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24. May the federal district court in State B hear the case?
A novelist from State C sold an expensive machine to a mathematician from State B. After the sale, the mathematician sued the novelist in the federal district court in State B, alleging the novelist's breach of contract and seeking $125,000 in damages. The novelist's only contact with State B is the sale of that machine.
Although the U.S. Supreme Court has held that an out-of-state citizen's deliberate sale of a single item in another state may give rise to personal jurisdiction, State B's highest court has held that such a sale is not sufficient for purposes of State B's long-arm statute.
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Under 28 U.S.C. § 1391(b), venue is proper in any federal district court where:
(i) any defendant resides, as long as all defendants reside in the same state; OR
(ii) where a substantial portion of the events giving rise to the claim occurred.
A third scenario for venue exists, which applies only if the first two avenues are not available: (iii) «if there is no district in which an action may otherwise be brought as provided in this section, any judicial district in which any defendant is subject to the court's personal jurisdiction» (emphasis added).
Subject-matter jurisdiction is the court's power to hear certain causes of action. Subject-matter jurisdiction may be based on diversity (as opposed to federal question), where the parties are completely diverse (i.e., no plaintiff is from the same state as any defendant) and the amount in controversy is greater than $75,000.
Personal jurisdiction is the court's power to enforce a judgment against a party. Personal jurisdiction analysis involves two questions, including whether:
(i) the state's long-arm statute grants jurisdiction; AND
(ii) the 14th Amendment Due Process Clause of the Constitution allows the court to enforce a judgment against the defendant.
If the court is unable to exercise personal jurisdiction over a defendant based on the state's long-arm statute, the analysis ends. Thus, although the U.S. Supreme Court held in McGee v. International Life, 355 U.S. 220 (1957) that a non-resident defendant's single transaction within a forum may support personal jurisdiction, this is insufficient if the state's long-arm statute does not support jurisdiction over the defendant.
B is correct. The two-step analysis for personal jurisdiction requires authorization by both the state long-arm statute and federal due process. The issue here is whether a court may exercise personal jurisdiction when authorized by due process, but the state's long-arm statute does not allow it. Although the federal court in State B has subject-matter jurisdiction based on diversity (the parties are diverse and the amount in controversy is greater than $75,000) and venue is proper (the event giving rise to the claim took place in State B), the court lacks personal jurisdiction over the novelist because of the State B rule that a single transaction is insufficient.
A is incorrect. This answer choice states the correct conclusion with the incorrect legal reasoning. Although the federal court in State B should not hear the case, it is not because venue is improper. On the contrary, personal jurisdiction is improper and venue is proper. Venue is proper in any state where «a substantial part of the events or omissions giving rise to the claim» took place, and here, the sale occurred in State B, which is where the case was filed. Personal jurisdiction, however, is improper because of State B's long-arm statute preventing single transactions from establishing personal jurisdiction over defendants, and it is on that basis that the court should not hear the case.
C is incorrect. This answer choice is only partially correct. It is a true statement that venue is proper under § 1391(b), which allows a cause of action to be filed in a federal court where a substantial part of the events happened. However, it is not true that personal jurisdiction is proper over the novelist. As explained above, State B's long-arm statute does not allow a single transaction to establish personal jurisdiction. On that basis, the court does not have the power to enforce a judgment against the novelist, whose only contact with State B was the single sale of the machine at issue.
D is incorrect. It is true that the federal court in State B has subject-matter jurisdiction based on diversity; the parties are completely diverse and the amount in controversy exceeds $75,000. However, this question is testing whether a state long-arm statute that conflicts with federal due process rules prevails in determining personal jurisdiction. Again, because State B has established that a single transaction may not support personal jurisdiction, the court may not hear the case.