Federal court or state court: where should a New York business dispute be filed?

This page explains New York law and the federal statutes that decide which court system can hear a business case filed in New York. The question comes first because it shapes the procedural rules, the discovery limits and the appeal route for everything that follows. KOR Law LLP's commercial litigation practice represents businesses on both sides of contract, fraud, UCC, fiduciary duty and injunction disputes, and the forum is one of the first choices in each of them. Picking a court is partly a legal test and partly a strategic judgment, and only the legal test is set out by statute.

How do you decide where the case belongs, step by step?

1. Ask whether federal law creates the claim. Federal district courts hear "all civil actions arising under the Constitution, laws, or treaties of the United States," with no minimum amount (28 U.S.C. 1331). A contract, fraud or sale of goods claim under New York law does not qualify on this ground.
2. If not, map every party's citizenship. Diversity jurisdiction covers actions between "citizens of different States," and certain cases involving citizens of foreign countries (28 U.S.C. 1332(a)). A corporation is a citizen of every state or foreign state where it is incorporated and of the state or foreign state where it has its principal place of business (28 U.S.C. 1332(c)(1)). That subsection speaks only of corporations; how LLCs, partnerships and other business forms are treated comes from court decisions, so check it with counsel before filing.
3. Check the amount. The matter in controversy must exceed $75,000, exclusive of interest and costs (28 U.S.C. 1332(a)). A plaintiff who files in federal court and recovers less may be denied costs, or charged them (28 U.S.C. 1332(b)).
4. Read the contract. A forum clause may choose a court. New York's Commercial Division rule allows parties to agree to the Division, or to the Division or the federal courts in New York State, but only subject to each court's own jurisdictional and procedural requirements (22 NYCRR 202.70(d)(2)).
5. Find the right district or county. New York has four federal districts (28 U.S.C. 112). On the state side, a case is assigned to the Commercial Division only if it meets the county's money threshold and case type rules (22 NYCRR 202.70(a), (b)).
6. If you were sued in state court, decide on removal quickly. The notice of removal is filed in the federal district court for the district and division where the case is pending, within 30 days after the defendant receives the initial pleading (28 U.S.C. 1441(a), 1446(a), (b)(1)).

The state court appeal route comes from the court system's description of its appellate courts: the Appellate Division sits in four Judicial Departments and hears appeals from the trial courts, and parties usually must ask permission before the Court of Appeals will hear a case. The Commercial Division column is explained in more depth in whether your business dispute belongs in the New York Commercial Division.

Which federal court covers your county?

Federal law divides New York into the Northern, Southern, Eastern and Western Districts (28 U.S.C. 112). For New York City and nearby counties:

• Southern District. Bronx, Dutchess, New York, Orange, Putnam, Rockland, Sullivan and Westchester counties, with court held at New York, White Plains and in the Middletown-Wallkill area (28 U.S.C. 112(b)).
• Eastern District. Kings, Nassau, Queens, Richmond and Suffolk counties, with court held at Brooklyn, Hauppauge, Hempstead and Central Islip (28 U.S.C. 112(c)).
• Northern and Western Districts. The upstate counties, including Albany and Onondaga in the Northern District and Erie and Monroe in the Western District (28 U.S.C. 112(a), (d)).

One practical consequence: Richmond County (Staten Island) has no Commercial Division threshold in 22 NYCRR 202.70(a), but it is part of the Eastern District, so a qualifying federal case from Staten Island goes to that district.

How does removal from state court work?

A defendant may remove a state court case that the federal courts could have heard originally (28 U.S.C. 1441(a)). The rules that matter most in business cases:

• 30 days. The notice of removal is due within 30 days after the defendant receives the initial pleading, through service or otherwise (28 U.S.C. 1446(b)(1)). Each defendant has its own 30 days from its own service (28 U.S.C. 1446(b)(2)(B)).
• Consent. When a case is removed solely under section 1441(a), all defendants properly joined and served must join in or consent (28 U.S.C. 1446(b)(2)(A)).
• The home-state defendant rule. A case removable only on diversity grounds cannot be removed if any properly joined and served defendant is a citizen of the state where the case was brought (28 U.S.C. 1441(b)(2)). A New York defendant sued in New York state court generally cannot remove on diversity.
• Later papers. If the case becomes removable later, the 30 days run from the paper that first shows it, but a diversity case cannot be removed that way more than one year after the action began, unless the plaintiff acted in bad faith to prevent removal (28 U.S.C. 1446(b)(3), (c)(1)).
• Notice. The defendant must promptly notify all adverse parties and file a copy with the state court clerk, after which the state court proceeds no further unless the case is remanded (28 U.S.C. 1446(d)).

If the complaint seeks an injunction or does not demand a specific sum, the notice of removal may state the amount in controversy, and removal is proper if the federal court finds by a preponderance of the evidence that it exceeds $75,000 (28 U.S.C. 1446(c)(2)).

How do emergency relief and discovery compare?

Both systems allow fast relief, with different rules. In federal court, a temporary restraining order without notice requires specific facts showing immediate and irreparable injury and a written certification of efforts to give notice, and it expires within no more than 14 days unless extended (FRCP 65(b)). In the Commercial Division, a TRO will not be issued without notice unless the applicant shows significant prejudice from giving it (Commercial Division Rule 20). The state court timeline is covered in how fast you can get a TRO or preliminary injunction in a New York business dispute.

The default discovery numbers are similar: 25 interrogatories and 10 depositions of 7 hours on each side in both the federal rules and the Commercial Division rules. The differences lie in scope and timing, for example the Division's limits on the topics of early interrogatories (Rule 11-a(b)) and the federal scope test of relevance "proportional to the needs of the case" (FRCP 26(b)(1)). The detail is in what discovery limits apply in the New York Commercial Division. Both systems also require corporate parties to identify parent corporations and any publicly held corporation owning 10% or more of their stock (FRCP 7.1(a)(1); Commercial Division Rule 35). In a federal diversity case, each party must also name, and identify the citizenship of, every individual or entity whose citizenship is attributed to it (FRCP 7.1(a)(2)).

What changes the answer?

• The type of claim. A federal claim opens federal court at any amount (28 U.S.C. 1331); a state-law claim needs diversity (28 U.S.C. 1332).
• Every party's citizenship. The statute requires citizens of different states, so every party on both sides must be checked, and the corporate test looks at both incorporation and principal place of business (28 U.S.C. 1332(a), (c)(1)).
• A New York defendant. It blocks removal of a diversity case filed in New York state court (28 U.S.C. 1441(b)(2)).
• The amount. Over $75,000 for federal diversity, and the county threshold for the Commercial Division (28 U.S.C. 1332(a); 22 NYCRR 202.70(a)).
• Timing. The 30-day removal clock and the one-year limit for later diversity removal (28 U.S.C. 1446(b), (c)(1)).
• The contract. A forum clause, within the limits of each court's jurisdiction (22 NYCRR 202.70(d)(2)).
• The relief. Injunction-led cases put the emergency relief rules first (FRCP 65; Commercial Division Rule 20).

For example: an out-of-state supplier and a New York buyer

Common mistakes

• Counting interest toward $75,000. The threshold excludes interest and costs (28 U.S.C. 1332(a)).
• Checking only the state of incorporation. A corporation is also a citizen where it has its principal place of business (28 U.S.C. 1332(c)(1)).
• Assuming an LLC follows the corporate rule. Subsection 1332(c)(1) addresses corporations; other business forms need separate analysis.
• Waiting past 30 days. The removal clock runs from receipt of the initial pleading (28 U.S.C. 1446(b)(1)).
• Removing without co-defendants. All properly joined and served defendants must join or consent in a section 1441(a) removal (28 U.S.C. 1446(b)(2)(A)).
• Relying on a forum clause alone. A clause does not supply jurisdiction a court lacks (22 NYCRR 202.70(d)(2)).

What to do this week

1. Write down each party's state of incorporation and principal place of business, or for other business forms, who owns it.
2. Total the amount claimed without interest and costs.
3. Find the forum, choice of law and jury waiver clauses in the contract.
4. If you were served, note the date you received the complaint and count 30 days.
5. Identify the county where the case is or would be filed, and its Commercial Division threshold.
6. List any emergency relief you may need, since it can drive the choice of court.

Frequently asked questions

Can a federal court hear New York contract claims?

Yes, when diversity jurisdiction exists: different-state citizenship and more than $75,000 in controversy (28 U.S.C. 1332(a)). The claim itself still arises under New York law. Fraud claims are a common example; their elements are covered in what you have to prove to win a fraud claim in a New York business case.

What if a case mixes a federal claim with state-law claims?

A case with a federal claim can be removed in full if it would be removable without certain non-removable claims; the federal court then severs and sends back to state court the claims outside its original or supplemental jurisdiction or made non-removable by statute (28 U.S.C. 1441(c)).

Does the deadline to sue change depending on the court?

The forum does not create a new deadline; the claim's own limitations period still applies. For New York contract, fraud and sale of goods claims, see how long you have to sue for breach of contract, fraud, or a sale of goods in New York.

Can a federal judgment be collected in another district?

A federal money judgment can be registered in another district by filing a certified copy once it is final by appeal or expiration of the time to appeal, or earlier if the court orders it for good cause, and it then has the same effect as a judgment of that district (28 U.S.C. 1963). The steps are in whether a judgment from another state or a federal court can be enforced in New York.

Can the plaintiff keep a case in state court?

Choosing state court is the plaintiff's first move, but removal is the defendant's right when the statutes allow it. Suing a New York defendant on state-law claims is one situation where diversity removal is barred (28 U.S.C. 1441(b)(2)).

Which state court hears a dissolution or shareholder case?

Dissolutions of business entities and shareholder derivative actions can be assigned to the Commercial Division without regard to the money threshold (22 NYCRR 202.70(b)(4), (11)). Owners weighing those claims can start with whether a minority shareholder can force a buyout or dissolution in New York.