San Joaquin College of Law
Civil Procedure – Interim Exam March 2008 /Cartier
TIME: 1 hour 20 minutes.
City Towers, a New York corporation, owns a multistory office building. (“The Towers”), in New York City. Deluxe Offices, a Delaware corporation with its principal place of business in New Jersey, leased three floors of The Towers and later sublet one floor to Professional Business Center, (“PBC”), a New York corporation that provides billing services for local professionals. Shortly after moving into The Towers, PBC began having trouble with its recently purchased Swell computer equipment. A Swell service technician suggested the problem was caused by an inadequate electrical supply. PBC informed Deluxe Offices that the electrical supply to its floor should be checked. Deluxe Offices agreed to look into the problem but was unable to access the electrical equipment located in the basement of The Towers. Over several weeks, the problems with the computer equipment continued. One of PBC’s employees found a computer blog that suggested many consumers were having similar problems with Swell computers systems like those used by PBC. The blogger pointed out that Swell, although it knew of the problem with its product, has taken the position to deny, delay and defend. PBC contacted Swell for help but was told the problem was definitely the result of an inadequate electrical supply. After several more computer system crashes, PBC filed suit in state court against both Deluxe Offices and Swell, a Delaware corporation with its principal place of business in Texas, seeking damages for breach of contract against each defendant. After being properly served, the defendants removed the case to the United States District Court for the Southern District of New York. After removal, Swell filed an answer denying liability along with a counterclaim for $15,000 owed for service call made to a PBC facility in upstate New York last fall; Deluxe Offices filed a motion to dismiss under Rule 12(b)7 for failure to join City Towers as a “necessary and indispensable party” since the electrical supply for the building is under its control. An interview of the blogger, a former Swell employee, revealed that Swell, at the suggestion of its legal staff, maintained a detailed log of all consumer complaints. For the purpose of this question, you should assume the log would not be protected as work product under state law.
1. Was the case properly removed? DISCUSS.
2. Are the claims against Deluxe Offices and Swell properly joined in this suit? DISCUSS.
3. Is Swell’s counterclaim properly before the court? DISCUSS.
4. How should the court rule on Deluxe Offices’s motion to dismiss? DISCUSS.
5. Is the log of consumer complaints maintained by Swell discoverable? DISCUSS.
San Joaquin College of Law
Civil Procedure Interim Exam Sketch Answer 308 / Cartier
PBC filed suit against Swell and Deluxe Offices in state court in New York alleging damages against each defendant for breach of contract resulting from computer failures. These defendants removed the case to the federal court in the Southern District of New York. After removal, Swell filed a counterclaim. Deluxe Office filed a motion to dismiss for failure to join City Towers, the building owner, as a party. Finally, the question arises whether consumer complaint logs maintained by Swell are discoverable.
1. WAS THE CASE PROPERLY REMOVED?
Defendants, who are sued in state court, may remove the case to the federal court serving the area where the state court is located if the case could have been brought in federal court in the first instance, meaning the court has the power to hear the claim(s). Since the claims asserted by Plaintiff do not arise under federal law, the claims must meet the requirements for diversity jurisdiction – complete diversity and an amount in controversy in excess of $75,000. Complete diversity exists when no plaintiff is a citizen of the same state as any defendant. While citizenship for individuals is based on domicile (permanent residence with the intent to remain there)), corporations have dual citizenship – the state of incorporation and the principal place of business. Although its principal place of business is not specified, PBC is a NY corporation that is doing business in New York. Deluxe Offices is a Delaware corporation with its principal place of business in New Jersey; Swell is a Delaware corporation with it’s principal place of business in Texas. As long as PBC’s principal place of business in not in Texas, Delaware, or New Jersey, complete diversity exists. The amount in controversy must also exceed $75,000 as against each defendant. Unless it appears to a substantial certainty PBC cannot recover an amount in excess of $75,000 – this requirement is likely met. The requirement that all defendants must agree to removal is met since the defendants jointly removed the action. The limitation that a diversity claim cannot be removed if the action is filed in the home state will not bar removal her since neither Swell nor Deluxe Offices are citizens of New York where the action was originally filed.
2. ARE THE CLAIMS AGAINST DELUXE OFFICES AND SWELL PROPERLY JOINED?
Rule 20 permits a plaintiff to assert claims against multiple defendants if the claims arise from the same transaction or occurrence and present at least one common question of law or fact. PBC’s claim against each defendant arises from the same transaction or occurrence since the computer crashes might have resulted either from faulty equipment or from an inadequate electrical supply. The common question is who is to blame? [No extensive discussion of personal jurisdiction or venue is needed. Both defendants have appeared without objecting to personal jurisdiction. Special rule makes venue appropriate when case is removed.] These claims are properly before the court provided the court has subject matter jurisdiction as discussed above.
3. IS SWELL’S COUNTERCLAIM PROPERLY BEFORE THE COURT?
A counterclaim is a suit by a party against an opposing party. Here Sell seeks $15, 000 for a service call at a PBC facility in upstate New York. If the counterclaim arises from the same transaction or occurrence, the counterclaim is compulsory and must be brought in this action. While the service call was at a different location, it might be covered by the same service contract or agreement. If so, this counterclaim could be logically connected to the original suit. If the counterclaim is not related, it is permissive and requires independent subject matter jurisdiction. Here, PBC and Swell are diverse but the amount in controversy is only $15,000 – an amount that is far below the $75,000+ required for independent subject matter jurisdiction. [Some courts may permit the counterclaim to be considered for purpose of a set-off if a judgment is obtained against Swell]
4. HOW SHOULD THE COURT RULE ON DELUXE OFFICE’S MOTION TO DISMISS?
Deluxe Office has filed a motion to dismiss the suit for failure to join City Towers, the owner of the building, as “necessary and indispensable party.” Rule 19 says the court shall join parties, if feasible, to provide complete relief or to avoid prejudice. “If feasible” – requires that the party is subject to personal jurisdiction AND that the party’s joinder will not destroy diversity. Since City Towers is a New York corporation that owns the building where the computer crash occurred, personal jurisdiction clearly exists. [A quick minimum contacts discussion would get to the same place.] However, the fact that PBC is a New York corporation and City Towers is also a New York corporation will destroy diversity since both parties will be deemed citizens of New York. The real question is whether Towers is needed to provide complete relief or to avoid prejudice. The is no compelling reason why Towers needs to be in this action. This action should not be dismissed for failure to join City Towers.
5. IS LOG OF COMPUTER COMPLAINTS DISCOVERABLE?
The facts say the computer log would not be protected as work product under state law. When the state law claim is removed to federal court, the Erie Doctrine says the federal court should apply state substantive law and federal procedural rules. Rule 26 provides that material relevant to the claim or defense of any party is discoverable unless protected by a privilege. The logs which catalogue consumer complaints would be relevant to establishing the alleged defect in the computer equipment against Swell.
These logs were maintained at the suggestion of Swell’s legal staff. Since the logs do not contain communications between Swell and its attorney, there appears to be reason to assert attorney-client privilege. Swell may claim the logs are work product – materials prepared in anticipation of litigation. Such material that contain mental impression or theories of the case are absolutely privileged. Other materials prepared in anticipation of litigation may be privileged unless a showing is made that there is a substantial need for the materials and that the materials are not otherwise available. In this case, it appears the logs were actually maintained in the ordinary course of business and not in anticipation of litigation. If this conclusion is correct, the logs are discoverable although the court may issue protective orders as necessary to limit or restrict discovery to materials related to the instant litigation.