James Lewis, a resident of Kentucky, sustained an injury while operating a Caterpillar bulldozer. He filed suit against Caterpillar, a company incorporated in Delaware but with its principal place of business in Illinois. Lewis also filed suit against the supplier of the bulldozer, Whayne Supply Company, whose principal place of business was Kentucky. Lewis filed his case in a Kentucky state court, alleging defective manufacture, negligence, failure to warn, and breach of warranty. Lewis and Whayne Supply Company agreed to settle out of court. Caterpillar then filed a motion to exercise its right of removal (its right to move the case from the state to the federal court system), arguing that the federal court had jurisdiction over the case because Caterpillar and Lewis were from different states. Lewis disagreed with Caterpillar’s contention, claiming that, because he had not completed his settlement with Whayne, the case still included a defendant (Whayne) from Lewis’s state, Kentucky. Thus, Lewis argued, federal courts did not have jurisdiction over the case.
The court agreed with Caterpillar’s argument and moved the case to a federal district court. Shortly thereafter, Lewis and Whayne finalized their settlement agreement, and the district court dismissed Whayne from the lawsuit. The federal district court granted Caterpillar a favorable judgment. Lewis, however, appealed the district court’s decision, renewing his argument that the district court did not have jurisdiction over the case. The court of appeals agreed with Lewis, holding that, because Whayne was a defendant in the case at the time that Caterpillar moved the case from state to federal court, the diversity of citizenship necessary to give the federal court jurisdiction over the case was absent.
Thus, a state court should have resolved the dispute. Consequently, the appellate court vacated the district court’s decision.
Caterpillar then appealed to the US Supreme Court.
1. What factors determine whether the state or federal court system hears a case?
2. If you were a businessperson with Caterpillar, why might you prefer a federal court to hear the dispute with Lewis instead of a state court?