The US legal system is home to some of the world’s most sophisticated commercial courts. For any international company, understanding how to navigate this high-stakes environment is essential. This post is part of our series, “Navigating US Civil Litigation,” designed to provide clear, practical insights for global companies who may not be familiar with the complexities of litigating in the United States. In this post, we explain the fundamentals of the American court structure, and the differences between its federal and state courts.
An Overview of the Dual US Court System
The United States operates two distinct, yet parallel, court systems—federal and state—each with its own judges, jurisdiction, and procedural rules.
Federal courts are tribunals of limited jurisdiction, designed to hear specific case types defined by the US Constitution. They primarily handle disputes involving federal law or those between citizens of different states when specific monetary thresholds are met.
The country is divided into 94 federal judicial districts, each with its own trial courts. While every state has at least one judicial district, more populous states have several. The Southern District of New York in Manhattan, for instance, is globally recognized for handling a substantial proportion of the nation’s highest profile commercial litigation disputes.
Above these trial courts sit the circuit courts of appeal. Their appellate decisions establish binding precedent—a crucial legal principle mandating that lower courts within their specific geographic circuit must follow. A decision by the Second Circuit, for example, governs New York—but not California. This structure means federal law can sometimes vary across the country, creating what lawyers term “circuit splits,” a phenomenon of particular interest to multinational corporations given the potential for divergent legal obligations.
In parallel, each state operates its own independent court system. While no two states are identical, most have a similar tiered structure of trial courts and appellate courts. The New York state court system provides an informative example. Its principal trial court has a world-class Commercial Division, staffed with judges adept at complex business litigation. As to appeals, New York is divided into four judicial departments, and a decision from one is not binding on the others, which can result in varied interpretations of state law, impacting strategic planning.
At the apex of both systems sits the Supreme Court of the United States. As the nation’s ultimate court of appeal, it hears cases on a discretionary basis from both federal circuit courts and the highest state courts, frequently to resolve major issues like circuit splits. Its decisions bind every court in the country on matters of federal law,[1] shaping the legal landscape nationwide.
Litigants sometimes have a choice between proceeding in state or federal court. That can be a strategic choice with practical implications. While the selection of judges and the composition of the jury pool are important considerations, there are other procedural distinctions between the two systems that can be consequential. Federal courts operate under largely uniform rules, whereas state court procedures vary widely. For example, federal courts are restrictive about allowing appeals on interim rulings before a case is over, but New York state courts are more permissive, allowing parties to immediately appeal a wide range of non-final orders (such as discovery rulings). Similarly, the standard for granting a preliminary injunction differs; federal courts apply a uniform four-factor test, whereas a state like California uses a more flexible two-factor “sliding scale” test, which can make it easier to obtain an injunction.
The Takeaway
When litigating in the United States, the choice of forum often matters. It can impact the judge, procedural rules, jury composition, and applicable legal precedent for your dispute—differences that can affect the outcome. Understanding this dual court system early in a dispute is fundamental to effectively managing risk and shaping successful strategy when litigating in the United States.
Want to know more? Freshfields has written a Guide to US Civil Litigation with non-lawyers and global clients in mind. You can request a copy here.
[1] Conversely, the highest court of each state remains the ultimate authority on matters of state law.
