of limitations, applies.

Wrong. This is a federal antitrust action. It is a federal question not a diversity action. There is no Erie issue of whether a state-law statute of limitations should be used or not. I said that there was a “statute of limitations stated in the federal antitrust law” and that should be used. 13 of you chose this.

d. P’s action against X is not barred on statute of limitations grounds, because X filed a permissive counterclaim against P and so waived his defense of statute of limitations against P’s action.

Wrong. Nothing in the reading or the discussions in class suggested that a defendant waives the defense of statute of limitations by bringing a permissive counterclaim. It would seem odd that simply by bringing a permissive counterclaim D would lose the right to assert a perfectly good affirmative defense. Indeed, if that were true, why stop with statutes of limitations? Why not forbid defendants who join permissive counterclaims from asserting other affirmative defenses, like claim preclusion or contributory negligence?

Those who chose this answer were probably thinking of the following. Some courts have accepted the argument that if the P sues X within the statute of limitations, X’s compulsory counterclaim will not be barred on statute of limitations grounds even if it is brought outside the statute of limitations. But that rule is irrelevant for two reasons. First of all, we are not talking about whether X’s counterclaim against P is saved from dismissal by P on statute of limitations grounds – we are talking about whether P’s action against X is saved from dismissal by X on statute of limitations grounds, simply because X brought a counterclaim. Second, X’s counterclaim was permissive and not compulsory. 7 of you chose this.

e. P’s action against X is barred by the federal statute of limitations.

Correct, for the reasons identified at c above. 69 of you chose this. Those who chose this were much more likely to do well on the rest of the exam than those who chose any other answer.

14. D (a citizen of New York) and X (a citizen of New Jersey), acting in concert, beat up P (a citizen of New Jersey) in a bar in New York City.  P sues D in battery for the entirety of his damages from the brawl in the Federal District Court for the Southern District of New York. Which of the following is most accurate?

a. D should join a contribution against X to P’s suit against D under Fed. R. Civ. P. 14(a). If D does not do so, he will be barred from suing X for contribution in a subsequent suit.

Wrong. Impleaders under FRCP 14 are permissive only. 19 of you chose this.

b. P’s action against D cannot be a genuine diversity case, because both D and X are the legitimate defendants in P’s action, and X is not diverse from P.

Wrong. P has no obligation to sue all of the possible defendants in the action. Joinder of both defendants under FRCP 20 is permissive only. There is no indication that X is a necessary party. 12 of you chose this.

c. If P were to join an action against X for battery under Fed. R. Civ. P. 20(a), it would be part of the same constitutional case or controversy as P’s action against D.

Correct. They share a core of operative fact and so are part of the same constitutional case or controversy. That does not mean, however, that supplemental jurisdiction is available. See 28 USC 1367(b). 85 of you chose this. Those who chose this were much more likely to do well on the rest of the exam than those who chose any other answer.

d. Under Klaxon Co. v. Stentor Electric Mfg. Co., New York’s statute of limitations applies to P’s action against D.

Wrong. It is true that New York’s statute of limitations applies, but the case to appeal to for that proposition is Guaranty Trust v. York, not Klaxon. Klaxon tells us that New York’s choice of law rules should be used by the federal court. 39 of you chose this.

e. There would have been no venue in the Southern District of New York if P’s action against X had been joined under Fed. R. Civ. P. 20(a) to P’s action against D.

Wrong. There would be venue in the S.D.N.Y. because it is “a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred.” See 28 USC 1391(a)(2). 9 of you chose this.

15. X is the President and sole shareholder of the D Corp. X’s decisions about what the D Corp. will do are controlling. The P Corp. sues the D Corp. in the Federal District Court for the Southern District of New York for violation of federal antitrust laws. After filing the suit, however, the P Corp. does nothing and eventually its action is dismissed with prejudice for want of prosecution. The P Corp. then sues X in the Federal District Court for the Southern District of New York under federal antitrust law concerning the same violations that were at issue in P’s suit against the D Corp. Which of the following is most accurate reason that the P Corp.’s suit against X will fail?

a. The P Corp. is claim precluded from suing X because X is in privity with the D Corp.

Correct. Generally a sole shareholder who controls the decisions of a corporation will be in privity with the corporation. This was not mentioned in class, but it makes sense and the other answers are clearly wrong. 50 of you chose this. Those who chose this were much more likely to do well on the rest of the exam than those who chose any other answer.

b. The P Corp. is not claim precluded from suing X. But because X is in privity with the D Corp., the P Corp. will be issue precluded from relitigating whether any antitrust violations occurred.

Wrong. This cannot be an example of issue preclusion, because no issue was ever actually litigated or decided in the earlier case. It was dismissed for want of prosecution. 37 of you chose this.

c. The P Corp. is issue precluded from relitigating whether the antitrust violations occurred because, under Parklane Hosiery v. Shore, nonmutual offensive issue preclusion is available to X.

Wrong. Once again, this cannot be an example of issue preclusion, because no issue was ever actually litigated or decided in the earlier case. It was dismissed for want of prosecution. In addition, this is cannot be an example of offensive nonmutual issue preclusion. If issue preclusion had been used in this case it would have been defensive. X, the defendant, would have been using issue preclusion as a shield in P’s suit against him. 6 of you chose this.

d. The P Corp. is issue precluded from relitigating whether the antitrust violations occurred, because a dismissal for want of prosecution is on the merits under federal law.

Wrong. Once again, this cannot be an example of issue preclusion, because no issue was ever actually litigated or decided in the earlier case. It was dismissed for want of prosecution. In addition, dismissals for want of prosecution are, in fact, on the merits unless specified as without prejudice (although we never discussed this in class). 41 of you chose this.

e. The P Corp. is claim precluded because its action against X concerns the same transaction as its action against the D Corp.

True, P Corp’s action against the D Corp and its action against X concern the same transaction or occurrence. But that is hardly enough to show that the P Corp is claim precluded. The P Corp is suing a different defendant and in general if there is a different defendant then claim preclusion does not apply. To show that claim preclusion applies, one must argue that the second defendant was in privity with the first. That is why a is the better answer. 31 of you chose this.

16. P (a citizen of New York) retains L as his lawyer in his suit against D (a citizen of California) for $80,000 under state law fraud in the Northern District of Illinois. In L’s interview with P, P tells L the following: “D told me that the dry-cleaning business in Chicago that I was thinking about buying from him was likely to have $1.2 million in gross sales in 2004. I bought the business in 2003 for $3 million because I believed that was true. The business in fact had only $700,000 in gross sales in 2004. My accountant estimates that the present value of the lost profits over the life of the business due to the difference in sales volume between what D said the company would make and what it will make is $80,000.” On the basis of this interview with P alone, L drafts a complaint and initiates the action. In the complaint, L did not identify any factual allegations as “likely to have evidentiary support after a reasonable opportunity for further investigation or discovery.” At the end of the discovery period, D brings a motion against L for Rule 11 sanctions. Which of the following is most accurate?

NOTE: I am throwing out this question. Although b is the most accurate answer, the correlation between those who chose b and those who got other answers correct was not nearly as close as with the other questions. Technically, the point biserial for b was only .10. An answer should usually have a point biserial of .20 or higher. The other answers on this exam had point biserials between .27 and .50. Furthermore those who chose c, were as likely to get other answers correct as those who chose b, even though c is wrong. I’m not sure why this is so, but I’m going to throw the entire question out as a precaution.

a. L did not violate Rule 11 when signing the complaint, since L was entitled to rely upon the truth of her client’s claims.

Wrong. P has offered L no evidence that D’s prediction was false at the time it was made. The fact that it turned out to be false is hardly enough. There are countless reasons why the prediction could turn out false that are compatible with the prediction being entirely justified at the time it was made (e.g. an unexpected downturn in the demand for dry-cleaning). Although often a lawyer may rely upon his client’s statements without further inquiry, in this case such reliance would not be reasonable. 25 of you chose this.

b. Assuming that L’s complaint stated a claim for fraud, L must have violated Rule 11 when signing the complaint. L did not have sufficient evidentiary support from her conversation with P for factual allegations that would state a claim.

Correct. To state a claim for fraud, L had to allege that D’s prediction was false. But L has no evidence that it was false (because L has no evidence that it was unreasonable or unjustified at the time it was made). 24 of you chose this.

c. We cannot know that L violated Rule 11 simply on the assumption that she drafted the complaint to state a claim for fraud. But if the complaint also satisfied Fed. R. Civ. P. 9(b) standards for particularity, L must have violated Rule 11 when signing the complaint. L did not have sufficient evidentiary support from her conversation with P for factual allegations that would satisfy Rule 9(b)’s particularity standards.

Wrong. L would have violated FRCP 11 even if he merely said that the prediction was false (see b above). It is true that L had an obligation to allege the falsehood with particularity and that this would likely result in further violations of FRCP 11. But even if L had not been particular about the falsehood, simply by stating a claim for fraud (in particular by saying that D’s prediction was false) L made a factual contention that lacked evidentiary support. 70 of you chose this.

d. We cannot know whether L violated Rule 11.

Wrong, for the reasons stated at b and c above. 42 of you chose this.

e. Although L cannot be sanctioned under Rule 11, P can.

Wrong. There is no reason that L cannot be sanctioned under FRCP 11. Indeed as the signer of the pleading, L is the primary violator of FRCP 11. Furthermore, if P is considered responsible for the violation P can also be sanctioned. See FRCP 11(c). 3 of you chose this.

5 Essay Questions (Total: 120 points – 2 hours and 24 minutes)

Essay Question 1. (45 points – 54 minutes)

On July 23, 2004, D Airlines Flight 257 from Bogota, Columbia to Rio de Janiero, Brazil crashed while taking off from Bogota-Eldorado International Airport. All 52 passengers on board were killed. On September 1, 2004, personal representatives of the deceased passengers filed a wrongful-death class action against D Airlines in the Civil District Court for the Parish of New Orleans in New Orleans, Louisiana (a Louisiana state trial court).

D Airlines is incorporated within the state of Delaware. It primarily flies between cities in Latin America, although 10% of its flights originate, terminate or connect in three airports in the United States – Miami International Airport in Florida; Tampa International Airport in Florida; and Louis Armstrong New Orleans International Airport, which is in the Eastern District of Louisiana, near New Orleans. Half of the maintenance and servicing of planes is evenly divided between these three American airports. The other half is at the D Airlines’ main hub in Buenos Aires, Argentina. Financial and high-level administrative decisions concerning the company, as well as meetings of the board of directors, take place in New Orleans. The Chief Executive Officer and the Chief Financial Officer are also located in New Orleans. The more practical management of the airline, however, including determinations about flight schedules and when maintenance is required, are made from Buenos Aires.

Your firm represents D Airlines, which is interested in getting the action dismissed on procedural grounds. One possibility is dismissal from the Louisiana state court where the action is currently filed. The other is dismissal after removal of the case to Federal District Court for the Eastern District of Louisiana. One particular hope (although not the only hope) is that the action could be dismissed from federal court according to the judicially-created doctrine of forum non conveniens, which allows for dismissal of an action even when there is jurisdiction over the parties and the relevant venue requirements are satisfied, because there is another more convenient forum. When an action is dismissed on forum non conveniens grounds by a federal court, the more convenient forum is usually in another country, since, if the more convenient forum were another federal district, transfer, not dismissal, would be available.

The federal doctrine of forum non conveniens rests upon a court's power to control the parties and cases before it and to prevent its process from becoming an instrument of abuse or injustice. Some considerations in applying the doctrine include “the relative ease of access to sources of proof; availability of compulsory process for attendance of unwilling, and the cost of obtaining attendance of willing, witnesses; possibility of view of premises, if view would be appropriate to the action; and all other practical problems that make trial of a case easy, expeditious and inexpensive. There may also be questions as to the enforcibility of a judgment if one is obtained.”
Essay Question 1, continued…

Forum non conveniens also exists because of the recognition that a plaintiff may have chosen the forum precisely to impose burdens upon the defendant, even if there are some increased costs to the plaintiff himself as well. Factors of public interest also have place in applying the doctrine. As the Supreme Court has said:

Administrative difficulties follow for courts when litigation is piled up in congested centers instead of being handled at its origin. Jury duty is a burden that ought not to be imposed upon the people of a community which has no relation to the litigation. In cases which touch the affairs of many persons, there is reason for holding the trial in their view and reach rather than in remote parts of the country where they can learn of it by report only. There is a local interest in having localized controversies decided at home. There is an appropriateness, too, in having the trial of a diversity case in a forum that is at home with the state law that must govern the case, rather than having a court in some other forum untangle problems in conflict of laws, and in law foreign to itself.

Your firm thinks removal to federal court is necessary for dismissal on forum non conveniens grounds because such dismissal would not be available in a Louisiana state court, which will not dismiss a case on forum non conveniens if a party is a resident. Louisiana state courts have determined that any corporation licensed to do business in the state (which would include D Airlines) is a resident. Louisiana, it is thought, has a sufficient interest in a case with a Louisiana resident for it to be entertained by a Louisiana court despite the inconvenience involved. Standing behind Louisiana’s approach is also skepticism about the adequacy of procedures in foreign (that is, non-American) courts. Indeed, often no relief is available at all in the allegedly more convenient court after a dismissal on forum non conveniens grounds.

Write a brief memo assessing the possible avenues for getting the action dismissed from state court or removed to federal court and then dismissed. Ignore the recent federal class action statute for the purposes of this question. Ignore as well the Warsaw Convention’s limitations on damages.

ANSWER

Dismissal from State Court

On the basis of the facts presented in the question and what you have learned in class, the only meaningful ground for dismissal from state court that you can discuss is lack of personal jurisdiction. And although Louisiana law (including its constitution) would be relevant to this issue, since you don’t know anything about these as well, the most you can talk about is whether the exercise of personal jurisdiction over D Airlines would be consonant with the 14^th Amendment.

We do not know enough about whether specific jurisdiction is possible. If the plaintiff class is alleging that the crash, although occurring in South America, is due to improper servicing in the New Orleans Airport or a bad decision made in the headquarters in New Orleans (which is unlikely given these are only administrative and financial), then there might be such an argument.

But it seems clear that there would be general jurisdiction. There are surely the sort of substantial continuous contacts necessary for D Airlines to be sued on any cause of action under Int’l Shoe. After all, D Airlines has its financial and administrative HEADQUARTERS in Louisiana. That would be enough even without adding the fact that it has flights coming and going out of Louisiana and facilities for the repair and servicing of planes there. It is also possible that, since the D Airlines is licensed to do business in Louisiana, it appointed a permanent agent for service of process in the state.

Some of you thought it was relevant for the issue of PJ that D Airlines has its principal place of business – and you argued that since Argentina was its PPB, there is no PJ over it. This showed profound confusion on your part. Where it has its PPB is relevant for diversity subject matter jurisdiction. Although a corporation is surely subject to general PJ where it has its PPB, it does not follow that it is not subject to general PJ where it does not have its PPB. (See my discussion at multiple choice question 11 above.) In a similar vein, many of you argued that there could be no general PJ in Louisiana because the percentage of flights in Louisiana (around 3%) or the percentage of planes serviced there (around 17%) was small. That is important in determining where its PPB is, since a corporation has only one PPB, but a business can be subject to general PJ in countless states. All that is needed is substantial continuous contacts. It does not matter what percentage those contacts are of the total contacts that the corporation has with all states.

Finally, it is worth mentioning McGee/convenience factors, which, as we have seen from Asahi, can argue against PJ even when there are contacts with the forum state sufficient to give that state power over the defendant. Given that McGee and Asahi were both specific PJ cases, however, it is a good question whether McGee/convenience factors can even be used in a general jurisdiction case.

In any event, if there is general jurisdiction, it is hard to argue that there is a burden on the defendant – the defendant must have substantial continuous contacts with the forum state for there to be general jurisdiction, which means that it would not be burdensome for the defendant to appear in that forum. Indeed, the real burden seems to be on the plaintiffs (who are very likely from Latin America), but since they chose the forum, it is hard to see how that can be enough to dismiss the case on PJ grounds.

The McGee factors that really argue in favor of dismissal are the problems of applying another nation’s law (arguably Columbian or Argentine) and the inaccessibility of witnesses (who are likely in Latina America). But it is unlikely that these are enough to dismiss on PJ grounds.

Nothing can be said about any of the other grounds for dismissal. This includes whether the class action should be certified. Many of you acted as if FRCP 23, which governs class actions in federal court, would apply in Louisiana. It does not. We do not know Louisiana’s rules governing class actions.

REMOVAL

Given that dismissal from Louisiana state court does not seem an option, the better choice is removal and then dismissal in federal court. Given that the plaintiff class is suing for wrongful death, it is unlikely that this is a federal cause of action. We must assume that it is a diversity case. For removal to be possible, therefore, we must argue that D Airlines is not a citizen of Louisiana, because under 28 USC 1441(b), a defendant who is a citizen of the forum state may not remove under diversity. (Remember, we are ignoring the class action statute, which gets rid of this requirement for certain class actions.)

D Airlines is incorporated in Delaware (and thus is a citizen of that state), but it is also a citizen of the state of its principal place of business. There seem to be three possible PPBs – Louisiana, Florida, and Argentina. You were rewarded for worrying about how one determines the PPB of a domestic corporation (that is, one incorporated under the laws of a US state) that does most of its business abroad. Does one look for its PPB in the US or its PPB taking into account all of its business? If one is restricted to the former, our choice is between Louisiana and Florida. More flights and servicing occur in Florida, but the administrative and financial headquarters of D Airlines is in New Orleans, which would argue strongly for a Louisiana PPB even if one does not use the “nerve center” test. On the other hand, if one can choose a foreign PPB for a domestic corporation, then there is a strong argument in favor of Argentina. Like Louisiana, there is a headquarters there and there is more servicing of planes there than in Louisiana.

But there is a problem if we argue that D Airlines has a foreign PPB. A plaintiff class action has subject matter jurisdiction under diversity only if there is complete diversity between the defendants and the representative plaintiff. (Remember, we are setting aside the recent class action statute, which changes these requirements for certain class actions.) We do not know the citizenship of the representative plaintiff. But it is entirely possible that he or she is an alien – e.g. from Columbia or Brazil. After all, the flight that crashed was from Bogota to Rio. If there is an alien representative plaintiff and D Airlines has its PPB abroad, we have an alien plaintiff suing an alien defendant. And that is not a diversity case, even when the plaintiff and defendant are from different nations. 28 USC 1332(a) allows diversity jurisdiction for controversies between

(1) citizens of different States

(2) citizens of a State and citizens or subjects of a foreign state;

(3) citizens of different States and in which citizens or subjects of a foreign state are additional parties; and

(4) a foreign state, defined in section 1603(a) of this title, as plaintiff and citizens of a State or of different States.

It does not allow jurisdiction for a controversy between citizens or subjects of different foreign states. Furthermore things do not appear any better by noting that this is really a suit between an alien plaintiff and a defendant that is an alien and a Delawarean. For that is not covered by 1332(a) either. See Ed & Fred, Inc. v. Puritan Marine Insurance Underwriters Corporation, 506 F.2d 757 (5^th Cir. 1975). 1332(a) allows jurisdiction for controversies between “citizens of a State and citizens or subjects of a foreign state” (e.g. Delawarean v. Columbian or Delawarean & Californian v. Columbian & Argentinean) or between citizens of different States and in which citizens or subjects of a foreign state are additional parties (e.g. Delawarean v. Californian & Argentinian or perhaps Delawarean & Columbian v. Californian & Argentinian). I briefly discussed some of these problems in class and they are evident in the language of the diversity statute.

So, if the representative plaintiff is an alien, we have a serious problem if we argue that D Airlines has a foreign PPB. Furthermore, we have problem if we argue that it has a Louisiana PPB as well. It would be best, it seems, to argue that its PPB is Florida.

I expected you to worry about these problems, but, in fact, there is some chance if we argued that D Airline had an Argentine PPB, although I did not expect you to know this. Some courts have treated domestic corporations that have a PPB abroad only as a citizen of its state of incorporation, which means that an alien may sue it in diversity. See Willems v. Barclays Bank, 263 F.Supp. 774 (S.D.N.Y. 1966). Notice that 28 USC 1332(a) (quoted above) uses the word “State” (that is capitalized) to refer to US states and the word “state” (lower case) to refer to foreign nations. Accordingly, when 1332(c) says that “a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business” it is arguable that it is talking only about US States. A business that is incorporated in a US State is a citizen of that State but not a citizen of a foreign state where it has its PPB, because that foreign state is not a State. Analogously, businesses incorporated abroad but with a PPB in a US State only have their foreign state of incorporation as their citizenship. Because there is no State in which they are incorporated, they do not fall under 1332(c) at all.

On the basis of what we know, it is also unlikely that the class action could be dismissed on the grounds that it fails to satisfy FRCP 23. It is worth noting that it would most likely be a 23(b)(3) class action. It is not going to be 23(b)(1)(A) because there is no chance of D Airlines being exposed to incompatible standards of conduct if there were separate actions. Although there might be inconsistent adjudications, the only result of this would be that D Airlines would pay out money to some individual plaintiffs and not others. Likewise, unless D Airlines becomes insolvent, there is no chance that it is a 23(b)(1)(B) action, in which “adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests.” Absent plaintiffs could vindicate their interests simply through their own suits. And 23(b)(2) obviously does not apply (e.g. because this is not an action for injunctive relief).

Understood as a 23(b)(3) class action, it is likely to be certified. Although you know little about the nature of plaintiffs’ claims we did discuss in class how a plane crash is a perfect example of a 23(b)(3) class action.

The real issue is whether the action can be dismissed on forum non conveniens grounds. It certainly looks likely that dismissal on such grounds would occur if the federal FNC law applies in a diversity action (particularly if the plaintiffs are not from the US). And it is 100% clear that dismissal would not occur if we should use Louisiana state law. So we must answer this Erie question of whether the federal common law of FNC applies or not.

First of all, if the feds used their own FNC law in diversity actions, would the difference between federal courts’ approach and Louisiana state courts’ approach lead to forum shopping? Clearly yes, as our very case shows. The D Airlines wants to remove precisely to get the action dismissed on FNC grounds. (Perhaps that also means that there would be the inequitable administration of the laws – the other twin aim of Erie identified in Hanna – whatever that means.)

On the other hand, are there countervailing federal interests in uniformity of FNC law? Notice that I made things easy for you by actually spelling out what some of the relevant federal interests are. If FNC is really thought to protect federal courts from being “an instrument of abuse or injustice,” that is the sort of concern that would argue for the application of federal law even if the result was vertical forum shopping. Likewise federal courts have an interest in avoiding rules that impose inefficiencies or burdens upon them, for example, rules that force them to apply unfamiliar law, compel witnesses overseas to testify, or congest the federal courts.

Finally, is there any reason to believe that Louisiana is not interested in the application of its rule in federal courts? In Szantay, South Carolina was arguably not interested in its door-closing statute applying in federal court, since the statute existed solely to keep state courts from being burdened by cases having no relevance to the state. If federal courts wanted to assume those burdens, that would be no skin off of South Carolina’s nose. The situation is not the same here. Louisiana WANTS these cases to be entertained by a Louisiana court to the extent that there is a Louisiana connection, which includes the presence of any Louisiana “resident” (including a corporation registered to do business in Louisiana). Louisiana courts are also worried (whether reasonably or not) that cases may not be adjudicated at all if they are dismissed on FNC grounds. These concerns would be defeated if defendants could remove to federal court and get the action dismissed. So Szantay considerations argue for the application of state law.

(Incidentally, the use of federal FNC law would clearly not be unconstitutional according to the standards outlined in Byrd. There is no sense in which Louisiana’s FNC is bound up with state substantive rights and obligations.)

I did not care how you decided here, provided that you used the proper Erie analysis. The truth is that federal courts have uniformly argued that federal, not state, FNC law applies in diversity cases. Rivendell Forest Prods., Ltd. v. Canadian Pac. Ltd., 2 F.3d 990 (10^th Cir. 1993); In re Air Crash Disaster Near New Orleans, 821 F.2d 1147, 1154-1159 (5^th Cir. 1987); Sibaja v. Dow Chemical Co., 757 F.2d 1215 (11^th Cir. 1985). But some have criticized this conclusion. Allan R. Stein, Erie and Court Access, 100 Yale L.J. 1935 (1991). Incidentally, this problem does arise in Louisiana federal courts, although the difference between Louisiana’s law and federal law on FNC is not what this question makes it out to be.

If you concluded that Louisiana FNC law applied, then you should have concluded that the prospects of getting the case dismissed at all are slim. On the other hand, if you concluded that federal FNC law applied, then you could be more optimistic, although, as we have seen, there are worries about whether the case can be removed to federal court in the first place. A surprisingly large number of you simply missed the Erie question entirely.

Essay Question 2. (10 points – 12 minutes)

P (a citizen of New Jersey) is suing D (a citizen of New York) under breach of contract for $100,000 in the Federal District Court for the Southern District of New York. The breached contract had a provision indicating that disputes under the contract are to be submitted to arbitration. Under the choice-of-law rules of the state of New York, Vermont law applies to the contract. The Vermont Supreme Court determined last year that agreements to arbitrate are not enforceable. However, after the Vermont Supreme Court’s decision, the New York Court of Appeals (the highest court in the New York state court system) decided, in connection with a case of a Vermont contract with an arbitration clause, that the law of Vermont is that agreements to arbitrate are enforceable. The New York Court of Appeals decision is mistaken, as there was no evidence that the Vermont Supreme Court would have changed its mind on the matter in the last year. D makes a motion to stay P’s action to allow for arbitration. Should the federal court grant D’s motion? Why or why not?

ANSWER

First of all, many of you simply muddled what it would mean for D’s motion to be granted (or denied). D is making a motion to have the proceedings stayed to allow for arbitration. A condition for the motion succeeding is that agreements to arbitrate are enforceable. If the federal court grants D’s motion that would mean that it thinks it should follow what the New York Court of Appeals says on the matter (that agreements to arbitrate are enforceable under Vermont law). If it denies D’s motion that would mean that it agrees with what Vermont Supreme Court says on the matter (that agreements to arbitrate are not enforceable under Vermont law). Many of you said, incoherently, that the S.D.N.Y. should follow the Vermont Supreme Court and thus it should grant D’s motion.

Some of you messed up on this question because you thought that the New York Court of Appeals was a federal appeals court – the court to which the S.D.N.Y. decision would be appealed. You should have known that such an appeal would be to the Federal Court of Appeals for the Second Circuit. In any event, I said in the question itself that the New York Court of Appeals was “the highest court in the New York state court system.”

Setting these issues aside, the first thing I expected was a statement of the rule of law that you learned in class and in the reading. This is the rule stated in Commissioner v. Bosch (and implied in Bernhardt v. Polygraphic Company of America, Inc.): a federal court is obligated to decide as it predicts the relevant state supreme court would decide. Since the contract is governed by Vermont law, the relevant Supreme Court would apparently be Vermont’s. That is where most of you left things. You simply said that what the New York Court of Appeals thought about Vermont law is irrelevant.

But the matter is actually considerably more complicated. This is a scenario that we never discussed in class (although the problem is hinted at in the book – see Question 8 on F&K p. 345). There is a very strong argument (which you should have been able to guess if you understood the purposes behind Erie and its progeny) that the federal court in New York should be concerned, not with what the Vermont Supreme Court would say, but with what the New York Court of Appeals would say that the Vermont Supreme Court would say.

Why? The primary argument for the use of state law under Erie (or at least the “policy” Erie cases as described in Hanna) is to stop VERTICAL forum shopping – in this case to reduce the incentive for someone who is going to sue in New York to forum shop between New York and federal courts in that state.

Now consider what would happen if a federal court in New York followed the Vermont Supreme Court, given that a New York state court would very likely follow the New York Court of Appeals. There would be precisely the problem of vertical forum shopping that Erie is supposed to avoid. Therefore, to stop this forum shopping, a federal court in New York should try to mimic the interpretations of Vermont law that would be made by New York courts – and that means following what the New York Court of Appeals, not the Vermont Supreme Court, says about Vermont law.

If you recognized this argument you were richly rewarded. It was not necessary that you accepted it in the end. The truth is, however, that the argument really has been accepted by the federal courts (although I did not expect you to know this). Nolan v. Transocean Air Lines, 276 F.2d 280, 281 (2d Cir. 1960,), vacated and remanded on other grounds, 365 U.S. 293 (1961); Rogers v. Grimaldi, 875 F.2d 994 (2d Cir.1989).

Not only did some of you not notice this Erie argument for following the New York Court of Appeals, many of you argued that a federal court should not listen to what the New York Court of Appeals had to say on the matter, because if it did, that would lead to the forum shopping that is of concern in Erie. This showed a profound misunderstanding of Erie. True, if all federal courts, when deciding issues of Vermont law, listened to what the Vermont Supreme Court had to say on the matter, there would be a reduction in horizontal forum shopping between federal courts. But horizontal forum shopping is NOT the concern in Erie. Vertical forum shopping is.

Indeed if the Erie worry were horizontal forum shopping, then Klaxon is wrongly decided. If federal courts made up their own federal choice of law rules (instead of using the choice of law rules of the state where they are located), horizontal forum shopping would be reduced. There would be no reason to choose federal court in one state over federal court in another, since the choice of law decisions would be the same. Indeed, if there ever was a decision that reduced horizontal forum shopping in the federal court system, it is Swift v. Tyson! Since, under Swift v. Tyson, all federal courts used the very same federal common law in diversity cases, there was no incentive to engage in horizontal forum shopping. Those who appealed to problems of horizontal forum shopping to argue that the S.D.N.Y. should listen to the Vermont Supreme Court turned Erie on its head.

Essay Question 3. (15 points – 18 minutes)

P (a citizen of New York) sues D (a citizen of Texas) for battery in the Federal District Court for the District of New Jersey. P’s suit concerns a brawl between P, D and X (a citizen of Illinois) that occurred in Chicago. P is asking for $100,000 damages for the loss of his eye. D counterclaims for $20,000 for his injuries in the brawl. P joins X under Rule 14(a) in response to D’s counterclaim. X makes a motion to dismiss P’s suit against X for lack of subject matter jurisdiction. Will X’s motion succeed or not succeed? Should it succeed or not succeed?

First of all, I made a mistake in the question, although not a mistake that made a difference to how it needed to be answered. I said, wrongly, that P joined X under FRCP 14(a). In fact, 14(a) speaks only of defendants impleading. It is 14(b) that would allow P to implead X. 14(b) says, “When a counterclaim is asserted against a plaintiff, the plaintiff may cause a third party to be brought in under circumstances which under this rule [that is 14(a)] would entitle a defendant to do so.”

Those of you who caught this got extra points. But my mistake didn’t make a difference to the answer to the question. X is not making a motion to dismiss for inadequate joinder. Indeed, there would never be a dismissal for inadequate joinder, since there is a rule – 14(b) – that allows P to implead X. (People do not get their actions dismissed simply because of mislabeling.) What X is making a motion for is dismissal for lack of subject matter jurisdiction. The question, therefore, is whether there is subject matter jurisdiction for P’s impleader against X. (Incidentally, quite a few of you launched into discussions about whether there was personal jurisdiction or venue for the impleader. These were irrelevant.)

It is important to the issue of subject matter jurisdiction to think through how P might implead X. Notice that P cannot simply bring X in on the grounds that X caused P damage in the brawl. An impleader under FRCP 14 allows P to join X only if X may be liable to P for all or part of an action brought against P. So P must be claiming that X is liable to P for all or part of P’s liability to D under D’s counterclaim. The only plausible argument would be that P and X are joint tortfeasors and P is asking for contribution from X for any liability to D. Notice that since P is asking from X for all or part of any liability that P may have to D, P cannot be asking for more than $20,000 from X.

Let us now address the issue of subject matter jurisdiction. I expected you to both say how the motion to dismiss for lack of subject matter jurisdiction would turn out and how it ought to turn out. Many of you only did the former.

How would the motion turn out? It would probably succeed. As an initial matter, let’s look at P’s suit against D. This is an adequate diversity action. The parties are diverse and the amount in controversy is over $75,000, since P is asking for $100,000 in damages for the loss of his eye. Furthermore, D’s counterclaim against P for D’s damages in the brawl also has subject matter jurisdiction. It is not a diversity case on its own, because it does not meet the amount in controversy (D is asking only for $20,000) but it does have supplemental jurisdiction under 28 USC 1367. It is part of the same constitutional case or controversy (D’s action against P shares a core of operative fact with P’s action against D since they both concern the same brawl) and so satisfies 1367(a). Furthermore, it is does not fall under the exceptions to supplemental jurisdiction in 1367(b). True, 1367(b) is implicated, insofar as this is a civil action “of which the district courts have original jurisdiction founded solely on section 1332.” But the actions that are potentially excluded under 1367(b) are “claims by plaintiffs against persons made parties under Rule 14, 19, 20, or 24 of the Federal Rules of Civil Procedure, or … claims by persons proposed to be joined as plaintiffs under Rule 19 of such rules, or seeking to intervene as plaintiffs under Rule 24 of such rules.” D’s counterclaim against P is an action by a defendant, not a plaintiff.

But P’s impleader against X does seem to fall under the exceptions. True, it is part of the same constitutional case or controversy as P’s claim against D, since it shares a core of operative fact with that action. But this action appears excluded by 1367(b), since P’s action against X looks like a claim by a plaintiff against a person made a party under Rule 14. Furthermore, exercising supplemental jurisdiction over such a claim would be inconsistent with the jurisdictional requirements of section 1332. Some of you said it would not be inconsistent because P is diverse from X. But, as we have seen, P can’t be claiming more than $20K from X, so the amount in controversy is not satisfied. Thus there is no supplemental jurisdiction, although it is possible that a court might buy the argument that P’s impleader of X is not a claim by a plaintiff, but a claim by a “counterclaim defendant.” One person argued, creatively, that 1367(b) does not apply because it speaks of “claims by plaintiffs against persons MADE parties under Rule 14, 19, 20, or 24 of the Federal Rules of Civil Procedure” meaning that the person the plaintiff is suing must have already been brought in as a party due to R 14 before P sues him (which is not true here, because P himself brought X in under R 14). This was a nice argument.

Should there be supplemental jurisdiction? The argument that there should be is very strong. First of all, there is the argument that efficiency would be enhanced by allowing supplemental jurisdiction. Without it, P is going to have to bring the impleader as a separate suit in state court, thereby wasting judicial resources. What is more important, this is not a case (like Owen) where if supplemental jurisdiction is allowed there would be worries that P could use supplemental jurisdiction to game the system and subvert the purposes of the diversity statute. Remember that in Owen, the question was whether there was supplemental jurisdiction (although it was not called that at the time, since 28 USC 1367 was not yet in existence) for the plaintiff’s 7^th-sentence-of-Rule-14 action against a non-diverse impleaded party. The worry was that if supplemental jurisdiction were allowed, a plaintiff who was really interested in suing the impleaded party in federal court (but could not do so as an original matter because there was no diversity) might sue the defendant, expecting that the defendant would implead the third party and then use supplemental jurisdiction to bring the action against the third party.

Some of you said that a problem of gaming the system exists in our example as well, since P might sue D knowing that D would bring a counterclaim against him, thereby allowing him to implead X. Indeed, given that D’s counterclaim was compulsory, whereas in Owen the defendant’s impleader was permissive, it seems that there are even greater worries here about plaintiffs' using supplemental jurisdiction to game the system.

But there are not the same worries for the following reasons. First of all, in Owen there was genuinely no diversity, whereas here the only problem is the failure to meet the jurisdictional minimum. What is more important, in Owen the worry concerned a plaintiff whose real interest was in obtaining affirmative relief from the impleaded party in federal court. But in our case P is not suing X for affirmative relief. The only reason that P is suing X is to get compensation for some of the money he may have to pay out to D. The action of P against X is in no sense an action that P WANTS to bring (in federal court or elsewhere). He would prefer that it not be brought at all. He only has motivation to bring the action when D sues him.

Although I did not demand that you actually say that supplemental jurisdiction ought to be provided here, you needed to mention these considerations, which in fact strongly argue in favor of supplemental jurisdiction. The scenario in this question has often been cited as an example of how 1367(b) was misdrafted.

Essay Question 4. (15 points – 18 minutes)

The class of African-American applicants for positions in D City’s fire department sues the department in the Federal District Court for the Northern District of Illinois to compel it to establish a system of preferential hiring as a remedy for discriminatory employment decisions that violated of the Fourteenth Amendment of the U.S. Constitution. The plaintiff class receives summary judgment and the defendant fire department does not appeal. Subsequently the class of prospective white applicants for positions in D City’s fire department, which did not intervene in the earlier suit and was not joined as a party, sues the department in the Federal District Court for the Northern District of Illinois alleging that the preferential hiring system is a violation of their rights under the Fourteenth Amendment. Is the class of white firefighters issue precluded or not issue precluded from relitigating the appropriateness of the preferential hiring system? Should it be issue precluded or not issue precluded?

ANSWER

Keep in mind that the white firefighters were not a party in the earlier action and were not in privity with a party. For this reason, they cannot be issue precluded. This is true even if they could have intervened in the earlier action. See Show-World. Some of you gave other reasons why issue preclusion should not apply – for example, that the issue that is addressed in the white applicants suit against the fire department is not the same issue as that addressed in the African-American’s suit. Perhaps, but that is trivial compared to the overwhelming reason not to allow issue preclusion – the party to be issue precluded did not participate in the earlier action.

But there is an argument that firefighters should be issue precluded, and I identified this in class as an area where the law of issue preclusion is showing some signs of change. The fire department could be whipsawed with incompatible injunctions if the white applicants are not issue precluded. If the white applicants are not issue precluded, they might be able to sue and get an injunction forbidding the preferential treatment program even though the department is already subject to an injunction requiring the program.

The problem of the fire department being whipsawed means that the white applicants are necessary parties under FRCP 19(a). Someone is a necessary party if “the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.” The department could be subject to inconsistent obligations if the white applicants are not joined. Or, alternatively, if one concludes that the department cannot be subject to inconsistent obligations, meaning that the injunction could not be challenged by the white applicants, we could say that non-joinder would impair the white applicants’ ability to protect their interests. For the same reason, the white applicants could have intervened of right